Is the Central Bank of India going the way of China? – TechCrunch:

For almost everyone Fintech startups, lending has long been a final game. This week, the Central Bank of India released a notice on the ecosystem, examining in detail who can lend to everyone.

The Reserve Bank of India has announced that dozens of fintech startups are banning the practice of downloading non-bank prepaid payment instruments (PPIs), such as prepaid cards using credit lines, a move that has caused panic among existentialists. danger for many fintech startups և made some decide to compare the pressure on the Chinese financial services company last year.

Several startups, including Slice, Jupiter, Uni, and KreditBee, have long used PPI licenses to issue cards and then equip them with credit lines. Fintechs typically partner with banks to issue cards, then contact non-bank financial institutions or use their NBFC to offer credit lines to consumers.

It is believed that the announcement of the Central Bank, which does not mention the name of any startup, affects almost everyone, including buy now, pay later to companies such as ZestMoney, which also use a similar mechanism to provide loans to customers. Amazon Pay, Paytm Postpaid և Ola Money are also wary, as many believe they can be affected as well.

“The rule is very confusing and strange,” said one of the founders of Fintech, speaking on condition of anonymity so as not to upset RBI officials. “What the RBI is actually saying here is not to load a PPI credit line. The thing about PPI now is that the money is finally going to traders. You are now saying that NBFCs can not provide credit lines to traders, their money should be directed only to customers’ bank accounts.

The founder added that this new position risks erasing all the innovations that have taken place in the fintech industry over the past five years, which has attracted more than $ 15 billion in investments from a number of top supporters over the past two years, including Sequoia India and South East Asia. : , Tiger Global, Insight Partners, Accel և Lightspeed Venture Partners:

“Just like everyone works in the fintech space right now, maybe with a degree of separation, when the money first goes to the payment gateway, the money goes to the merchants. “Some banks have been using the same strategy for almost a decade.” The founder added.

Fintech startups are convinced that banks have lobbied the RBI to reach this decision, using age-old tactics when incumbent managers cry and rely on the regulator to save the day.

The central bank, which did not provide an explanation in this week’s announcement, has long expressed concern about lenders charging excessive interest rates, demanding that you know at least some of your customer details on the plane, and forcing customers. Some of these companies, as claimed by government agencies over the past two years, may be involved in money laundering schemes.

“Some speculate that when PPI licenses were issued, the RBI made it clear that they were not being issued as credit instruments. With the PPI + BNPL combination, the PPI route is now used as an alternative to credit cards or offers a seamless BNPL with which the RBI can be good today, ”said the industry player, who also asked to remain anonymous.

It is said that the new rule affects not only lenders, such as shark players, but everyone.

“We believe that this regulation could have a significant impact on the fintechs involved in this business; it will be beneficial for banks as they can accelerate card acquisition in a less competitive environment,” Macquarie Brokerage analysts wrote earlier this week.

Many argue that fintech startups exist because they have found a way to financially attract millions of users, which the RBI has long welcomed, և the fact that banks would appreciate it if you did not speak out. The PPI model, which combines two regulatory entities, allows lenders to offer loans to customers at a lower price, which dramatically increases the chances of getting a loan.

“In the traditional personal loan model, the lender transfers money directly to the bank account. Thus, the creditor does not earn any money when the consumer spends that money, ”explained fintech veteran Himashu Gupta. “However, in PPI instruments, which are supported by the credit line model, as fintech startups receive exchange income from each payment, which can reach up to 1.8%. “This means that they can offer potentially lower-cost loans to consumers compared to the pure ‘personal loan to the bank’ model,” he added.

The Credit Bureau of India data book is thin, which makes most individuals in the South Asian market unworthy of credit. As a result, banks do not offer credit cards or loans to most Indians. Fintech uses state-of-the-art placement systems to provide loans to customers;

Some argue that the Central Bank may simply be too late to make a decision now. Fintech serves more than 8 million customers in India, and without clarity, most of these customers do not have to meet their current repayment deadlines, which will put significant stress on companies.

In addition, NBFCs run by various startups are regulated entities. Some fintech veterans argue that if the RBI really wants to suppress the use of PPIs as a credit instrument, they should really consider issuing credit card licenses to start-ups, which the RBI has not done so far.

At the same time, investors are terrified, և many startups that are in the process of recruiting new rounds of funding are beginning to see the recall of some VCs by people familiar with the issue. Some industry players believe that the Central Bank of India is taking the same approach as China to pressure creditors and fintechs.

“We do not believe the RBI is too keen on issuing digital banking licenses, as reflected in recent statements by the RBI Governor. The RBI has fallen sharply on fintechs, and in recent months has called for tougher regulation. “In our opinion, the message is clear that the fintechs will be more and more regulated,” McQuarri wrote.

“The RBI Payments Vision 2025 document speaks of different charges for payments made in India so that it further encourages digital adoption, which we believe means that different payment charges may lead to further adoption.” to encourage. It is clear to us that the risks are increasing for the fintech sector, for which the regulations have been light until now. ”

Entrepreneurs try to convey their concerns to the RBI. At least three organizations, including the Indian Digital Creditors Association (PCI), part of the Indian Internet Mobile Association’s lobbying group, are writing letters to the RBI to various ministries to address their concerns.

During a Zoom call on Thursday, dozens of fintech officials discussed the general basics of what to report to the RBI. Some of their urgent requests include extending the new rule by six months, confirming to the Central Bank that the fintech industry as a whole is “responsible, trying to do the right thing,” according to people present at the call.

Fintechs also seek to explain in detail their business models, to justify why they should be allowed to continue to operate with full authority over your client.

But until there is some change or clarity, big interruptions are expected. Tiger Global-backed Jupiter և Azim Premji-backed PremjiInvest’s KreditBee have already temporarily stopped customers from making any transactions with their prepaid cards.


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