Fintechs halt PPI loan, buy now pay later services as RBI restrictions posing challenges

Reserve Bank of India’s (RBI) restrictions on fintech companies providing credit through prepaid instruments is having an impact on their businesses. Several companies have halted transactions on their platforms for the customers. Zee Business’ Anurag Shah brings this report.

The fintech companies have also stopped bank related prepaid instruments on their platforms, for now.

As per the circular issued by the Reserve Bank of India (RBI) non-banking companies cannot offer credit cards or other services without the prior approval of the Central Bank.

This is the reason why fintech companies have stopped lending via prepaid cards and also stopped schemes like buy now pay later. They intend to resume the services only after an RBI approval or after giving further clarification to the banking regulator.

- Fintechs halt PPI and BNPL services  

- Fintech companies are seeking further clarity from the RBI  

- Several companies including Slice, Uni, Kissht, LazyPay have halted prepaid services   

The Reserve Bank is considering various options to ensure that customers are not put at risk on account of activities of non-bank fintech players with regard to prepaid payment instruments (PPIs), sources said.

Earlier this week, RBI issued an advisory clarifying that non-bank prepaid payment instrument (PPI) issuers cannot load their wallets and cards from credit lines or preset borrowing limits.

Such practice, if followed, should be stopped immediately and any non-compliance will attract penal action, the advisory said.

According to sources, the idea behind the issuance of the advisory was to ensure customer safety and also to stress the fact that any business that requires an authorization or a licence should not be done by someone else without authorization or licence.

The RBI is in discussion with the players and exploring options to deal with the situation, sources said.

Innovation should not be based on regulatory arbitrage so various options are being explored including devising a framework and greater disclosure for non-bank fintech players issuing prepaid payment instruments (PPIs) and Buy Now Pay Later (BNPL) players, sources said.

PPIs are instruments that facilitate purchase of goods and services, financial services, and remittance facilities, against the value stored therein.

The RBI is of the view that if one entity requires some licence to do a certain thing, the central bank cannot allow some other entities in the name of innovation do the same thing without regulation.

Besides, sources also said that the actual amount involved is not actually very high.

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Sources said some of the players have expressed their willingness to comply with the guidelines but they need time.

So all these discussions are on with the regulator and a solution would be arrived at in consultation with all stakeholders, sources said.

The model works like a non-bank fintech player get card issued by a bank and NBFC is in regulated business of lending and the fintech player is borrowing the regulatory capabilities of other entities. The fintech remains outside the regulatory framework.