RBI's digital-lending rules: Paytm's BNPL biz may need operational tweaks

The ‘buy now, pay later’ (BNPL) business of Paytm may need some operational tweaks to comply with the Reserve Bank of India’s (RBI’s) digital lending guidelines, even as the firm’s merchant and personal loans business is completely in sync with the new norms, analysts say.    

Currently, under Paytm Postpaid, loans are not directly disbursed to the customer's account. Instead, these are disbursed to a nodal account, from where the payments firm routes them to the merchant’s account.

According to the RBI’s new digital lending norms, all loan disbursements and repayments are required to be executed only between the bank account of the borrower and the regulated entity, without any pass-through/pool account of the lending service provider (LSP) or any third party.

“It (Paytm) will require operational changes for its postpaid product (as money flow has to be between the regulated entities and borrowers, and not from the pool account of LSPs). However, management indicated that the guidelines are implementable and executable,” said ICICI Securities in a report on Friday.

“…for the BNPL business (Paytm Postpaid, which was Rs 60 per cent of loans disbursed in Q1), loans are not currently disbursed directly to the customer’s bank account, but instead to a nodal account – and then subsequently Paytm, as a payment aggregator, routes the payment amount directly to the merchant. The RBI’s norms, in their current form, do not seem to allow this mechanism and the company seeks clarifications from the regulator here,” said Macquarie Research in a note.

“In the interim, we believe Paytm’s lending business disbursement growth may be affected. Management highlighted that even if these new norms are implemented in their current form, Paytm will be able to implement it by adding an extra hop where the loan is disbursed to the customer first and then the payment is made to the merchant,” the report further noted.

Analysts have said that they will be watchful of the operational impact of the new norms, especially on customer convenience of the payment firm. “The RBI’s recent regulation also disallows disbursement of credit to a PPI/wallet account and that could potentially constrain the company further,” the Macquarie report said.

In a notification to a few fintech players a couple of months ago, the RBI had prohibited loading of prepaid payment instruments (PPIs) from credit lines. Through this new framework, the RBI has clarified that loan disbursements can be made only to a borrower’s bank account, not a PPI in any case.

The digital lending guidelines are in line with how Paytm is currently executing its business of financial services distribution. The framework has no adverse revenue implication, business model change or additional disclosure requirement for the company, ICICI Securities said, quoting the management of the company.

Shares of the company fell 4.65 per cent on Friday to close at Rs 787.15 on the BSE.