Fintech startups Jupiter and Early salary have suspended their credit card services following the Reserve Bank of India’s ban on loading non-bank credit into e-wallets while other services including Pay afterwards and OlaMoney have also been affected.
Jupiter Rand, part of the neobanking platform Jupiter, informed customers in a social media post Thursday that it was “pausing” its services under recent guidelines from RBI. “Please rest assured that we are in the evaluation process, you will be notified as soon as we get back,” the company said.
EarlySalary said it has curbed its card services for the time being. “There was no preparation time given. We also understand (the RBI circular) and will come back with an answer,” said Akshay Mehrotra, co-founder and CEO of EarlySalary. your story†
As for Paytm Postpaid, the ‘buy now, pay later’ arm of fintech giant Pay is still unavailable in third-party apps such as Zomato and Swiggy since RBI’s announcement on Tuesday.
Payhowever, denied this, saying its postpaid services “remain fully operational for its users”.
“For a very small percentage of users, where they linked Paytm Postpaid to the Paytm Wallet for use, when the wallet balance is low, the service has been temporarily suspended pending clarification,” a company spokesperson said in an email. -mail reply to your story† “In addition, the Paytm wallet is issued by Paytm Payments Bank and therefore does not fall under the guidelines in our understanding.”
The spokesperson added that Swiggy and Zomato’s move was “taken on another RBI issue before this issue.” It was not immediately clear what that concern was.
OlaMoney PostPaid, Taxi aggregator Ola’s digital credit payment service also informed users that it was disabling a provision that would allow use of its postpaid service along with a user’s balance on a user’s Ola Money card or wallet. The company provides the product in collaboration with affiliated financial partners, including non-bank financial companies.
Rajan Bajaj, Founder and CEO at paste, said the company was working with its partner bank to comply with the regulation.
The problem at hand
RBI Tuesday barred NBFCs from loading lines of credit on prepaid payment instruments (PPIs) such as e-wallets or prepaid cards.
While charging a wallet (e.g. Gpay, PhonePe, Amazon Pay, or Paytm) with a debit or credit card is allowed, take a line of credit from an NBFC or a non-bank, then load the consumer’s wallet is not allowed.
Several new-age fintechs such as Slice, PayU, LazyPay and KreditBee, as well as neobanks take a bank’s PPI (e.g. co-branded credit cards) and offer lines of credit through their own NBFC or NBFC partners to customers .
Essentially, players such as Slice, OneCard and Uni, mainly known as challenger credit cards, as well as postpaid services such as Paytm Postpaid, Ola Postpaid and Flipkart Pay Later, will be affected by the notification as most of these BNPL players are drawing their credits. at NBFCs, which have no direct ties to banks.
Tightening the Noose
“NBFCs can’t have accounts that you can pay with. You can withdraw the money in your bank account and pay from the bank. NBFCs are not allowed to issue cards. Wallet providers are not allowed to provide credit,” said Deepak Shenoy, founder and CEO of investment research and wealth management firm Capital Mind. “Maybe the idea is that NBFC loans should come in a bank account. Otherwise, the NBFC/wallet/mutual fund ecosystem could be used to completely bypass the banking system.”
He added: “MF lends to NBFC, the NBFC lends money to wallet and the wallet is used to pay. Don’t need a bank at all?”
Consumer protection has been touted as another reason (other than to protect banks from taking over shadow players) for RBI’s decision. Macquarie Capital Securities in a note said: many customers unknowingly took a line of credit through their wallets at checkout.
“Some of these practices have not gone down well with the regulator,” it added.
BharatPe co-founder Ashneer Grover also took to social media to voice his opinion, calling RBI’s latest circular a “flexible move by banks”.
“Not allowing the loading of prepaid instruments through credit is intended to protect the bank’s lazy credit card business from Fintech’s powerful BNPL business. It is a flexible move by banks – seek rent. But market is market and regulation will eventually come to what the market needs” Ashneer said in a Tweet.
According to Sameer Singh Jani, founder and CEO of fintech consultancy Digital Fifth, affected fintech companies may need to acquire an NBFC license and a credit card license so that they have legal support.
“They can move to the classic BNPL model that is funded with equity instead of lines of credit from NBFC. This segment also carries the risk of regulation, but it is still available to build on,” Sameer said. the customer would be done. † This essentially removes the map engagement layer.”
Startups can also look into partnering with banks for savings accounts with lines of credit, which are within, or at least close to, the RBI framework, he added.
Experts assess the impact on customers and say the challenger’s credit cards will shrink to prepaid cards.
“Many customers of these cards may go back to ‘no credit arena again’ as they may not qualify for the bank’s credit approval criteria,” Sameer said.
These cards were a big boon from an inclusion perspective (students and young professionals) and the change would hurt the availability of customer credit.
(Updated throughout with additional information and to include clarification from Paytm that its “Postpaid service remains fully operational for its users.”)