Credit line

No line of credit on prepaid wallets: what it means for users and wallet companies

In a move that could affect several fintech players, the Reserve Bank of India on Tuesday non-bank prepaid instruments (IPP) requested issuers not to charge them with a line of credit, a predefined borrowing limit.

The signal from India’s central bank seems to be that it wants to put an end to Buy-Now-Pay-Later (BNPL) wallets which are usually tied to banks or non-bank financial companies (NBFCs) and offer lines of credit or a short loan in the prepaid wallet. The problem is that often users do not realize that the wallet amount is a loan and end up paying high interest for the money spent.

According to industry experts, many of these BNPL programs will have to stop publishing the RBI order. “The recent circular from RBI will impact the growth of digital lending, particularly in the BNPL category. The buy-it-now and pay-later programs offered by all non-bank IPPs will come to an abrupt end. Fintechs and neobanks that were bending the rules by taking the bank’s PPI and offering lines of credit with the help of NBFC partners will face the music,” an industry executive told indianexpress. com.

But BNPL schemes via BNPL bank card readers like HDFC Flexipay, ICICI Paylater, HDFC Payzapp, SBI YONO, ICICI Pockets, among others, will not be impacted.

According to the RBI, there are more than 35 non-bank PPI issuers in the country, including Amazon Pay, Bajaj Finance, Ola Financial Services, PayU Payments Pvt Ltd and Phone Pe Pvt Ltd. Simply put, charging Ola Money or Amazon Pay using a credit or debit card is allowed. However, taking a line of credit from an NBFC and charging the consumer’s wallet is now prohibited.

This move will most likely impact lending platforms like Slice and Uni that provide on-demand loans and send them directly to users’ payment wallets. Any wallet that primarily uses NBFCs to disburse gold loans, personal loans, and even microfinance loans through wallets will be impacted by the RBI circular.

Amazon Pay Later could also be impacted by this. The company offers instant credit under this program, which can be used to purchase any product on the platform and can be paid in easy EMIs. Amazon Pay is partnered with IDFC First Bank to provide loans. Indianexpress.com has contacted Amazon for comment.

There is also Ola Money Postpaid which lends a line of credit to the business. Ola partnered with NBFC to provide the line of credit which could also be deactivated.