Troubles are mounting for Tiger Global-backed unicorn fintech Slice as its prepaid card partner State Bank of Mauritius India is looking to pause the onboarding of new customers until further clarity emerges on the Reserve Bank of India’s (RBI) views on the model.
SBM Bank India sent a communication to Slice, Uni and PayU's LazyPay saying it is pausing the onboarding of new customers after the RBI approved the first set of guidelines on digital lending on August 10, according to three sources aware of the development.
With SBM Bank India deciding to pause new customer onboarding, its co-branding partners will have no option but to pause onboarding for prepaid cards too. However, Slice can continue to onboard new users for its other offerings like Unified Payments Interface (UPI) transactions.
Moneycontrol reached out to SBM Bank India with detailed queries, the bank is yet to respond to the same. Slice refused to comment on the story.
When contacted, a Uni spokesperson said that the company has stopped onboarding new customers since June 20, when the RBI had issued a clarification saying that loading of credit lines onto PPIs is prohibited. LazyPay too stopped new card issuance back in June.
As part of the approved norms, RBI had said that has said that all loan disbursals and repayments should happen to and from bank accounts of the regulated entity that does the lending and collection of repayments. The transactions should not pass through a pool account or any third party.
Earlier, Moneycontrol had reported that the industry was hopeful that prepaid payment instruments (PPIs) like prepaid cards and wallets will be seen as an exception to the norm. The Working Group on Digital Lending had recommended that borrowers having only PPI accounts, and no bank account, can be disbursed loans in fully KYC (Know Your Customer) compliant PPIs.
However, with no word on this from the RBI, the bank is not taking any chances.
“If the RBI has not explicitly said that loans can be disbursed to fully KYC compliant PPIs, then we cannot assume it that it can be done. It is safer to stop onboarding new customers until there is any clarity,” said one of the sources.
What happens to existing customers?
The bank has not said anything about what it intends to do regarding existing customers who are being given credit lines or short-term loans through its co-branded PPI cards.
However, if no clarity emerges from RBI on whether to disburse loans on fully KYC-complaint PPIs, there will be no option but to stop disbursing loans to even existing customers.
“The bank, as well as fintechs, are in talks about what can be done for existing customers. It would not be right to stop a product overnight. But, if RBI does not say anything further on this, then they will have to stop disbursing credit through the model,” the source added.
Exploring other options
This is the second blow for fintechs like Slice, Uni, and LazyPay whose core business model was to extend credit through prepaid cards with lending partners disbursing the actual loans.
Since RBI’s clarification on June 20, all impacted fintechs have been exploring other options, including introducing a bank account offering with partner banks to disburse credit, or moving to a co-branded credit card.
Slice had already changed its model to meet RBI’s norms and had replaced credit lines with loans on demand. In case no further clarity emerges, Slice will again have to relook its lending model.
Moneycontrol had also reported that LazyPay too is in talks to convert its card to a co-branded credit card.After RBI announced the norms, Paytm had told analysts on a call that the company will be changing its internal systems to ensure that loan disbursals and repayments are routed directly to and from the bank accounts of the borrowers and the lending partners for Paytm Postpaid loans.