RBI to introduce new rules for FinTech Firms
The law will reduce competition while enabling banks to accelerate card acquisition.
According to a research by Macquarie Research, the Reserve Bank of India’s (RBI) fintech legislation, which forbids non-banking wallets and pre-paid cards from adding credit lines to these products, might have a big impact on fintech firms and benefit banks.
According to the study, the legislation would lessen competition while letting banks speed up card acquisition.
According to a notification accessed by press, the RBI prohibited non-banking wallets and prepaid cards from adding their credit lines to these sites as of June 20. The regulator gave them urgent instructions to discontinue such operations in a one-page circular addressing non-banking prepaid payment instruments (PPIs).
“The regulator stated in its message that the PPI-MD “does not authorise the loading of PPIs from credit lines.” “If this behaviour is continued, it ought to end right away. Any breach of the Payment and Settlement Systems Act of 2007’s regulations in this regard might have legal repercussions.
Although the regulatory order was issued in response to possible concerns regarding several of the new-age companies that appeared to be assuming the lender’s role without putting in place adequate safeguards, as per reported on June 21 that the RBI’s directive has caused widespread confusion in this area of the payments industry.
A few of the new-generation companies, according to the Macquarie research, were adding up to 200,000–300,000 cards utilising PPI licences and filling users’ wallets with credit lines from NBFCs, banks, and other financial institutions.
“Rather than acting as a credit instrument, a PPI license’s main purpose is to serve as a payment instrument. We think a lot of fintech companies were utilising this as a way to load credit. We also think that many clients unintentionally used their wallets as credit cards at the register “The study made a point of. Some of these techniques have not been well received by the regulator.
The RBI has been punishing fintech businesses and pushing for stricter rules over the past few months. According to the research, there is a clear indication that regulation of fintech companies will increase.
The RBI circular may have an effect on businesses like Slice and Unicards, who have been rapidly increasing their client base through this channel.
Numerous sources with knowledge of the discussions told ET that the RBI’s circular is the result of extensive discussions between the banking regulator as well as industry stakeholders as it seeks to comprehend the business models of lending entrepreneurs, including credit-card based fintech firms, while going to aim to release digital-lending norms by July.
Risks are undoubtedly increasing for the fintech sector, where the law has so far been implemented laxly. We anticipate a downturn in growth and profitability possibilities for the fintech sector in India since regulatory arbitrage is now being steadily closed “The study also made a point.
