Non-banks not allowed to load credit lines on Prepaid Payment Instruments: RBI

The Reserve Bank of India has issued a notification barring non-bank prepaid wallets and prepaid cards from loading credit lines into these platforms. This comes in the backdrop of a boom in credit instruments such as fintech-driven credit cards and buy-now-pay-later wallets.

The RBI has clarified that its master directive on Prepaid Payment Instruments (PPIs) does not allow the loading of PPIs from credit lines, which is being done by several fintech credit card companies. These companies usually tie-up with banks or NBFCs and offer credit lines into their prepaid wallets.

“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,” the RBI noted.

What are Prepaid Payment Instruments?
RBI defines Prepaid Payment Instruments (PPIs) as payment instruments that facilitate the buying of goods and services, including the transfer of funds, financial services and remittances, against the value stored within or on the instrument. PPIs are in the form of payment wallets, smart cards, mobile wallets, magnetic chips, vouchers, etc. As per the rules, banks and NBFCs can issue PPIs.

What is a credit line?
A credit line is a predetermined borrowing limit that allows an individual or business access to credit at any time, as per need. This can be tapped by the customer until the offered limit is exceeded. It is more like a flexible loan as compared to a lump sum loan where a fixed amount is borrowed.

Why RBI barring PPIs from credit lines?
With credit products infiltrating the market, there is a renewed push by the regulator to clamp down in the interest of consumer protection. While some fintechs tie-up with banks like SBM Bank, RBL Bank, Federal Bank etc. to offer these products, some tie up with NBFCs. In some cases, the credit line is also extended by the fintech’s NBFC partners. Recently, RBI Governor Shaktikanta Das said that the regulator will soon issue norms to regulate the digital payments space.

Another reason could also be that these fintech companies are infusing liquidity into the market which is not good for inflation control in the current scenario. These fintech companies provide small credit lines but the number is increasing day by day. To control inflation, this could be one of the reasons why RBI is barring non-bank prepaid wallets and prepaid cards from loading credit lines.

Fintechs who are offering credit products in India
Most fintechs offer a credit product alongside their core offerings. Companies like Paytm, Amazon Pay, LazyPay, Simpl, etc. offer postpaid wallets with shorter credit lines. Others like Slice, Uni, Fi, OneCard, etc. offer credit cards in partnership with banks and NBFCs.

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