Explainer: Regulating Fintechs

By Shashank Didmishe

RBI has disallowed non-bank pre-paid instruments (PPI) to be loaded through credit lines. The rule appears to be aimed at reining in lending activity by fintechs via NBFCs and probably stems from concerns systemic risk could build up, reports Shashank Didmishe.

Some new generation players have acquired close to 200–300k cards using PPI licences and loading the wallets of consumers using credit lines from NBFCs and banks. The regulator appears to be displeased that PPI licences are being utilised to disburse loans rather than to route payments. Moreover, it seems concerned that NBFC money is being used to load consumer wallets. However, it is comfortable with wallets being loaded by a credit card or a debit card or cash. Given the recent crisis in the NBFC space, with several players having gone belly-up, the concern is justified. The guidelines could impact players like Slice and Unicards.

Banks that have large credit card portfolios stand to gain if the RBI continues to toughen its stand against fintechs and discourages them from accessing NBFC funds.

If RBI is unhappy only about NBFC credit lines being loaded onto wallets but is not averse to bank credit being loaded, NBFCs may need to route funds via banks.

Some customers have possibly been using a line of credit, through their wallets, without actually knowing it. Such surreptitious lending has clearly not gone down with the RBI. Although the amounts loaded on to the wallets may not be significant, the central bank is clearly worried about systemic risk.

Some wallets have been offering their services to NBFCs to ease disbursements of gold loans, personal loans and microfinance loans to reduce the usage of cash, say industry insiders. App-based credit card providers that are using wallets to issue credit lines pay lenders a fee and earn an interchange of 1.5%.

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