NBFCs Can Issue Credit Cards With Prior Approval From RBI; Fintechs To Reap Benefits

Non-Banking Financial Companies (NBFCs) registered with the Reserve Bank of India (RBI) can issue credit cards to potential users upon receiving a prior approval from the RBI, the central bank said while offering credit and debit card approval directions for various fintechs. 

The central bank further said that it has been receiving requests from NBFCs for permission to issue debit, stored value, smart cards and value added cards, among others.  

With regard to credit card business, any company including a non-deposit taking company intending to engage in this activity requires a certificate of registration, apart from RBI’s specific permission to enter into the business, the central bank said in its Master Direction – Credit Card and Debit Card – Issuance and Conduct Directions, 2022.

Besides, the prerequisite is a minimum net owned fund of INR 100 Cr and subject to other terms and conditions of the RBI, it added.

“Without obtaining prior approval from the Reserve Bank, NBFCs shall not issue debit cards, credit cards, charge cards, or similar products virtually or physically,” the RBI said in its circular applicable to all scheduled commercial banks and non-bank lenders.

On interest rate charges, the RBI said that the card issuers may be guided by the instructions on the interest rate on advances issued. “Interest charged on credit cards shall be justifiable having regard to the cost incurred and the extent of return that could be reasonably expected by the card-issuer,” the RBI said. 

Card issuers will be required to prescribe an interest rate ceiling in line with other unsecured loans, including processing and other charges, in respect of credit cards as part of their board approved policy.

Meanwhile, fintech startups have appreciated the development. Kartik Jain, cofounder, Karbon Card, told Inc42 that NBFCs play a major role in enabling credit to large numbers of small and medium enterprises in the country. “This is a very welcome change for the ecosystem and reflects the progressive stance of RBI towards enabling innovation.”   

Karbon Card offers corporate cards to small businesses, enterprises, corporates and startups. It offers varied expense management features such as petty cash management, expense report automation, prepaid cards for business expenses, travel expense management, among others.

“The RBI has been keeping pace with the ever evolving needs of users. This regulation is definitely in line with that and will open up easy access to credit-based solutions to our citizens. However, the RBI and the financial institutions should have checks and balances in place to ensure that these benefits should not be abused,” Neeraj Tulsyan, cofounder of Hubble, told Inc42.    

Hubble helps brands acquire new customers, drive repeat purchase rates and reduce working capital requirements through advance payments received from customers.

However, many fintech experts, who do not wish to be named, told Inc42 that all fintechs do not aspire to become NBFCs and do not want to deal in credit, debit cards or any kind of physical cards. They do all their translations digitally and through their own apps. This is a welcome move for the NBFCs who were looking to launch credit cards and not for every fintech startup. 

Furthermore, OKCredit, Khatabook, BharatPe all are fast-growing fintech startups. All these fintech startups have applied to get their own NBFC licenses.

Fintech startups such as RazorPay, Instamojo, Enkash, BharatPe, and Paytm have already collaborated with banks in the country so that they can offer loan facilities to their customers.

For instance, Flexmoney offers checkout finance products to merchants and works closely with NBFCs and banks to provide BNPL, and other online credit facilities. The startup currently has over 25 Mn pre-approved ‘cardless’  EMI credit lines from six banks and NBFCs on its network platform. 

Meanwhile, India’s fintech startups raised around $8 Bn across 280 funding deals in 2021, a record high in both cases, while the average investment ticket size stood at $33 Mn. 

Among the fintech subsectors, lending tech and digital payment startups bagged the most venture capital inflow in 2021. Together, they accounted for 68% of the total funding amount and 44% of the deal count.

India’s overall fintech market opportunity is estimated to be $1.3 Tn by 2025, growing at a CAGR of 31% during 2021-2025. Of this, lending tech is likely to account for 47% ($616 Bn), followed by insurtech at 26% ($339 Bn) and digital payments at 16% ($208 Bn), according to a report by Inc42.