In a move that could impact a number of fintech players, the Reserve Bank of India (RBI) has asked non-bank prepaid payment instruments (PPIs) issuers not to load their PPI instruments through credit lines.
In a circular addressed to the non-bank PPI issuers, the RBI said, “The 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”.
PPIs are instruments that facilitate purchase of goods and services, conduct of financial services, enable remittance facilities, etc., against the value stored therein. According to RBI, there are over 35 non-bank PPI issuers in the country, including the likes of Amazon Pay, Bajaj Finance, Ola Financial Services, PayU Payments Pvt Ltd, Phone Pe Pvt Ltd, among others.
The signal from India’s central bank seems to be that it wants to put a full stop to buy-now-pay-later (BNPL) wallets which typically tie-up with banks or Non-Banking Financial Companies (NBFC) and offer credit lines or a short loan into the prepaid wallet. The problem is that many times users don’t realize the wallet amount is a loan and end up paying a high interest for the money spent.
This move will most likely impact loan lending platforms like Slice and Uni that provide on-tap loans and send it to the payment wallet of the users directly. Any wallet that essentially uses NBFCs for disbursing gold loans, personal loans and even microfinance loans through wallets will be impacted by the RBI’s circular. Amazon Pay Later could also be impacted under this.
Meanwhile, Paytm has its own postpaid services as well. Paytm claims it won’t be affected as it has its own scheduled Paytm Payments Bank approved in 2021. There’s no doubt that the RBI order has caused some confusion and many companies are still figuring out how their products are impacted.
