What he says and who will be touched
As the Reserve Bank of India (RBI), through a notification to non-banking fintech players, has stated that Prepaid Payment Instruments (PPIs) cannot be loaded with lines of credit, this decision is likely to impact fintech players like Jupiter, LazyPay, and Fi, among others. The move comes at a time when the RBI has said it will soon introduce regulations for fintech players.
The latest circular issued to fintech players complements the “Principal Guidelines on Prepaid Payment Instruments (PPI)” published in August last year, to provide a framework for the authorization, regulation and supervision of entities issuing and operating PPIs in the country. Here is what the last circular says and who will be impacted by it:
What is the solution?
Fintech companies, such as Jupiter and LazyPay, link up with banks or non-bank financial companies (NBFCs) to offer customers a line of credit. The notification by the central bank was addressed to non-bank PPI issuers.
According to Investopedia, a line of credit is a flexible loan from a bank or financial institution. It’s similar to a credit card that gives you a limited amount of funds – funds you can use when, if, and how you want – a line of credit is a set amount of money that you can access need and that you repay immediately. or over a predefined period of time.
In the notification issued to fintech companies, the RBI said that the main directive on prepaid payment instruments (PPIs) issued last year only allows such instruments “to be loaded/topped up in cash, debit to a bank account , credit and debit cards, PPI (as permitted from time to time) and other payment instruments issued by regulated entities in India and must be in INR only”.
The main management does not allow the loading of PPI from credit lines. “Such a practice, if followed, should be stopped immediately. Any non-compliance in this regard may result in criminal prosecution under the provisions contained in the Payments and Settlement Systems Act 2007,” he said.
What are PPIs?
According to the PPI Prime Directive issued in August last year, PPIs are the instruments that facilitate the purchase of goods and services, financial services, funds transfer facilities, etc., against the value that is stored there.
According to the RBI, PUPs are categorized into two types – small PUPs and full KYC PUPs. Small PPIs are issued by banks and non-banks after obtaining minimum details of the PPI holder. They can only be used for the purchase of goods and services, while remittances or cash withdrawals from these IPPs are not permitted. Full-KYC PPIs are issued by banks and non-banks after completing Know Your Customer (KYC) of the PPI holder. These PPIs must be used for the purchase of goods and services, the transfer of funds or the withdrawal of cash.
Who will be impacted?
Lines of credit have become a popular way to top up prepaid cards among fintechs in the buy now, pay later (BNPL) segment. The latest RBI decision will impact Line of Credit linked wallets and prepaid cards that have authorized BNPL, including LazyPay, Uni, Slice, MobiKwik, PostPe, EarlySalary and Ola Postpaid, among others.
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