RBI puts a stop to credit lines on non-bank prepaid instruments

Posted By
10Pointer
Categories
Economy
Published
23rd Jun, 2022

Context

In a move that could impact a number of fintech players, the Reserve Bank of India (RBI) has asked non-bank prepaid payment instruments (PPIs) issuers to not load their PPI instruments through credit lines.

In a circular addressed to the non-bank PPI issuers, the RBI said,

“The PPI- master direction does not permit loading of PPIs from credit lines. Such practice, if followed, should be stopped immediately. Any non-compliance in this regard may attract penal action under provisions contained in the Payment and Settlement Systems Act, 2007”.

Key-highlights of the RBI’s directions

RBI’s master direction on prepaid payment instruments (PPIs) does not permit loading of PPIs from credit lines — a practice being undertaken by several fintech credit card companies.
These companies typically tie up with banks or NBFCs and offer credit lines into their prepaid wallets.
Such practice, if followed, should be stopped immediately.
Any non-compliance in this regard may attract penal action under provisions contained in the Payment and Settlement Systems Act, 2007.

What are PPIs?

The prepaid payment instruments (PPIs) are payment instruments that facilitate the buying of goods and services, including the transfer of funds, financial services, and remittances, against the value stored within or on the instrument.
PPIs are in the form of payment wallets, smart cards, mobile wallets, magnetic chips, vouchers, etc.
As per the regulations, banks and NBFCs can issue PPIs.

Credit line

A credit line is a preset borrowing limit that allows an individual or a business access to credit at any time, as per need.
It can be tapped into by the customer till the limit offered is not exceeded.
It is like a flexible loan as against a lump-sum loan where a fixed amount is borrowed.

Today, most fintechs offer a credit product alongside their main offerings. Companies like Paytm, Amazon Pay, LazyPay, Simpl, etc offer postpaid wallets with small credit lines. Others such as Slice, Uni, Fi, OneCard, etc. offer credit cards in partnership with banks and NBFCs.

What is the need of such a move?

Consumer safety: With credit products infiltrating the market, there is a renewed push by the regulator to clampdown in the interest of consumer safety.
Proper regulation: While some fintechs tie up with banks like SBM Bank, RBL Bank, Federal Bank, etc. to offer these products, some tie up with NBFCs. In some cases, the credit lines are also extended by the fintech’s NBFC partners.