Several fintech firms have reached out to major banks alternative credit modelSources told ET. These include opening a bank account – plus an add-on debit card – with lenders for lending, issuing co-branded credit cards instead of PPIs and disbursing the credit as cash directly into the customer’s existing bank account. .
The founder of a card-based fintech company, who spoke to the condition, said, “The rationale is that fintechs (like us) are finding that there is no difference in Know Your Customer (KYC) norms for issuing PPIs or opening bank accounts. Is.” Said of anonymity. “This model will disburse credit to customers in their newly opened bank accounts, on top of which a debit card will be issued, which is permitted under the extant rules.”
While this model could help banks add new accounts, fintech firms are unsure whether it will get regulatory approval.
“We are prompting the compliance teams of banks to check with the RBI whether such a model is allowed,” said the founder of the fintech firm.
Last month, the Payments Council of India (PCI) and several fintech firms urged the government to take steps to address the fallout of the RBI directive. The council said that full KYC wallets (or PPIs) should be treated at par with bank accounts, and they should be allowed to disburse credit.
Find stories that interest you
Over the past few weeks, fintech firms have reached out to lenders to explore different models so that customers are not affected.
“Yes, we have been approached by several fintech players, it is still early days, but we are trying to assess models that make business sense and are also in line with RBI’s thought process,” said Cards Division The chief said. Large private sector lenders. “We are looking at how to make customer acquisition an easier proposition for us using these fintech firms.”
However, the banking regulator has asked some fintech firms to take licenses to continue operating.
“It is doubtful that a model where a bank account is opened just for giving credit would be allowed by RBI. RBI is very clear that there are enough guidelines and licenses to operate in the country and no new guidelines are required. If one needs to issue a credit card, he must have a license to do so,” said the founder of another digital loan startup, which is in talks with the regulator. “What RBI is really cracking down on is regulatory arbitration.”
in present,
Mauritius is the only significant player providing its platform to card-based fintech companies to do business. This has helped fintech players like Slice and Uni, who have been hit by the recent RBI move, to continue backing their existing cards.
ETtech
co-branded partnership
Affected fintech companies are also looking at partnering with banks for a co-branded credit card from the age-old practice of issuing prepaid cards.
While the fintech entity will acquire the customers and manage their experience, the credit card will be in the name of the bank. However, this will prevent fintech firms from operating in this area.
“Fintech firms are constantly reaching out to banks, but there are hurdles. Fintechs will not be able to flexibly change customer service (credit) limits. Another challenge is that fintechs will no longer have a free hand and will be partner banks. To jointly create an underwriting model with U.S. Bank, which will take at least 2-3 months to develop,” said the founder of another startup issuing card-based credit products.
In addition, the integration of fintech platforms with legacy card management systems is another challenge, the founder said.
ET first reported on June 23 that several fintech firms have been
Looking to re-issue credit cards to comply with RBI’s directive.
For example, LazyPay, the lending arm of global fintech giant PayU, has
Stopped issuing its LazyCard prepaid product And is now looking to issue it in the form of a credit card in partnership with banks, ET reported citing sources.
“It is not as easy as it looks. Banks have become wary of the current market downturn and will not allow underwriting a fintech entity if it is their product on the line. This would have required some level of trust and an existing partnership. bank to agree to form a joint underwriting,” said another industry executive requesting anonymity. “There is also the issue of customer education and consent where a borrower needs to inform that the product belongs to a certain bank. This will put a brake on the practice of lending in 5 minutes.”
Industry sources said, for now, card-based fintech firms are adopting the traditional method of distributing credit to a customer’s bank account, until there is regulatory clarity on the issue.