InvestorQ : What are the changes that the RBI is planning in PPIs and BNPL services?
Deepa Salunkhe made post

What are the changes that the RBI is planning in PPIs and BNPL services?

Arya Nanda answered.
2 months ago

RBI is now examining one of the contentions topics in recent times, which is the closer regulation of the practices pertaining to prepaid payment instruments (PPI) and Buy Now Pay Later (BNPL) schemes. RBI has reiterated its stance that regulated activities that require a license cannot be practiced by fintech players. RBI has called it regulatory arbitrage and that cannot be permitted. However, the RBI is willing to make an exception provided these Fintechs subject themselves to more scrutiny and agree to go by the book.

The first hit to these Fintechs came when the RBI had instructed non-bank PPI issuers not to allow their customers to load their wallets or their cards from credit lines. For example, a person cannot use the credit to either load her Paytm balance or even use credit cards to repay their dues to these Fintech companies. However, most of the Fintechs are protesting that such moves take away the scope for innovation. RBI is not keen to make exceptions as then all players will expect such concessions and that would defeat regulation.

Currently PPIs are loaded by the Fintechs in 3 different ways. Firstly, they allow a credit card usage against the PPI limit, which his funded by the bank. The second is that the Fintech gets last mile funding from a bank and then passes it on to the end customer. Finally, the PPI holder directly gets a loan and is allowed to spend it. RBI contention is that as BNPL (buy now pay later) involves loan through an intermediary, it is a business loan. However, credit lines with replenishing of credit on payment is OK, as long as it is not high value purchases.

RBI wants to ensure that the BNPL does not mimic a credit line or a credit card, which is the sole preserve of banks. It is not clear if bank-led PPIs will be exempted by the RBI from its directive or whether existing fintech players can tie up with banks for the strict KYC and due diligence. RBI will issue a final clarification only after hearing all parties to the case. RBI is clear on two things. Firstly, it cannot allow regulatory arbitrage where anyone acts as a quasi-bank. At the same time, it does not want to stifle innovations that Fintechs can bring.