RBI disallows Non-Banks to load credit lines on PPIs; fintech startup owners react

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The note released by RBI on Monday has hit several fintech startups like a truck. The Reserve Bank of India has released a circular stating that it will forbid non-banks to load credit lines on pre-paid payment instruments.

The notification sent to many fintech companies and non-banks read, “The PPI-MD (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.”

“The PPI-MD does not permit loading of PPIs from credit lines. Such practice, if followed, should be stopped immediately.”

– The notification sent by the Reserve Bank of India.

The PPI-MD is a document that comprises rules and regulations regarding these payment instruments. Basically, according to the RBI, pre-paid instruments can be loaded using cash, debit cards, credit cards, and bank accounts but they are not allowed to be loaded using credit lines.

It is being said that the impact of this circular will majorly be seen on fintech companies that are offering credit lines in partnership with an NBFC to its customers and on fintech companies that are offering prepaid cards to their customers with a banking or a non-banking partner. It can also impact companies with a business model that offered BNPL services linked with an NBFC-linked wallet. Companies like, Jupiter, Fi, Slice, LazyPay, AmazonPay, Pay U Payments, and many more are likely to be affected by this notification.

 Rohit Ramachandran, CEO of Neowise Technologies
Rohit Ramachandran, CEO of Neowise Technologies
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Reacting to this notification, Mr. Rohit Ramachandran-CEO of Neowise Technologies, a banking as a service company that offers multiple payment and banking APIs to fintechs in India, exclusively told Sociobits, “It’s going to be interesting to see how the ecosystem evolves, but it’s definitely going to change the way a whole host of credit card challengers and BNPL players operate. A couple of the larger credit card challengers had already formed a co-branded credit card partnership with a private sector bank even before this circular came out and we foresee a lot more players exploring this route. However, RBI has also recently barred banks from sharing transaction data related to card spending with their co-brand partners (credit and debit cards), and how this impacts the viability of these proposed co-brand partnerships will have to be seen.”

“It’s going to be interesting to see how the ecosystem evolves, but it’s definitely going to change the way a whole host of credit card challengers and BNPL players operate.”

Rohit Ramachandran, CEO of Neowise Technologies

He further added, “We’ll probably see more fintech’s look at the NBFC license route since RBI has allowed NBFCs to directly issue credit cards as long as they have net owned funds of above ₹100 crores and receive a one-time approval from the central bank. We’ll have to wait and watch as to how liberal the regulator is when it comes to handing out these one-time approvals. However, the days of BIN sponsorship and co-branded cards at least within the credit realm seem to be numbered.”

Mr. Sarabjeet Singh, CEO of Eazr
Mr. Sarabjeet Singh, CEO of Eazr

Mr. Sarabjeet Singh, CEO of Eazr, a BNPL fintech solution that aims to prioritize health and education in the country said, “I believe that RBI has outlined the distinction between banks and non-bank issued instruments. I do not see any restrictions being imposed on the fairly successful business models which offer PPIs issued by the banks. Business models with NBFC-backed credit lines will now have to partner with banks to operate legitimately.”

Mr. Jeevan Gopisetty, the Co-Founder of Nemo, a neo-banking platform that provides financial tools and services to small Indian businesses, also reacted to the recent development, “A major blow to all the years of infra that was created. He added, “Also, RBI ruled out banking licenses to neobanks and asked to continue to partner with banks. I think the Indian startups are passing through watershed moments & when this passes we will evolve to be a mature ecosystem like the Silicon Valley.”

Mr. Jeevan Gopisetty and Mr. Rishabh Verma, Co-Founders of Nemo
Mr. Rishabh Verma and Mr. Jeevan Gopisetty, Co-Founders of Nemo

Mr. Rishabh Verma, also the Co-Founder of Nemo added, “In such unique situations, collaborations and partnerships become the key to success, this could lead to larger players becoming more prominent but fintech’s with a focused target audience can still make an impact.”

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While everything seems a little vague right now, this development is surely going to impact fintech startups in a certain way. On the other hand, this will have a positive impact on banks that have a huge credit card base.

According to Inc42, the market opportunity of the fintech industry in India is expected to reach around $1.3 Tn by 2025, in which the BNPL segment is estimated to emerge as the biggest winner in this space.

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