Slice bets on card-linked bank accounts to stay afloat as RBI Nov deadline for digital lending norms nears

Rajan Bajaj, Founder and CEO of Slice

Digital lending and payments platform Slice has asked customers to open a prepaid account that will be linked to its cards, a move that will help the Tiger Global-backed fintech unicorn stay afloat amid the Reserve Bank of India’s (RBI) crackdown on digital lending. The move will help Slice to adhere to RBI’s digital lending norms ahead of the November 30 deadline.

RBI's new norms that were announced on August 10 barred third-party accounts including prepaid payment instruments (PPIs) like prepaid cards and wallets from the flow of lending. The norms mandated that any loan remittances and repayments should be made only between the customer's and lender's bank accounts.

In a mail to customers, a copy of which was seen by Moneycontrol, the Tiger Global-backed fintech unicorn said that it will temporarily suspend its cards in November to make the transition to the new system.

"To ensure a smooth transition, we will temporarily block your card during November. We will notify you in advance in the slice app when we upgrade you to the all-new experience before November end," the mail read.

To ensure that loans from Slice's lending partners are directly credited to the customer's account, the company has said that customers will have to open a prepaid account named 'Slice Mini'.

"Slice mini is a prepaid account where you can add and withdraw money. You can add money using your UPI (Unified Payments Interface), debit, or credit card. It is made for everyone. You can activate your mini account without going through the credit assessment," the company said.

Further, the mail said that the Slice card is now linked to the Mini account and customers will continue to receive 2 percent cashback for transactions made through the card.

UPI on Slice can also be linked to the Mini account, which will allow customers to make transactions without having to enter a PIN number to authenticate the payment.

Slice said that loans will be transferred directly to the Mini account and customers can get the loan by just entering the amount. However, as the company had said earlier, loan amounts will be decided on the basis of a credit assessment of a customer's purchasing power.

In the mail, Slice also said that it will introduce ‘Slice Borrow,’ a product that will give credit access to customers depending on their purchasing power. To be sure, Slice has been providing credit to customers through its platform, which is different than the credit limit it gives to its customers on its cards. While credit limit is the maximum amount that a lender decides, purchase power for Slice, is the estimated amount a user may qualify to borrow from Slice.

Slice said that through Slice Borrow, customers will get credit for  flat fee and can repay the loan in one month without any interest or can split up the payment in as many as 12 months with interest. Slice did not respond immediately to queries sent by Moneycontrol. The copy will be updated with the company's response, if any.

Slice, besides peers like Uni, PayU's LazyPay, Paytm and BharatPe's PostPe was hit by RBI’s new norms on digital lending over the past few months, as the banking regulator took multiple steps to crack down on lending through PPI instruments like prepaid cards and wallets. Slice and Uni were the worst hit by these norms as lending through prepaid cards has been their core business model.

The crackdown also came in the midst of a difficult funding environment for the fintech sector that had raked in millions of dollars over the last two years. Many fintech companies have been looking to further raise funds in 2022, but were not able to do so amid an uncertain macroeconomic environment and RBI’s crackdown.

Fintech valuations, too, have taken a hit consequently. Earlier this month, Prosus-backed PayU walked away from its $4.7 billion BillDesk acquisition deal, in what was one of the biggest instances of valuations taking a hit.

Following the announcement of the digital lending norms in August, State Bank of Mauritius Bank India, which had partnered with most of these fintechs, including Slice, for their prepaid cards and wallets, asked them to stop onboarding new customers. Uni also stopped disbursing credit to existing customers after the norms came out.

Other digital lenders including ZestMoney, Freo, Axio, among others, too are in the process of aligning their systems to meet RBI's norms and ensure disbursals and repayments happen only between bank accounts of the lender and customer.