The notification sent to non-bank PPIs issuers, including fintech players stated that prepaid payment instruments (PPIs) cannot be loaded with credit lines
Several fintech startups have temporarily halted their services, to avoid RBI penalties
Certain partner banks of these card-based fintech firms may also stop supporting their bank PPIs to these platforms
In reaction to the recently brought RBI guidelines that disallow non-bank PPIs from loading credit, startups including Jupiter, EarlySalary and KreditBee have reportedly halted customers’ transactions on their prepaid cards.
An ET report quoting a source said that fintech firms have temporarily stopped their prepaid credit line offering to avoid attracting RBI penalty on partners firms. Consequently, certain partner banks of these card-based fintech firms may also stop supporting their bank PPIs to these platforms after seeking clarification from the RBI.
It is to be noted that banking PPIs include players such as HDFC Flexipay, ICICI PayLater, HDFC Payzapp, SBI YONO, and ICICI Pockets, among others. On the other hand, non-bank PPIs are independent online wallets – Paytm, PhonePe, Google Pay, MobiKwik, Oxigen, Ola Money, and Amazon Pay among others.
Inc42, in conversation with several stakeholders, has previously ascertained that the RBI’s guideline of not permitting loading of PPIs from credit lines will largely impact fintech startups such as LazyPay, Slice, Uni Cards, Ola Postpaid, Capital Float, and MobiKwik, among others. Despite the ambiguity of the notification, it is clear that – RBI has raised questions on the business models of fintech firms, threatening their existence.
In the notification dated June 20, 2022, RBI had stated, “The PPI Master Direction only permits for these instruments to be loaded/reloaded by cash, debit to a bank account, credit and debit cards, PPIs (as permitted from time to time) and other payment instruments issued by regulated entities in India and shall be in INR only”.
This means that startups that offer postpaid service on prepaid instruments, will not be allowed to do so. The facility will only be available to banks and NBFCs.
Digital lending in India is a market poised to grow to $600 Bn+ in size by 2025. While the idea of fintech startups providing credit lines on PPIs is a major boost to the credit economy of the country, as it enables young Indians to build their credit score, there are challenges. With the rise in digital lending, come end-user challenges – scams and fraudulent transactions, especially when Indians have low-to-none financial education.
According to market analysts, RBI is essentially trying to remove any regulatory arbitrage that a wallet or non-bank PPI may have versus a bank. It is working on segments where the drop-off rate is high – whether it’s a personal loan, credit card, debit card, or any kind of credit.
