The petition – which has yet to be finalized – was discussed at a series of meetings Tuesday between PCI and other industry associations such as the Federation of Indian Chambers of Commerce and Industry (FICCI), Digital Lenders’ Association of India (DLAI) and the Fintech Association for Consumer. Empowerment (FACE). It will look for a “reason” for the banking supervisor’s directive, the sources said.
In a one-page circular issued on Monday, RBI had instructed all non-bank prepaid payment instruments (PPIs) to stop charging lines of credit on their products.
“If certain safeguards are needed, they should be explained to us and we can work to address the regulator’s concerns,” one of the people briefed on the discussions told ET.
The source pointed out that “there must be a level playing field between banks, non-bank financial firms and startups”, adding that the “final draft is still being finalized”.
The industry groups are also likely to highlight the amount of global capital invested in the space and how such disruption could affect investors’ prospects, people in the know on the matter said.
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Challenger credit card companies have seen investments of more than $500 million in the past 18 months from investors such as Tiger Global, Insight Partners, General Catalyst and others.
“In one letter, the RBI wiped out a $5 billion credit card-based industry opportunity for fintechs. Therefore, they will communicate the need for a broader regulatory system that brings more predictability to the fintech ecosystem,” said a second expert source.
Even as RBI’s note has caused confusion in the fintech sector — with brokerage firms and industry experts expressing differing opinions — industry sources told ET that credit card startups like Tiger Global-backed Unicorn Slice and Uni Cards are likely to be the most affected. by the supervisor.
“The industry has attracted top dollars, and investors are also concerned about the central bank’s guidance, which increasingly indicates it could cover a wide range of businesses, not just credit card challengers,” the individuals said.
A report from Macquarie Research on June 21 named Slice and Uni among companies that will be affected by new guidelines.
“The coverage is clearly misleading at times. Some fintech companies advertise their product as a credit card, which in our view is not correct,” said Suresh Ganapathy, associate director, Macquarie Capital, who believes that “this shows little respect for compliance and has annoyed RBI.”
“We are currently analyzing the letter from the RBI with our partner banks. We are committed to complying with all applicable laws,” Slice said in a statement. Uni did not immediately comment.
Meanwhile, a report from Nomura Research said that if RBI differentiates between which regulated entity issued the prepaid payment instruments (PPI), the rules will not apply to Uni, Slice or PostPe cards (owned by BharatPe) as all three of these fintech players are piggybacking on bank-issued PPIs.
“We really don’t see a big difference in loading a PPI with a credit card that has an underlying credit limit and is an allowed form factor compared to a revolving line of credit from a lender, which is prohibited,” Nomura said.
“A credit card is just a form factor, while the credit line is the actual lending service,” the financial services researcher explained.
Officials aware of the central bank’s thinking process have pointed out that the RBI’s ban on loading portfolios with lines of credit is all-encompassing and applies to both bank and non-bank PPI products. This is based on clarifications provided by the regulator this week to questions from certain fintechs.
“The PCI representation will likely indicate how fintechs have positively impacted the masses and that PPI is similar to a bank account, and therefore should be treated as the same,” said one person aware of the ongoing consultation with the sector.
“The Representation will also address why there is a big distinction for using a credit line to charge a PPI, but the same is allowed through a credit card,” the person added.
BNPL startups worst hit
According to industry monitoring experts, the RBI ban threatens several fintech companies with buy-now-pay-later (BNPL) business models, which rely on this mechanism to provide payment-based credit.
According to discussions between industry associations and fintech startups, there was consensus on the need for greater representation of fintech companies on key decision-making committees on policy issues.
Earlier in January, the RBI had set up a fintech department headed by Executive Director Ajay Kumar Choudhary, who recently outlined its three-year plan as part of the Payments Vision 2025.
This includes a discussion paper on regulating Big Tech in finance, framework for regulating BNPL products and introducing rules that allow domestic storage of payment data.
Macquarie Capital’s Ganapathy pointed out that “NBFC licenses are not hard to come by, but it has its own capital requirements, provisions and more oversight.” Those who “want to do business, (must) come in a legitimate way, will get the license,” he added.