What Is The Issue, What Will Be Its Impact


As the Reserve Bank of India (RBI) through a notification to non-bank fintech players has said that prepaid payment instruments (PPIs) cannot be loaded with credit lines, the move is likely to impact financial technology players like Jupiter, LazyPay and Fi, among others. The move comes at a time when the RBI has said that it will soon bring in regulation for fintech players.

The latest circular communicated to fintech players complements the ‘Master Directions on Prepaid Payment Instruments (PPIs)’ issued in August last year, to provide a framework for authorisation, regulation and supervision of entities issuing and operating PPIs in the country. Here’s what the latest circular says and who will be impacted by this:
What is the Issue?

Financial technology firms, such as Jupiter and LazyPay, have a tie-up with banks or non-banking financial companies (NBFCs) to offer customers a credit line. The notification by the central bank was addressed to non-bank PPI issuers.

According to Investopedia, a credit line is a flexible loan from a bank or financial institution. It is similar to a credit card that offers you a limited amount of funds — funds that you can use when, if, and how you wish — a line of credit is a defined amount of money that you can access as needed and then repay immediately or over a prespecified period of time.

In the notification communicated to fintech companies, the RBI said the master direction on prepaid payment instruments (PPIs) issued last year only permits for these instruments “to be loaded/reloaded by cash, debit to a bank account, credit and debit cards, PPIs (as permitted from time to time) and other payment instruments issued by regulated entities in India and shall be in INR only”.

The master direction does not permit loading of PPIs from credit lines. “Such practice, if followed, should be stopped immediately. Any non-compliance in this regard may attract penal action under provisions contained in the Payment and Settlement Systems Act, 2007,” it said.
What Are PPIs?

According to the master direction on PPIs issued in August last year, PPIs are the instruments that facilitate purchase of goods and services, financial services, remittance facilities, etc., against the value stored therein.

As per the RBI, PPIs are classified under two types — small PPIs, and full-KYC PPIs. Small PPIs are issued by banks and non-banks after obtaining minimum details of the PPI holder. They can be used only for the purchase of goods and services, whereas funds transfer or cash withdrawal from such PPIs shall not be permitted. Full-KYC PPIs are issued by banks and non-banks after completing Know Your Customer (KYC) of the PPI holder. These PPIs shall be used for purchase of goods and services, funds transfer or cash withdrawal.
Who Will Be Impacted?

Credit lines have been becoming a popular way to load prepaid cards among fintechs in the ‘Buy Now, Pay Later’ (BNPL) segment. The RBI’s latest move will impact credit line-linked wallets and prepaid cards that allowed BNPL, including LazyPay, Uni, Slice, MobiKwik, PostPe, EarlySalary and Ola Postpaid, among others.

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