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Thursday, July 07, 2022

No credit line on prepaid wallets: What it means for users and wallet companies 

The central bank wants to put a full stop to buy-now-pay-later wallets.

Written by Mehab Qureshi | Pune |
Updated: June 22, 2022 8:59:44 pm
The problem is that many times users don’t realise the wallet amount is a loan and end up paying a high interest for the money spent. (File Image)

In a move that could affect several fintech players, the Reserve bank of India Tuesday asked non-bank prepaid instruments (PPIs) issuers to not load these with a credit line, a preset borrowing limit.

The signal from India’s central bank seems to be that it wants to put a full stop to buy-now-pay-later (BNPL) wallets which typically tie-up with banks or Non-Banking Financial Companies (NBFC) and offer credit lines or a short loan into the prepaid wallet. The problem is that many times users don’t realise the wallet amount is a loan and end up paying a high interest for the money spent.

According to industry experts, many of these BNPL schemes will have to stop post the RBI order.  “RBI’s recent circular will impact the growth of digital lending, especially in the BNPL category. Buy now pay later schemes offered by all non-bank PPIs will come to a grinding halt. Fintechs and neobanks who were circumventing rules by taking bank’s PPI and offering credit lines with the help of NBFC partners will face the music,” an industry executive told indianexpress.com.

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But BNPL schemes through bank card BNPL players like HDFC Flexipay, ICICI Paylater, HDFC Payzapp, SBI YONO, ICICI Pockets, among others won’t be impacted.

According to the RBI, there are over 35 non-bank PPI issuers in the country, including Amazon Pay, Bajaj Finance, Ola Financial Services, PayU Payments Pvt Ltd, and Phone Pe Pvt Ltd. In simple terms, loading Ola Money or Amazon Pay using a credit or a debit card is allowed. However, taking a line of credit from an NBFC and loading the wallet of the consumer is now banned.

This move will most likely impact loan lending platforms like Slice and Uni that provide on-tap loans and send it to the payment wallet of the users directly. Any wallet that essentially uses NBFCs for disbursing gold loans, personal loans and even microfinance loans through wallets will be impacted by the RBI’s circular.

Amazon Pay Later could also be impacted under this. The company offers instant credit under this scheme, which can be utilised for buying a product on the platform and can be paid in easy EMIs. Amazon Pay is in partnership with IDFC First Bank to provide loans. Indianexpress.com has reached out to Amazon for a comment.

There’s also Ola Money Postpaid that lends a line of credit to the company. Ola has partnered with NBFCs to provide the credit line which could also be disabled.

Meanwhile, Paytm has its own postpaid services as well. Paytm claims it won’t be affected as it has its own scheduled Paytm Payments Bank approved in 2021.  There’s no doubt that the RBI order has caused some confusion and many companies are still figuring out how their products are impacted.

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