The Reserve Bank of India (RBI) in June directed non-banking fintech companies that the prepaid payment instruments (PPI) master directions do not permit the loading of prepaid payment instruments from credit lines. And it also stated that the practice, if followed, should be stopped immediately.
One report suggested that this RBI’s move would affect 8-10 million customers who are part of the BNPL universe. Another one stated that in one month of RBI’s directive, the number of new prepaid cards issued by these non-banking firms has dropped to lower than one lakh against 5-7 lakh in the month of May.
Here we shed light on the impact of RBI’s diktat and importantly — the way forward from there:
What are prepaid payment instruments (PPIs)?
These instruments facilitate the purchase of goods and services, conduct of financial services and enable remittance facilities against the value stored in them. Apart from banks, there are several non-bank PPI issuers such as Amazon Pay, Bajaj Finance, Ola Financial Services, PayU Payments, among others.
The RBI’s notification on PPI is seen to be impacting players that were roping in a number of customers through this route, a Macquarie Research report said.
“Some of the new-generation players were adding close to 200,000-300,000 cards using PPI licences, and loading the wallets of consumers using credit lines from NBFCs, banks, etc. The main purpose of a PPI licence is to act as a payment instrument and not as a credit instrument, and we believe many fintechs were using this as a channel to load credit,” the research note said.
Impact on the sector
Despite the seemingly colossal impact on the fintech sector, industry players seem upbeat about the future.
S Anand, CEO and Co-Founder of PaySprint, a Fintech venture focussed on neo banking solutions, says that he doesn’t believe the latest regulations will have any adverse impact on the industry.
“At times regulations can give new directions and I am confident the industry is resilient enough to find new innovative ways to solve the problem statements in the financial and banking space,” said Anand.
“The new RBI guideline forces fintech players to think in a more customer centric and compliant way. Since credit lines cannot be loaded, multiple innovative ideas are floating. In fact, it has forced the fintechs to think creatively. Hence, the future is great and after a period of brief indecisiveness, growth will definitely come,” says Finny Jose K, CEO and founder of Neofam, a neo banking platform.
Innovation is the key
Moving forward, fintech players say innovation is the key to growth in this space where novel products can meet the needs of customers. Neofam’s Jose says the RBI’s latest diktat has compelled the fintech players to think creatively.
“Fintechs have to grow beyond the stagnation of BNPL and this is the right time. Multiple innovations in India are needed especially for a huge population like ours where a lot of them don't have access to financial services. Hence, services like Phygital banking, AI driven, voice commands, customised banking offerings using AI have good scope,” he says.
Sugandh Saxena from Fintech Association for Consumer Empowerment (FACE), too, calls for the need for innovation in fintech space.
“From the credit perspective, a large many customers have diverse and fast-evolving needs for credit in many different ways, including size, tenure, repayment option, ease/convenience, purposes and channels to access credit. These can only be full-filled through an innovative and competitive marketplace. If an innovation meets a customer's need, the customer will embrace it,” she says.
About the future of fintech-led innovations, PaySprint’s Anand says, “Beyond payments and collections, I feel a lot of innovation on insurance and wealth management is still to be explored.”