India’s digital lending rules spark disruption, companies plan to fight back

India’s digital lending rules spark disruption, companies plan to fight back

By Nupur Anand and Aditya Kalra

MUMBAI (Reuters) – India’s tougher digital lending rules have disrupted card services for foreign-backed fintech firms and jeopardized Amazon’s loan offerings, prompting companies to draw a lobbying backlash, according to industry sources. and a document seen by Reuters.

Citing concerns about high fees and unfair practices, the Reserve Bank of India (RBI) said this month that a borrower must deal directly with a bank, striking a blow to prepaid card providers and shopping sites that act as intermediaries. and instantly process deferred loan payments. .

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

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

Solving “time-sensitive cash crunches” made Uni popular: its cards were stolen for $67 million on average monthly, far more than the credit card usage of some smaller public and private banks in India.

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

Still, Uni suspended its card services this week due to RBI rules, reaching hundreds of thousands of users, while Slice suspended issuing new cards.

Concerns are also growing that the rules affect plans by larger companies such as Amazon.com Inc and Walmart’s Flipkart to expand their popular buy-now, pay-later schemes, which have reached millions of users, three industry sources said.

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

“The ease of obtaining credit for the customer is likely to be severely impacted,” the Internet and Mobile Association of India, one of the leading industry groups representing Amazon and Flipkart, said in a collaborative draft internal lobbying document. with the PwC consulting group.

The group plans to pressure the RBI to create direct payments to merchants as an exception under the new rules.

Flipkart is optimistic about the buy-now-pay-later deal, saying in May it had doubled its user base for the service to more than 6 million in seven months.

Sources said that two other groups representing payment companies and digital lenders also plan to pressure the RBI to reconsider some provisions.

Slice said in a statement that it is committed to complying with Indian regulations, which are a recognition of the rapidly growing industry. He did not comment on the challenges of the business.

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

PROTECTING CONSUMERS

Among other new rules, the RBI said fintech companies must recover charges for facilitating a digital loan from their banking partners, not borrowers. And companies should also appoint nodal employees and have better checks on user data.

Rahul Sasi, a cybersecurity expert who sat on an RBI panel that helped draft the new regulations, told Reuters that while some disruptions due to the new rules are unavoidable, the ultimate goal is to protect consumers.

“The idea was always to let the business run, it wasn’t about killing fin-techs,” he said.

However, fintech companies are concerned and fear that more regulations are on the way. Swapnil Bhaskar, head of strategy at Indian digital banking solutions provider Niyo, said the rules could lead to industry consolidation and slow down an industry that has grown at a rapid pace.

The outages let some users down.

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

“I always had the peace of mind if I wanted to spend a large amount,” he said.

(Reporting by Nupur Anand in Mumbai and Aditya Kalra in New Delhi; additional reporting by M. Sriram; editing by Kim Coghill)

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