The petition – which has yet to be finalized – was discussed in a series of meetings on Tuesday between PCI and other industry bodies such as the Federation of Indian Chambers of Commerce and Industry (FICCI). , Digital Lenders’ Association of India (DLAI) and the Fintech Association for Consumer Empowerment (FACE). He will seek “justification” for the directive from the banking regulator, the sources said.
In a one-page circular, issued on Monday, RBI had ordered all non-bank prepaid payment instruments (PPIs) to stop charging lines of credit on their products.
“If certain safeguards are needed, they need to be explained to us and we can work on them to satisfy the regulator’s concerns,” one of the people briefed on the talks told ET.
Emphasizing that “there should be a level playing field between banks, non-bank financial companies and startups,” the source added that “the final draft is still being finalized.”
Industry groupings will also likely highlight the amount of global capital that has been poured into space and how such disruption may affect investors’ prospects, people familiar with the matter said.
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The Challenger credit card companies have seen investments of more than $500 million over the past 18 months from investors including Tiger Global, Insight Partners, General Catalyst and others.
“With a single letter, the RBI has erased a $5 billion credit card-based opportunity for fintechs. Therefore, they will communicate the need for a broader regulatory system that brings more predictability to the fintech ecosystem,” said a second source with knowledge.
Even though RBI’s memo has caused confusion in the fintech sector – with brokerage firms and industry experts expressing differing views – industry sources told ET that credit card startups such as Tiger Global, Unicorn Slice and Uni Cards, are most likely to be hit the hardest by the regulator’s move.
“The sector has attracted the big bucks and investors are also concerned about the central bank’s directive which increasingly indicates that it could cover a wide range of businesses and not just credit card challengers,” according to the people mentioned above.
A June 21 Macquarie Research report named Slice and Uni among the companies that will be affected by the new guidelines.
“The message is at times clearly misleading, some fintech companies advertise their product as a credit card, which we believe is not correct,” said Suresh Ganapathy, managing partner at Macquarie Capital, who believes that “it shows little consideration”. for compliance and angered RBI.
“We are currently reviewing the RBI’s letter with our partner banks. We are committed to complying with all applicable laws,” Slice said in a statement. Uni did not immediately comment.
Meanwhile, a report by Nomura Research said that if RBI makes a distinction between the regulated entity that issued the prepaid payment instruments (PPI), then the rules will not apply to Uni, Slice or PostPe cards ( owned by BharatPe), as these three fintech players piggyback on PPIs issued by banks.
“We really don’t see a big difference in loading a PPI with a credit card that has an underlying line of credit and is an authorized form factor versus an in-progress line of credit. any lender, which is prohibited,” Nomura said.
“A credit card is just a form factor while the line of credit is the real loan service,” said the financial services researcher.
To be sure, officials aware of the central bank’s thought process have pointed out that RBI’s ban on loading wallets with credit lines is comprehensive and applies to both bank and non-bank PPI products. This is based on clarifications provided by the regulator during this week to queries from some fintechs.
“The representation of PCI is likely to indicate how fintechs have had a positive impact on the masses and that PPI is similar to a bank account, and therefore should be treated the same,” one person said. aware of the ongoing consultations in the sector.
“The performance will also address why there is a big distinction for using a line of credit to charge a PPI, but the same is allowed through a credit card,” the person added.
The most affected BNPL startups
According to experts who follow the industry, the ban on RBI jeopardizes several fintech companies with buy-now-pay-later (BNPL) business models, which rely on this mechanism to provide credits based on payments.
According to discussions between industry associations and fintech startups, there has been a consensus on the need for greater representation of fintech companies in key decision-making committees on policy issues.
Earlier in January, the RBI had set up a fintech department headed by Chief Executive Ajay Kumar Choudhary, who recently presented his three-year plan as part of the Payments Vision 2025.
This includes a discussion paper on the regulation of Big Tech in finance, a regulatory framework for BNPL products, and the introduction of rules allowing national storage of payment data.
Macquarie Capital’s Ganapathy pointed out that “NBFC licenses are not difficult to obtain, but they come with their own requirements for capital, procurement and greater supervision.” Those who want to “do business, (must) come legitimately (will receive) the license”, he added.