India’s digital lending rules cause disruption, companies plan to push back

Amazon and Flipkart logos are seen near mockups of Slice and Uni credit cards in this illustration taken August 25, 2022. REUTERS/Dado Ruvic/Illustration

MUMBAI, Aug 26 (Reuters) – India’s tougher digital lending rules have disrupted card services from foreign-backed fintech firms and jeopardized lending offers from Amazon, prompting firms to organize a pushback on lobbying, according to industry sources and a document seen by Reuters. .

Citing concerns over high rates and unfair practices, the Reserve Bank of India (RBI) said this month that a borrower must deal directly with a bank, dealing a blow to prepaid card providers and payment websites. who act as intermediaries and instantly process deferred loan payments. . Read more

India’s digital lending market has grown rapidly and facilitated $2.2 billion in digital lending in 2021-22, with startups attracting foreign backers and giving traditional banks a run for their money in the banking sector. credit.

The new rules have already hit prepaid card offers from Tiger Global, backed by Slice and Accel, startup Uni, which has partnered with banks and allowed users to split purchases into easy interest-free repayments, a feature not available with conventional credit cards.

Solving “urgent money problems” made Uni popular: its cards were swiped for an average of $67 million per month, far more than the use of credit cards from some small private and state-owned banks in India.

The RBI said the new rules should be implemented immediately, but added that “detailed instructions will be issued separately”.

Yet Uni suspended card services this week due to RBI rules, affecting hundreds of thousands of users, while Slice suspended new card issuance.

Concerns are also growing that the rules will limit plans by bigger players Amazon.com Inc (AMZN.O) and Walmart (WMT.N) Flipkart to expand their popular buy-it-now and pay-later programs that have exploited millions of users, three industry sources said.

This is because currently Amazon and Flipkart facilitate loans for their buyers. The bank pays the online merchant, while the borrower then makes the loan payments to the lender. The new RBI rules, sources say, could impact this route if online merchants cannot receive payments directly.

“It is likely that the smoothness of credit usage by the customer will be severely affected,” the Internet and Mobile Association of India, a leading industry group representing Amazon and Flipkart, said in a draft lobbying document. internal developed in collaboration with the PwC consulting group.

The group plans to push the RBI to make direct payments to merchants an exception under the new rules.

Flipkart was bullish on buy-it-now-pay-later activity, saying that in May it had doubled its user base for the service to more than 6 million in seven months.

Sources said two other groups representing payments businesses and digital lenders also plan to lobby RBI to reconsider certain provisions.

Slice said in a statement that it was committed to complying with Indian regulations, which it said were a recognition of the industry’s rapid growth. He did not comment on business challenges.

The RBI, IAMAI and PwC, and none of the other companies responded to questions from Reuters.

PROTECT CONSUMERS

Among other new rules, the RBI said fintech firms should recoup the fees for facilitating a digital loan from their banking partners, not the borrowers. And companies also need to appoint nodal agents and better control user data.

Rahul Sasi, a cybersecurity expert who was on an RBI panel that helped draft the new regulations, told Reuters that while some disruption from the new rules is inevitable, the ultimate goal is to protect consumers.

“The idea was to always let the companies operate, it wasn’t about killing the fintechs,” he said.

Nevertheless, fintech companies are worried and concerned that more regulations are on the way. Swapnil Bhaskar, chief strategy officer at Indian digital banking solutions provider “Niyo”, said the rules could lead to industry consolidation and slow an industry that has grown at a rapid pace.

The disruptions disappointed some users.

Athul Bhadran, a 28-year-old engineer, said he happily uses his Uni prepaid card to manage his budget by splitting his biggest purchases, like the 19,000 rupees ($238) he spent on a machine. wash. Now he can’t.

“I always had peace of mind if I wanted to spend a lot of money,” he said.

Reporting by Nupur Anand in Mumbai and Aditya Kalra in New Delhi; Additional reporting by Mr. Sriram; Editing by Kim Coghill

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