What does the future hold for Indian BNPL cards after the new regulation?

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BNPL is a soaring market in India, with an annual transaction volume nearing $1 trillion by the end of 2022. Recently the fintech players started issuing BNPL cards with credit lines mostly supported by Non-Banks. These “Credit Cards” work slightly different from that of a bank. Fintech companies issue a virtual card with a line of credit, and one can use these cards to make purchases. One of the common features of such cards is that instead of paying the bill in 45 days, as in the case of a credit card, the payments can be made in instalments over several months. Notably, upon using these BNPL cards, one will notice a loan account entry in the CIBIL report. The BNPL card market exploded in 2022— mostly among millennials, until recently, when a new regulation banned these fintech companies from extending credit lines on prepaid cards.

According to the RBI, there are over 35 non-bank PPI issuers, Slice and Uni Card are two of the most popular BNPL cards in India, with Slice having a user base of over five million registered users. Remarkably, Uni Card also claims to issue approximate of 1000 cards each day. Furthermore, another BNPL card called Karbon Card, was set to achieve $300 million in gross transaction value by the end of 2021. Other well-funded start-up’s offering similar services include LazyPay, Postpe, PayU and Fi among others. There were no restrictions on the Non-bank Prepaid Payment Instrument (PPI) to issue these cards as a line of credit until RBI issued a clarification on the 20 June, 2022.

As per the notification "All Authorised Non-bank Prepaid Payment Instrument (PPI) Issuers" that "the PPI-MD does not permit involvement of PPIs from credit lines." If this is continued, it must be halted immediately. Any noncompliance in this regard may result in criminal prosecution under the terms of the Payment and Settlement Systems Act of 2007. According to the clarification, these instruments can only be "loaded/reloaded in INR solely by

• cash,
• debit to a bank account,
• credit and debit cards,
• PPIs (as approved from time to time), and other payment instruments issued by regulated organisations in India."

BNPL players, such as the popular One Card, also provide co-branded cards by partnering with banks. Such players will be affected to a lesser extent by the above mentioned regulation but their role will be limited to only marketing and distribution of the cards. According to Money Control, the RBI will shortly publish rules stating that "co-branding partners shall not have access to information linked to transactions done using the cards."

As a continuous process of regulating fintechs, a detailed set of guidelines are yet to be issued by the RBI. However, it seems vividly clear that this will cause a big disruption in the BNPL card market, especially affecting the non-co-branded cards more than others. This new regulation will significantly impact the business of these fintech companies, however this poses as a great advantage to the banks offering these cards. For these BNPL players, one of the ways to move forward could be to be become co-branded cards and tie up with banks. Either way, the future of these cards remain highly uncertain.

To know more and gain a deeper understanding of the BNPL market in India, click here.