PPI credit ban likely to hit 8-10 million BNPL users, says industry

Industry fears it may lead to systemic risk from a lending standpoint

The Reserve Bank of India’s (RBI’s) move to disallow loading prepaid payment instruments (PPIs) from credit lines may affect 8-10 million customers who are part of the “buy now pay later” (BNPL) universe, say players who are feeling the heat owing to the regulatory diktat.

The move could also result in a systemic risk from a lending standpoint because if suddenly the products are stopped, it may not be possible for customers to repay their loans.

“Eight-10 million customers will be impacted by this move. If the accounts are stopped for such customers, it would also create a systemic risk because these people may not pay back,” said a senior official of the Internet and Mobile Association of India (IAMAI).

Various officials of industry bodies of payment systems met the regulator on Tuesday and shared their concern.
 

Earlier this week, the RBI wrote to authorised non-bank PPI issuers, stating that the direction did not permit loading such instruments from credit lines. Such practice, if followed, should be stopped immediately. And, non-compliance on this may attract action under the Payment and Settlement Systems Act, 2007.

The RBI communication created confusion and apprehension in the industry and the players are in discussion since then on the implications of the letter on their business model. Various industry associations have talked to players while some have approached the regulator to seek clarification. The industry body is planning to reach out to the Prime Minister’s Office (PMO), finance ministry, and the RBI governor on the matter.

In a tizzy

• Industry bodies to write to PMO, finance ministry, and RBI governor in connection with the RBI order on credit lines
• Players are seeking clarification from RBI on the implication of the letter
• They want to understand the intention behind the diktat
• Players fear such a move may impact their growth and investor interest in India's fintech sector
• They are seeking a level-playing field with banks

“The BNPL industry is confused ... A lot of effort has gone into bringing customers who are new to credit into the formal credit ecosystem, making it cheaper for them to borrow. Suddenly a two-paragraph letter from the regulator is risking undoing the work that has been done over the past few years,” said a source.

“The industry will send letters to the RBI governor, PMO, and the finance ministry in the coming days ... Data is being collected on the impact this would have on the industry,” the person added. 

The industry is trying to understand the intention behind this move because then only can the players come to grips on its impact on their business, a payment industry official said.

The players are seeking a level playing field on credit card licensing between banks and non-bank players. They are planning to highlight the financial inclusion BNPL companies have achieved over the years by giving credit to customers who have been ignored as too risky by traditional banks.

“If the intention is to stop PPI loading, what you are saying is non-banking financial companies (NBFCs) can’t load loans directly to merchants’ accounts. If NBFCs cannot lend merchants, all the BNPL innovation that has been happening in the country goes down the drain. This gives out a message that the RBI is supporting the banks over fintechs. The BNPL sector has 8-10 million customers. And, if the regulator wants to hand over these customers to banks, there will be no investor to invest in the Indian fintech sector,” said a payment industry official.

In a statement, the Digital Lenders Association of India said all its members were committed to compliance with the letter and the spirit of all regulations. “We hope to be able to work with the RBI to implement any changes that might be required in a manner that safeguards the needs of all existing customers.”