Slice will now lend like its BNPL peers through its card to adhere to RBI directive

Rajan Bajaj, Founder and CEO of Slice

Fintech Slice has informed its customers that it will be tweaking its lending model, a move that is seen as an attempt to work around the Reserve Bank of India’s (RBI) mandate that said loading credit lines into prepaid payment instruments (PPIs) like wallets and prepaid cards is prohibited.

In a communication to customers on June 19, the Tiger Global-backed startup said that from now on, customers will have to seek fresh approval for a specific amount every time they use the Slice prepaid card to transact. This is a move from its earlier model where Slice would grant a pre-approved credit line to customers to use as per their discretion for any payments.

The new model is similar to how players like ZestMoney and Axio (formerly Capital Float), which identify as pure play Buy Now Pay Later (BNPL), lend. These players, too, inform customers of their eligible limit; however, separate loans from different lending partners are sanctioned for specific purchases as sought by the customer.

While this model is likely to be regulated by the digital lending norms, it was unimpacted by the RBI’s clarification as ZestMoney and Axio do not lend through any PPIs. Slice is keeping its core card offering intact by changing the credit line to a loan.

“While Slice was earlier extending credit lines, it was declining payments at some merchant checkout points which it thought were unsafe. However, the RBI’s clarification triggered them to tweak it further,” said a fintech executive.

Slice has named this a new feature called ‘Purchase Power’ and said, “The decision will be determined primarily based on merchant credibility risk, fraud checks and your past payments as well as repayment patterns.”

The underwriting and approval for the loans will be done in real-time. The amount will also be approved or rejected after the real-time underwriting.

The move will increase friction for its existing customers who were using the card as a payment mode. Now, customers will have to wait for the company to approve the credit limit every time they decide to use the card. At the back end too, as per Slice’s statement, it will have to do real-time underwriting more times per customer than earlier.

Will RBI be convinced?

Jaikrishnan G, Partner and Head of Financial Services Consulting at Grant Thornton Bharat says, “The bone of contention for the regulator was the credit line which was not meeting the regulator’s requirement of having to look at the customer’s debt exposure every time customer consumes the credit. By moving to the new model, Slice will be able to fulfil that requirement.”

Essentially, the customer’s eligibility to repay will be evaluated during every purchase rather than at once while granting a free-to-use credit line. It may also be beneficial for customers in case the fresh checks reveal that they can be eligible for a larger amount than earlier assessed, Jaikrishnan added.

Players like ZestMoney and Capital Float issue fresh loan documentation every time a customer seeks a certain amount of credit. Slice too will follow the same process of displaying a separate sanction letter against each transaction. However, every customer will be given loans from a designated lending partner of Slice.

“The RBI may just want to know what approval process Slice is using and if they are giving proper loan documentation. If they can answer that, it may be fine in the eyes of the RBI,” said another analyst who did not wish to be named.

In its mail to customers, Slice has said that the move will not have any impact on its bureau reporting practices and has assured customers that their credit score will not be negatively impacted.

However, Jaikrishnan believes that it may have an impact as customers will be now seeking multiple smaller loans.

“In my view, there is going to be an impact on credit score because the number of loans, as well as the number of times you pull the customer’s eligibility information, will go up,” he said.

Meanwhile, the company is also working on other options to navigate the situation. Moneycontrol reported on July 19 that the company has applied to the RBI to seek a nod to issue credit cards through its NBFC arm Quadrillion Finance.