RBI's take on Fintech Companies

On June 20, the Reserve Bank of India published a circular prohibiting the loading of credit lines onto prepaid payment instruments (PPI), such as wallets and prepaid cards, by running non-bank institutions or fintech companies, including many of the buy now pay later services.

The RBI took this action in response to concerns raised by the regulator that an excessive number of technology companies are entering the formal financial services industry without the necessary permits. A PPI license's primary function is to function as a payment instrument rather than a credit instrument. This was a channel that many fintech companies used to load credit. Additionally, many shoppers unintentionally took out a line of credit from their wallets at the register. Research claims that some new-generation players added between 200,000 and 300,000 cards utilising PPI licences and filled consumers' wallets with credit lines from NBFCs, banks, and other financial institutions.

The fintech market is expected to account for $31 billion of the $500 billion Indian financial sector's entire size in 2021. 9,507 non-banking financial organisations (NBFCs) were listed with the Reserve Bank of India as of January 31, 2021.

Prepaid cards have seen tremendous growth both in India and internationally. Due to their ability to provide specialised services on top of a bank's or non-bank lender's standard offers, card-focused fintech companies have gained popularity in recent years. These services have an entirely digital onboarding procedure and are tailored to the user's needs. Jupiter, which provides a debit card in partnership with Federal Bank Ltd., Slice, which provides a credit card rival backed by lenders including DMI Finance and Vivriti Capital, and Uni Card, which provides a pay later card backed by RBL Bank and SBM Bank, are some of the most well-known services.

India's market for digital financing is anticipated to reach $600 billion or more by 2025. Young Indians can improve their credit scores thanks to the idea of fintech businesses offering credit lines on PPIs, which is a significant boost to the nation's credit economy. However, the RBI's rules will have an impact on how quickly the fintech sector is growing and expanding the economy.

Fintechs might ask if the RBI is against innovation that these tech companies are aiming to bring into the ecosystem.

Thank you.

Regards,

Jaanvi Panchal,

Kautilya,

IBS Mumbai.