The Reserve Bank of India (RBI) has granted a three-month extension after June 30, 2022 for certain provisions under the changes for credit, debit, and co-branded card norms.
"Considering various representations received from the industry stakeholders, it has been decided to extend the timeline for implementation of the following provisions of the Master Direction to October 01, 2022," the announcement by the RBI read.
Moneycontrol had reported on June 14 that banks, through the apex body Indian Banks’ Association (IBA) had sought a six-month extension on the changes in the Master Directions for cards.
The extension has only been granted for the provision that mandated that card-issuers seek One Time Password (OTP) based consent from the cardholder for activating a credit card if it has not been activated by the customer themselves for more than 30 days from the date of issuance.
The second provision mandated that the credit limit is not breached at any point in time without seeking explicit consent from the cardholder, and lastly no capitalization of unpaid charges/levies/taxes for charging/ compounding of interest.
Meanwhile, no relief has been granted on the provisions that are set to impact fintech players come July 1.
Certain provisions in 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 issuing fintechs such as Slice, Uni, OneCard, Fi, PayU’s LazyPay and Jupiter.
The changes said that the co-branding partner shall not have access to information relating to transactions undertaken through the card.
This could potentially hit the business models of these companies that use customer transaction data to provide customers a snapshot of their spends and extend rewards based on these spends.
Moneycontrol had reported quoting sources that fintechs, alongwith their partner banks like SBM Bank India, RBL Bank, Federal Bank etc. are trying to find a way around these norms in a way that the main co-branding entity will not save data.
The fintechs are mulling creating a separate entity that will be a Technology Service Provider (TSP) which can access the data. The TSP will fall under RBI's IT outsourcing norms under which banks can outsource data to such an entity. The main co-branding entity under the fintech will be a separate entity and will not be allowed to access data, according to industry sources.
However, to achieve this work around by June 30 will be an uphill task and may impact operations in the meanwhile, sources had said.
These norms also apply to other co-branded cards that banks issue with e-commerce and retail merchants like Amazon, Flipkart, Zomato etc. Fintechs, through different associations, had requested RBI to differentiate between them and other merchant co-branding entities while implementing norms.
A fintech executive had said, “Merchant co-branding entities don’t have any oversight from banks. Fintech co-branding entities, on the other hand, work under the direct supervision of banks. Unfortunately, the norms do not differentiate between both kinds of entities.”
The move impacts some of these fintechs even more after RBI issued a clarification on June 20 saying issuing of credit lines through prepaid instruments like wallets and prepaid cards is prohibited, threatening the business models of players like Slice, Uni, KreditBee and others.
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