India’s digital loan rules are causing disruption, companies plan to cut back
Mumbai:
India’s stricter digital lending rules have disrupted the card services of foreign-backed fin-tech companies and jeopardized Amazon’s loan offerings, prompting companies to map out a lobbying pushback, according to sources from the industry and a document accessed by Reuters.
Citing concerns about high fees and unfair practices, the Reserve Bank of India (RBI) said this month that a borrower must deal directly with a bank, dealing a blow to prepaid card providers and shopping websites that act as intermediaries and immediately process deferred loan payments.
India’s digital credit market has grown rapidly, facilitating $2.2 billion in digital lending in 2021-22, with startups attracting foreign lenders and giving traditional banks a run for their money in the credit sector.
The new rules have already impacted the prepaid card offerings from Tiger Global-backed Slice and Accel-backed startup Uni, which partnered with banks and allowed users to split purchases into interest-free, convenient refunds, a feature not available with typical credit cards. .
Solving “time-sensitive money crises” made Uni popular: its cards were stolen every month for an average of $67 million, far more than the credit card usage of some smaller private and public banks in India.
The RBI has said the new rules should be implemented immediately, but added that “detailed instructions will be issued separately”.
Still, Uni has suspended its card services this week due to RBI rules, affecting hundreds of thousands of users, while Slice has suspended the issuance of new cards.
Concerns are also mounting that the rules will curb the plans of bigger players Amazon.com Inc and Walmart’s Flipkart to expand their popular buy-now-pay-later schemes, which have tapped into millions of users, three sources from the US said. sector.
That’s because Amazon and Flipkart are currently facilitating loans for their customers. The bank pays the online merchant, while the borrower later pays the loan to the lender. The new RBI rules, sources say, could affect this route if online merchants are unable to receive payments directly.
“It is likely that the seamlessness of customer use of credit will be severely impacted,” the Internet and Mobile Association of India, a leading industry group representing Amazon and Flipkart, said in a draft internal lobbying document prepared in conjunction with advisory group PwC.
The group plans to urge the RBI to remove direct payments to merchants as an exception under the new rules.
Flipkart has been optimistic about the buy-now-pay-later business, saying in May that it doubled its user base for the service to more than 6 million in seven months.
Sources said two other groups representing payment companies and digital lenders also plan to lobby RBI to reconsider some provisions.
Slice said in a statement that it is committed to complying with Indian regulations, which it says is a recognition of the fast-growing industry. It did not comment on the business challenges.
The RBI, IAMAI and PwC, and none of the other companies responded to questions from Reuters.
Protecting consumers
Among other new rules, the RBI has said that fin-tech companies must recover the costs of facilitating a digital loan from their banking partners, not the borrowers. And the companies also need to appoint nodal officers and better monitor user data.
Rahul Sasi, a cybersecurity expert who was part of an RBI panel that helped draft the new regulations, told Reuters that while some disruption from the new rules is inevitable, the ultimate goal is to protect consumers.
“The idea was to keep the companies running all the time, it wasn’t about killing the fin-techs,” he said.
Nevertheless, fintech companies are concerned and fear more regulation. Swapnil Bhaskar, head of strategy at Indian digital banking solutions provider “Niyo,” said the rules could lead to industry consolidation and slow down a fast-growing sector.
The outages have disappointed some users.
Athul Bhadran, a 28-year-old engineer, said he liked to use his Uni prepaid card to manage his budget by splitting his larger purchases, such as the 19,000 rupees ($238) he spent on a washing machine. Now, he can’t.
“I always had the peace of mind when I wanted to spend a large amount of money,” he said.
(Except for the headline, this story has not been edited by DailyExpertNews staff and has been published from a syndicated feed.)
