Card-based fintech moves to plan B for business continuity

Card-based fintech companies have started working on plan B to ensure business continuity after the Reserve Bank of India (RBI) recently banned them from loading credit lines on wallets and prepaid payment instruments (PPI).

Several fintech companies have approached leading banks to explore alternative credit models, sources told ET. These include opening a bank account – plus an additional debit card – with lenders to disburse loans, issuing co-branded credit cards instead of PPI, and disbursing credit in cash directly on the a customer’s existing bank account.

“The logic that fintechs (like us) are exploring is that there is no difference in Know Your Customer (KYC) standards for issuing a PPI or opening a bank account,” said the founder of a card-based fintech company. of anonymity, said. “This model would result in customers being given credit to their newly opened bank accounts with an additionally issued debit card, which is permitted under current rules.”

While the model may help banks add new accounts, fintech firms are unsure whether it will receive regulator approval.

“We are pushing bank compliance teams to check with RBI if such a model is permitted,” the fintech founder said.

Last month, the Payments Council of India (PCI) and several fintech companies urged the government to step in to resolve the fallout from the RBI directive. The council said full KYC (or PPI) wallets should be treated on an equal footing with bank accounts and they should be allowed to disburse credit.

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In recent weeks, fintech companies have reached out to lenders like and to explore various models so customers aren’t affected.

“Yes, we have been contacted by several fintech players, it is still early days, but we are trying to evaluate models that make business sense and are also in line with the RBI thinking,” said said the head of the card division during a conference. large private sector lender. “We are thinking about how to make customer acquisition an easy proposition for us, using these fintech companies.”

The banking regulator, however, has told some fintech companies that they would have to apply for licenses to continue operating.

“It is doubtful that a model in which a bank account is opened solely to disburse credit is permitted by the RBI. The RBI is very clear that there are sufficient guidelines and licenses in place to operate in the countries and that no new guidelines are needed. If someone needs to issue a credit card, they need to have a license to do so,” said the founder of another digital lending startup, which has been in talks with the regulator. “What the RBI has really clamped down on is regulatory arbitrage.”


of Mauritius is the only major player that offers its platform to card-based fintech companies to do business. This has helped fintech players like Slice and Uni, who have been impacted by the recent RBI decision, continue to support their existing cards.

Fintech companies ask the government to intervene_13 July_2022_Graphic_ETTECHETtech

Co-branded partnerships
The fintech companies involved are also considering partnering with banks for a co-branded credit card that stems from the past practice of issuing prepaid cards.

While the fintech entity will acquire customers and manage their experience, the credit card will be in the name of the bank. This will, however, prevent fintech companies from operating in this space.

“Fintech companies are constantly contacting banks, but there are constraints. Fintechs will not be able to flexibly change the (credit) limits of the customers they serve. Another challenge is that fintechs do not will have more hands free and will have to co-create underwriting models with partner banks that will take at least 2-3 months to develop,” said the founder of another startup that issues card-based credit products. .

Additionally, integrating fintech platforms with legacy card management systems is another challenge, the founder said.

ET was the first to report on June 23 that several fintech companies have been
Consider reissuing credit cards to comply with RBI directive.

Global fintech giant’s lending arm PayU, for example, has stopped issuing its “LazyCard” prepaid product and is now looking to issue it as a credit card in partnership with banks, ET reported citing sources.

“It’s not as easy as it sounds. Banks have become wary of the current market downturn and won’t let a fintech entity do the underwriting if it’s their product at stake. It takes a certain level of trust and an existing partnership for a bank to agree to create a joint underwriting,” said another industry executive, speaking on condition of anonymity. “There is also the issue of customer education and consent where a borrower must be informed that the product is from a certain bank. This will put a stop to the practice of giving loans in 5 minutes.”

For now, according to industry sources, card-based fintech companies are adopting the traditional method of disbursing credit to a customer’s bank account until regulations are clear on the matter.

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