In a move that could impact a number of fintech players, the Reserve Bank of India (RBI) has asked non-bank prepaid payment instruments (PPIs) issuers to not load their PPI instruments through credit lines.
In a circular addressed to the non-bank PPI issuers, the RBI said, “The PPI- master direction does not permit loading of PPIs from credit lines. Such practice, if followed, should be stopped immediately. Any non-compliance in this regard may attract penal action under provisions contained in the Payment and Settlement Systems Act, 2007”.
PPIs are instruments that facilitate purchase of goods and services, conduct of financial services, enable remittance facilities, etc., against the value stored therein. According to RBI, there are over 35 non-bank PPI issuers in the country, including the likes of Amazon Pay, Bajaj Finance, Ola Financial Services, PayU Payments Pvt Ltd, Phone Pe Pvt Ltd, among others.
This circular by the RBI is likely to impact those fintech players who offer credit lines to customers via their wallets in association with non-banking finance players. It may also affect fintechs who are issuing prepaid cards in association with a banking partner or a non-banking partner.
Suresh Ganapathy, associate director, Macquarie Capital, said, “Based on our understanding and interpretation of the circular, it could impact players like Slice, Unicards etc. who have been adding a lot of customers through this route”.
“The positive impact is naturally on banks with a large credit card base. Also, many were using their Buy Now Pay Later (BNPL) platforms and their PPI license like loading customer wallets with credit and showing wallet balance…That all will now be questioned…For example – PayTM postpaid”, he said.
Some of the new generation players were adding closer to 200,000-300,000 cards using PPI license and loading the wallets of consumers using credit lines from NBFCs, banks etc. The main purpose of a PPI license is to act as a payment instrument and not as a credit instrument and we believe many fintechs were using it as a channel to load credit. Many customers were also unknowingly taking a line of credit through their wallets at the point of check-out. Some of these practices haven’t gone down well with the regulator in our view, said Macquarie Research in a note.
“We believe this regulation could significantly impact the business of the Fintechs involved in this business and would be advantageous to banks as they can further accelerate card”, it added.
Rajan Bajaj, Founder & CEO, Slice, told Business Standard, “We are committed to be on the right side of regulation in letter and spirit and are working with our partner bank on this.”
"All buy now pay later products in India works on PPI. And, the whole fintech lending ecosystem in India works on the principal of credit lines through wallets and built on top of PPIs. If this notification is binding on everyone, then what the RBI is essentially saying is, if you are not a bank you cannot lend on any digital payment mode. This is a very drastic read of the situation. The conclusion we can draw is RBI is saying do not give an infinite line of credit when you are disbursing to PPIs”, said Sandeep Srinivasa, Co-founder, RedCarpet.
As per the master directions, PPIs are permitted to be loaded/ reloaded by cash, debit to a bank account, credit and debit cards, PPIs, and other payment instruments issued by regulated entities in India. However, the guidelines do not permit credit lines to top up these instruments.