Reserve Bank of India (RBI) has barred all non-bank prepaid payment instrument (PPI) issuers from loading credit lines, according to its recent notification. The central bank directed PPIs to stop this practice immediately if not done already.
The notification read, “The PPI-MD 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 further mentioned, “PPIs shall be permitted to be loaded/ reloaded by cash, debit to as 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.”
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Soon after the announcement came out, CEO and co-founder of fintech startup Covnverj Parry Ravindranath said, “I’m no one to give start-up gyan but I do think fintech startups and VCs need to be forward looking on regulation if they aren’t already.”
Founder of portfolio management service (PMS) Capital Mind Deepak Shenoy tweeted, “So prepaid wallets from non-banks are told specifically that they can’t be loaded from a “credit line” (as in, on-demand credit from a lender). This changes business models for the NBFC-linked wallets that allowed a “buy now pay later” thing with on-tap loans.”
He further said NBFCs can’t have accounts that allow you to pay using them and issue cards. He explained, “NBFCs can’t have “accounts” that allow you to pay using them. You can take the money into your bank account and pay from the bank. NBFCs aren’t allows to issue cards. Wallet providers aren’t allowed to issue credit. Maybe the idea is that NBFC lending should hit a bank account.”
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Vice President of Partnerships and Special Projects at online exam preparation app testbook.com Ravisuntanjani Kumar tweeted, “Big Breaking: RBI issues guidelines on PPIs that it cannot be loaded using credit lines. Fintech founders and startup VC hates me for saying this but new-age pay later cards are not credit cards but a loan+prepaid card for the end customer.”
Jar App’s Harish N tweeted that banks such as the State Bank of Mauritius will not be affected due to the latest RBI notification. He wrote, “Guys, please note who has partnered with banks such as SBM will not be affected I guess. RBI says ‘Non Bank PPIs’ but the rationale logic says RBI will clarify and tell them also to shut it down as the essence is ‘PPI cannot be used as credit cards’!”
PPIs refer to instruments which facilitate the purchase of goods and services, conduct of financial services, enable remittance facilities, etc. against the value stored therein.
They can be issued by banks and non-banks. While banks can issue PPIs after RBI approval, non-bank PPI issuers are companies that are incorporated in India and registered under the Companies Act, 1956/2013. These entities can operate a payment system for issuing PPIs to individuals and/or organisations after receiving RBI authorisation, according to RBI FAQs dated April 11, 2022.
