Payments giants and fintech startups in India on Saturday asked the central bank to treat widely used prepaid payment instruments on equal footing with bank accounts for customers who undertook certain checks, days after the monetary authority reported an industry-wide crackdown.
The Payments Council of India, a unit of influential industry body IAMAI, said in a letter to the Reserve Bank of India that by treating prepaid payment instruments – prepaid shopping cards and wallets – like bank accounts, Regulated lenders will be able to disburse credit to customers who have completed their full KYC checks.
The Reserve Bank of India informed dozens of fintech startups earlier this week that it was banning the practice of charging non-bank prepaid payment instruments (PPIs) using lines of credit, in a move that has sparked controversy. panic among — and an existential threat to — many fintech startups, TechCrunch reported earlier.
Several startups including Slice, Jupiter, Uni and KreditBee have long used PPI licenses to issue cards and then endow them with lines of credit. Fintechs typically partner with banks to issue cards and then partner with non-bank financial institutions or use their own NBFC unit to offer lines of credit to consumers.
The central bank has long been concerned about lenders charging exorbitant interest rates and requiring minimal know-your-customer details to onboard and coerce customers. The industry body appears to draw a line between startups that have acted responsibly and bad performers. (Banks as well as RBI-backed Rupay have been lending to full PPI KYC accounts for years.)
The Payments Council of India did not name any startups in its letter to the RBI – although it used many examples to explain the two popular PPI models and their applications – but it represents almost all payment companies including Mastercard, Visa, Paytm, PayU, PhonePe, Razorpay, Slice, PayPal and Stripe.
Fintech startups are estimated to issue over 600,000 prepaid cards to Indians every month. They have provided access to credit to nearly 10 million Indians, most of whom are not otherwise deemed worthy of borrowing by banks.
The Payments Council of India has also requested the central bank to allow the customer drawdown on a non-revolving line of credit to be disbursed in a full KYC PPI.
The lobby group explains the PPI models to the RBI. (Image from TechCrunch)
Two other industry bodies – Digital Lenders Association and FICCI – have been working on letters to the RBI in recent days. In a Zoom call on Thursday, dozens of fintech executives discussed common grounds for what they should inform the RBI. Some of their pressing demands include extending the deadline for the new rule by six months and establishing to the central bank that the fintech industry as a whole is “responsible and trying to do the right thing,” TechCrunch reported earlier. this week, citing several people on the call.
The RBI and IAMAI did not respond to a request for comment.