Digital lenders seek 6-month extension, meeting with RBI, on PPI-based lending

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After multiple rounds of deliberations, the Digital Lenders Association of India (DLAI) has decided to seek a six-month extension and meetings with Reserve Bank of India (RBI) representatives on the regulator's recent clarification barring several fintechs from facilitating credit through Prepaid Payment Instruments (PPIs) of their partner banks.

While a final representation is yet to be sent to the regulator, Moneycontrol could gain access to the draft letter of June 24 addressed to the Department of Payment and Settlement Systems and the Department of Regulation within the RBI.

In the letter, DLAI argued that business models that involve lending through prepaid instruments like wallets and prepaid cards were developed with: (a) the objective of ensuring accessibility of affordable and easy credit to the middle and low-income households in India and achieving financial inclusion; and (b) safeguards to account for systemic risks in transactions as well as to protect the interests of end customers.

On June 20, the RBI issued a clarification to fintechs, saying that loading credit lines into prepaid payment instruments (PPIs) such as wallets and prepaid cards is not permitted.

The move has threatened to junk the business models​ of a number of fintechs that have seen tremendous growth over the past year such as Slice, Uni, PayU’s LazyPay, KreditBee and EarlySalary.

"We urge you, on behalf of our members to grant an extension of six months with respect to the aforesaid PPI notification, during which time, we along with the stakeholders would be happy to engage with the RBI to help achieve an outcome that addresses the regulatory intent and concerns while not adversely impacting this critical industry," said the letter.

The second ask was to grant an in-person or virtual meeting with the RBI to begin a consultation process to "to achieve a bridge between the regulatory concerns and interests of the industry participants or customers or stakeholders".

DLAI represents over 80 members, including digital lenders and buy-now-pay-later (BNPL)  players amounting to 85 percent of the transaction volumes of the digital lending industry. Its founding and other members include ZestMoney, Capital Float, KredX, Slice's NBFC Quadrillion Finance, Uni, KreditBee, Indifi Technologies, RBL Bank, Lendingkart, Cred etc.

The move may also impact players like OlaMoney Postpaid Plus and Paytm Payments Bank. While OlaMoney Postpaid Plus uses a wallet to load credit from its NBFC partner Aditya Birla Finance, Paytm has been loading customers’ wallets with Paytm Postpaid credit lines. According to Macquarie, more clarity is needed on the impact on Paytm.

"Firstly we are reaching out to RBI with a request to have further discussions. We need to strike a balance between innovation and regulation and need to understand the way forward. We have to understand the issue and what we can do next," said one of the above-mentioned sources.

In response to queries by Moneycontrol, DLAI issued a statement, saying, "DLAI and all its members are committed to being in full compliance with both the letter and the spirit of all regulations. We hope to be able to work with the RBI to implement any changes that might be required in a manner that safeguards the needs of all existing customers."
 The move does not impact pure-play BNPL players such as ZestMoney, Capital Float, SME lenders like KredX, Lendingkart etc. However, the association will be making representations on behalf of the impacted members.

"DLAI will continue to proactively monitor the innovations in digital lending through its extensive network of members and engage deeply with all regulators to ensure that its members meet the goals of financial inclusion and efficient intermediation of credit while being in strict compliance with all regulations," the statement said.

Moneycontrol had reported on June 22 that industry bodies including the Internet and Mobile Association of India (IAMAI) and the Payments Council of India (PCI) too are preparing to make representations to the Reserve Bank of India (RBI) and various government arms, questioning their stance on supporting innovation and financial inclusion.

Those letters too are likely to seek clarity on the norms as well as a level playing field for non-banking financial companies (NBFCs), which are the actual lenders in these arrangements. The industry bodies are likely to request the regulator to make it easier for them to issue proper credit cards, as per sources.