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In what appears to be fresh trouble for fintech players Slice, Uni and LazyPay, their prepaid card partner State Bank of Mauritius India (SBM Bank India) is reportedly mulling pausing onboarding of new customers for prepaid cards till more clarity emerges on the model.

The development comes close on the heels of a circular issued by the Reserve Bank of India (RBI) in June in which the central bank barred non-bank fintech players from loading their prepaid payment instruments (PPIs) with credit lines.

Sources familiar with the matter told Moneycontrol that SBM Bank India sent a notice on the matter to Slice, Uni and LazyPay right after the RBI released its first set of guidelines on digital lending earlier this month.

According to the report, a Uni spokesperson said that it has stopped onboarding new customers since June 20, while LazyPay also stopped new card issuance in June only.

Another issue at the centre of the drama appears to emerge from the recently issued guidelines on digital lending. It notes that all loan disbursals and repayments should be executed between the bank accounts of the borrower and the regulated entity without passing through a pool account or any third party.

The immediate aftermath saw industry members reportedly urging the central bank to keep PPIs such as prepaid cards and wallets outside the ambit of these norms. Despite the chatter, the RBI has issued no clarification on the matter which appears to have put the bank on guard. 

“If the RBI has not explicitly said that loans can be disbursed to fully KYC compliant PPIs, then we cannot assume that it can be done. It is safer to stop onboarding new customers until there is any clarity,” one of the sources was quoted as saying.

It is pertinent to note that as per the digital lending guidelines, borrowers with only PPI accounts and no bank account can be disbursed loans in fully know your customer (KYC)-compliant PPIs.

Meanwhile, there appears to be no clarity yet on the bank’s side regarding its current customers availing credit lines via co-branded PPI cards.

“The bank, as well as fintechs, are in talks about what can be done for existing customers. It would not be right to stop a product overnight. But, if RBI does not say anything further on this, then they will have to stop disbursing credit through the model,” the source added.

Many fintech players are already looking to pivot from their core business model amid the regulatory headwinds. While Slice appears to have replaced credit lines with loan on demand, reports have also emerged of LazyPay mulling converting its prepaid card to co-branded credit card.

According to an Inc42 report, India’s total addressable fintech market opportunity is estimated to reach $1.3 Tn by 2025, growing at a compounded annual growth rate (CAGR) of 31% between 2021 and 2025.