RBI cracking down on Indian FinTech Startups
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| Credit: CXO VOICE |
INTRODUCTION
• The growth in Indian fintech startups has been exponential and the market is expected to reach USD 150 billion in valuation by 2025, Minister of State for Finance Pankaj Chaudhary said around two weeks back.
• In fact, India is currently world's third largest fintech ecosystem after China and USA respectively.
• Fintech startups in India have raised over $15 billion from various foreign investors. But some recent announcements and policy changes by RBI has brought great turmoil in the Indian FinTech industry.
• The Reserve Bank of India released it's new fintech regulation which prohibits non-bank prepaid payment instruments (PPIs) such as non-banking wallets and pre-paid cards.
• This might have a significant impact on fintech companies and in turn benefit the banks.
• This RBI's directive caused widespread confusion in the industry. The Fintech industry serve over 8 million customers in India, and with no further clarity customers are not obliged to payback their credit which significantly adds stress on the firm.
THE PROBLEM CAUSED
• There are several 'Buy Now, Pay Later' companies in the Fintech industry they offer credit lines on the PPIs (non-bank pre-payment instruments ) and they tie up with the NBFCs to do so.
• NBFCs are nothing but non-banking financial institutions of which some examples are Fullerton India Credit Company, Aditya Birla Finance, Bajaj Finserv etc.
• NBFC provides banking services without a banking license.
• This makes difficult for the RBI to track transactions and regulate the providers and hence this was one of the major factor for the decision taken.
THE EFFECT
• A lot of companies providing credit lines on PPIs and the BNPL companies( Buy Now, Pay Later) are in turmoil because of this.
• This circular could affect players like Slice, Unicards etc which are adding a lot of customers through this route of PPI and BNPL
• So, until any futher clarification on RBI's behalf with respect to this announcement, startups like Jupiter and KreditBee have already stopped customers from making transaction on these credit lines.
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