Loan apps ban: Industry insiders call it a good move to remove bad actors

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Fintech industry insiders are standing by the Ministry of Electronics and Information Technology (MeitY) directive to Google to ban more than 200 lending and betting apps from its play store, saying it's an issue of illegal cross-border data sharing and possible cybersecurity threat.

Currently, an updated list of around 58 such apps is out including prominent names such as Kissht, PayU-backed LazyPay, KreditBee, and Ola Avail Finance; which are under review by Google, according to Moneycontrol’s sources.

MeitY did this following instructions from the Ministry of Home Affairs. The directive was sent out to internet service providers and app stores on an “urgent” and “emergency” basis on February 5.

Also Read: RBI wants IT ministry to ensure only regulated digital lenders on app stores: FinMin

These apps weren’t given prior notice and are still awaiting more information from the government bodies on the possible ban.

This became a hot topic of conversation among the fintech players and investors on the sidelines of Bharat Fintech Summit 2023 in Mumbai on February 8. Moneycontrol caught up with a few prominent fintech founders, investors, and insiders to know more.

Rahul Khanna, co-founder, and managing partner, Trifecta Capital said, “When you have an industry that's growing so quickly, there are always going to be a few bad actors. Unfortunately, these regulations tend to treat bad actors and good actors equally.”

“I think if anything that has come out of it is that better run, better governed, and probably better-regulated businesses will come through it looking fine. But it will weed out a lot of the noise around areas like long-tail lending, those sort of fraudulent apps, where consumers are obviously being taken advantage of,” he added.

Khanna believes that though this is disruptive, but for good players this will be an opportunity to separate themselves from the bad actors.

Arvind Gupta, Head of the Digital India Foundation said, “Loan app businesses themselves know better why they are being banned. They either have beneficial ownerships from banned regions, they have loan books of dubious origins or they are sharing data outside India. Or they just have bad financial practices. These are some of the criteria that I believe could have been applied.”

Gupta, who is a former top government official, added, “Those who don't fall under these categories but are still on the list, the government will always be open to information sharing and reviewing the relevant submissions.”

Nirav Choksi, co-founder and CEO of working capital financing startup Credable called out apps giving out loans to non-creditworthy customers creating systemic risks, hailing MeitY’s move.

“Most of these fintechs will have to rethink their strategy and business models, and align with licensed financial institutions or become financial institutions themselves. So there will be a shift in business for a while,” he said.

Mukesh Kalra, founder, and CEO, ET Money said this could clearly be an issue of Chinese links and cybersecurity problems since this is coming from MeitY. “Regulations in India is protection centric. Before an industry becomes huge and if there is a lot of fraud, they’ll try to cut it at the bud itself,” he said.

Many are unsure about what resulted in the ban and awaiting further communication on it. Industry watchers said the affected players are now approaching the regulators and ministries to figure out the basis of the decision.

“We don’t know the disease yet, to find the cure. They have blocked the websites and not the apps, who uses websites these days anyway? It’s not very clear to me yet why this is happening,” Mukul Saxena, CEO, financial services, Mobikwik said. The websites of some of these companies like Kissht and LazyPay are already down.

“We need to have more communication coming up on why and what happened and ensuring that the logic is clear behind the move. If the regulators continue making more sudden regulatory decisions, innovation may be affected. When you stop suddenly and link it to Chinese apps, it might create fear as now you don't know who's next and that is very disruptive," said Sameer Singh Jaini, co-founder and CEO of The Digital Fifth, a fintech consulting firm.

A lot of players in the fintech ecosystem have declined to comment as they are seeking more clarity on the matter.