The Reserve Bank of India’s (RBI) move to restrict prepaid payment instruments (PPIs) to load from credit lines is likely to affect buy now pay later (BNPL) customers. Last week, the RBI wrote to non-bank PPI issuers telling them that the regulator didn't permit loading such instruments from credit lines.
Such practice had to be stopped and the violation may attract penal action under the Payment and Settlement Systems Act, 2007, the RBI communication stated.
The RBI communication said the PPI master direction doesn't permit loading of PPIs from credit lines. The regulator was clear that when one regulated entity is permitted to carry out a business with authorisation, another entity cannot conduct the same without a license in the name of innovation.
The RBI diktat sent the industry players into a tizzy. Some industry associations such as Digital Lenders Association of India, Fintech Association for Consumer Empowerment, as well as the Payments Council of India are now approaching the regulator for clarification.
One report suggested that the RBI is now examining the practices and models of BNPL service providers days after the banking regulator clarified its stance that regulated activities that require licence can’t be practices by fintech players.
BNPL at an early stage in India
A study recently carried out by Kotak Institutional Equities Research stated that BNPL (Buy now pay later) schemes are gaining healthy traction in the Indian market. There are nearly 8-10 million customers who are part of the BNPL universe.
The study also concluded that business model around BNPL is still at an early stage of evolution and, perhaps, still not fully developed. The study said the consumers who have a BNPL account are not very different from regular customers but they show a higher delinquency performance on their credit card and personal loan accounts.
BNPL consumers are more likely to open a new credit card account within six months of BNPL loan, stated the study. The propensity to avail a personal loan also seems higher for BNPL consumers.