Exclusive: PCI Seeks RBI’s Views On Loans, Savings Account, Debit Card Offerings By Fintechs

The Payments Council of India, a non-government body under the aegis of the Internet and Mobile Association of India, is in talks with the Reserve Bank of India (RBI) to get clarity if fintechs can offer loan products on prepaid payment instruments (PPI), and explore issuance of offerings like savings accounts and debit cards by partnering with banks, sources told Inc42.

Last month, the RBI sent shockwaves in the Indian fintech community by disallowing loading of credit lines on PPIs by non-banking partners, which has raised questions on the sustainability of many fintech companies.

Two sources privy to the PCI’s discussions with the central bank said that the fintech industry is seeking clarity on the RBI’s view on the companies offering loans as against credit lines.

Besides, the PCI also wants to know the central bank’s views on allowing fintechs to offer savings accounts along with debit cards, and exploring the issuance of co-branded credit cards in partnership with banks, which also makes offerings like savings accounts and debit cards more realistic.

Notably, fintech unicorn Slice on Tuesday told its users that it will now offer a real-time term loan to customers by assessing their transaction history, user profile and the merchants they shop from. The development was first reported by The Economic Times.

While the partner non-banking finance companies (NBFCs), through which the non-banking PPI issuers were offering credit lines, can offer loans as it is allowed by the central bank, a majority of fintech firms don’t want to risk their capital and reputation without a regulatory nod from the RBI, the sources said.

“The PCI is essentially asking the RBI whether the fintechs are allowed to offer loan products (different from existing credit lines) which could go into a PPI wallet/ bank account of an end user. Both the loan provider (NBFC) and the borrower’s accounts (whether wallets or bank accounts) are permitted by the RBI. However, clear-cut regulations on this front would help the impacted companies make the move,” a fintech firm founder privy to the discussions said.

Inc42 has sent a questionnaire to the PCI on the matter. The story will be updated as and when it responds. 

“While the credit line has stopped, does that mean the loan has also stopped? Is the loan disbursal still allowed? The difference between a loan and a credit line is that the credit line is promised for the future and the loan is underwritten at that point in time. The credit line may be disbursed or may not be. The PCI also wrote to the RBI exactly the same thing,” the source quoted above said.

Why Fintech Leaders Are Pushing For Loan Products

One of the reasons why the fintech industry is pursuing loan options in place of the existing credit lines is because when it comes to loan products, there is a well-defined underwriting policy that is consistently applied, according to an industry veteran.

In revolving credit lines, the transaction approval depends on many factors, such as credit scores, and repayment history, among others, which differ from individual to individual. Besides, revolving credit lines usually involve having access to further credit once repayment is done.

However, this is not the case for loan products. Each type of loan takes different perspectives, including collaterals and credit scores, and the borrower may not be able to avail separate loans from time to time.

The PCI’s move comes at a time when the fintech industry is trying to come to terms with the RBI’s PPI notification. The notification will impact industry players such as Slice, Uni, and post-paid services such as Paytm Postpaid.

Many BNPL players source their credit from NBFCs which do not have a direct affiliation with banks to source their funds. Slice has partnered with NBFCs such as Quadrillion Finance Private Limited, DMI Finance Private Limited, Northern Arc Capital Limited, and Vivriti Capital Private Limited. Similarly, Paytm Postpaid offers credit through Clix capital, an NBFC which came into existence post acquisition of GE Capital’s commercial lending and leasing business in 2016.