Card-based fintech firms have started working on Plan B to ensure business continuity after the Reserve Bank of India (RBI) recently barred them from loading credit lines onto wallets and prepaid payment instruments (PPIs).
Several fintech firms (Slice’s, LazyPay, OneCard, Paytm Postpaid, UniCard,…) have reached out to leading banks to explore alternative credit models, sources told ET. These include opening a bank account plus an add-on debit card — with lenders to disburse loans, issuing co-branded credit cards instead of PPIs and disbursing the credit as cash directly into a customer’s existing bank account.
“The logic that fintech (like us) are exploring is that there are no differences in Know Your Customer (KYC) norms for issuing a PPI or opening a bank account,” the founder of a card-based fintech company, who spoke on condition of anonymity, said. “This model would lead to credit being disbursed to customers in their newly opened bank accounts with a debit card being issued on top of it, which is permitted under the current rules.”
Though the model could help banks add new accounts, fintech firms are unsure whether this will receive the regulator’s approval.
“We are pushing compliance teams of banks to check with RBI if such a model is allowed,” the fintech firm founder said.
Over the past few weeks, fintech firms have reached out to lenders such as Axis Bank and HDFC Bank and ICICI Bank to explore various models so that customers are not affected.
“Yes, we have been contacted by several fintech players, it is still early days, but we are trying to assess models which make business sense and are also in line with the RBI’s thought process,” said the chief of the cards division at a large private sector lender. “We are thinking about how to make customer acquisition an easy proposition for us, using these fintech firms.”
The banking regulator has, however, told some fintech firms that they should seek licences to continue operating.
At present, the State Bank of Mauritius is the only significant player that offers its platform to card-based fintech companies to conduct business. This has helped fintech players like Slice and Uni, which have been impacted by RBI’s recent move, to continue supporting their existing cards.
Co-branded Partnerships
The affected fintech firms are also thinking of partnering with banks for a co-branded credit card from the earlier practice of issuing prepaid cards.
While the fintech entity will acquire customers and manage their experience, the credit card will be in the bank’s name. This will, however, constrain fintech firms from operating in this space.
Global fintech giant PayU’s lending arm LazyPay, for example, has stopped issuing its ‘LazyCard’ prepaid product and is now looking to issue it as a credit card in partnership with banks, ET reported citing sources.
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