RBI Has Banned Non-Bank Entities From Giving Credits: Paytm Postpaid, Jupiter, Ola Money Stops Credit Services

RBI has barred NBFCs from loading credit lines onto prepaid payment instruments (PPIs) such as e-wallets or prepaid cards.

What this means

This means that while loading a wallet using a bank issued card is allowed, taking a line of credit from an NBFC and then loading the wallet of the consumer is not allowed.

Players like Slice, OneCard, and Uni, primarily known as challenger credit cards, as well as post-paid services such as Paytm Postpaid, Ola Postpaid, and Flipkart Pay Later, will be impacted by this.

Deepak Shenoy of Capital Mind explained that NBFCs can’t have accounts that allow you to pay using them.

Impact

As a result of the announcement, fintech startups ?Jupiter? and ?EarlySalary? have suspended their credit-linked card services.

Jupiter Edge informed customers that it was halting its services.

As for Paytm Postpaid, the ‘buy now, pay later has remained unavailable on third-party apps such as ?Zomato? and ?Swiggy? since RBI’s announcement on Tuesday.

No bypassing banking system

You can take the money into your bank account and pay from the bank.

NBFCs aren’t allowed to issue cards and Wallet providers aren’t allowed to issue credit.

He posited that the main concern behind the move has been the NBFC/wallet/mutual fund ecosystem that can be used to bypass the banking system completely.

Consumer protection

Another reason may be consumer protection.

Macquarie Capital Securities noted that many customers were unknowingly taking a line of credit through their wallets at the point of check-out 

What next?

Sameer Singh Jani of Digital Fifth said that the impacted fintech companies might have to acquire an NBFC licence and a credit card licence so they have regulatory support.

Startups might also consider partnering with banks for savings accounts with credit lines, which is within the RBI framework, or at least close to it.

Impact on customers

Challenger credit cards may shrink to just being prepaid cards.

Their customers could potentially go back to ‘no credit arena again’, as they may not qualify the bank’s credit approval criteria.

Sadly, they were a blessing from the inclusion perspective (students and young professionals) and the change would damage customer credit availability.