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Non-banks can't load credit lines into prepaid payment instruments: RBI tells fintechs

The move may impact credit products of fintech players who extend credit through prepaid payment instruments such as prepaid cards and wallets.

June 20, 2022 / 08:15 PM IST
The Reserve Bank of India's emblem | Representative Image.

The Reserve Bank of India's emblem | Representative Image.

In what comes as a blow for well-funded fintech startups, the Reserve Bank of India (RBI) on June 20 issued a clarification on Prepaid Payment Instruments (PPIs) such as wallets and prepaid cards, saying that non-bank institutions cannot load credit lines into these instruments, according to sources.

The notification was addressed to "All Authorised Non-bank Prepaid Payment Instrument (PPI) Issuers." According to multiple sources, the notification was sent to non-bank PPI issuers, including fintech players.

RBI's official notification on its website is awaited.

RBI's clarification which was reviewed by Moneycontrol said, "The PPI-MD 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."

PPI-MD refers to the Master Direction on these instruments, a document that consolidates instructions on rules and regulations.

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The immediate impact of this clarification is unclear; however, fintechs like Slice, Uni, PayU's LazyPay, KreditBee etc. also extend credit through prepaid co-branded cards. But the key issuers of these cards are banks like SBM Bank India, RBL Bank among others.

In some cases, while the card issuer is the bank, the credit line is extended by the fintech's NBFC partners. The extent of the impact on these players is yet to be ascertained.

The move may mean that these products cannot be extended anymore if the credit line is extended by non-banks.

In a response to Moneycontrol, Slice founder and CEO Rajan Bajaj said, "We are evaluating this regulation and are committed to being on the right side of regulation in letter and spirit. We are working with our partner bank on this."

The clarification also mentioned that the PPI Master Direction only permits for these instruments "to be loaded/reloaded by cash, debit to a bank account, credit and debit cards, PPIs (as permitted from time to time) and other payment instruments issued by regulated entities in India and shall be in INR only."

Meanwhile, a detailed set of guidelines on digital lending is still awaited and the RBI is likely to release those soon. RBI has been regulating fintechs through various other means, one of them being the recent update in the credit, debit and co-branded cards.

The Master Direction limited the role of co-branding entities to marketing and distribution of credit or pre-paid cards, casting a shadow on the viability of the business models of card distributing fintechs.

The changes which are set to come into effect on July 1 also said that the co-branding partner shall not have access to information relating to transactions undertaken through the cards.

Moneycontrol reported on June 14 that banks through apex body Indian Banks’ Association (IBA), have sought a six-month extension beyond the June 30, 2022 deadline from the RBI.
Priyanka Iyer
first published: Jun 20, 2022 08:15 pm
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