“Get credit in 90 seconds. Make purchases from millions of merchants. Pay later,” says the website of LazyPay, which claims to have 60 million eligible users in India. Rival Uni, which is backed by Lightspeed Venture Partners and previously Raised $70 million in funding in December, asking customers to “pay 1/3rd anywhere” using their cards. EarlySalary claims more than 10 million downloads of its app and “help you” To” promises up to Rs 500,000 ($6,400) in instant cash.
through his difficult moments. ,
All this was happening too much. So last week, the Reserve Bank of India took out its regulatory ax and hacked a popular route to small-ticket fintech loans. according to new reserve Bank of India Guidelines, non-banks can no longer load prepaid devices – digital wallets, or stored-value cards – using credit lines. The only legitimate option for a buyer is to fill their wallet with cash, or debit their bank or credit-card accounts.
RBI has no problem with 90 seconds of credit. The regulator was set to maintain its current edge over banks in originating short-term consumer loans to non-bank finance companies, or NBFCs, especially for truly small-ticket transactions. After all, shadow banking in India is no longer covered as it was a few years ago; NBFC Now facing much stricter capital requirements, and they have to disclose the risks in their books in detail. However, the opportunism coded in their DNA makes them a natural risk taker; Fintech players may still be attracted to them, in what an RBI working group described last year as a “rent-n-NBFC model” of digital lending.
That’s when the process ceases to be simple matchmaking between the customer and the lender. Instead, in-between fintechs start offering first-loss default guarantees of up to a certain percentage of loans written by a non-bank financier. This introduces credit risk on the balance sheets of digital intermediaries, who are not required to maintain any regulatory capital.
Given how difficult it is for the RBI to break every such private arrangement between fintechs and NBFCs, the central bank has taken the controversial decision to rein in buy-in, pay-later. RBI wants every small loan to be officially celebrated as a wedding in the church of banking.
India is not the only country concerned with the spread of buy now, pay later. The UK government is also tightening the rules BNPL Loans to ensure that lenders conduct proper affordability checks and do not lure unsuspecting borrowers into the trap of unfair, over-the-top advertising. As inflation cuts into the purchasing power of households, the temptation to use interest-free loans is greater for them. But there is also the risk of falling into the vicious cycle of spending so much. Even in the UK, there is a strong undercurrent of rivalry between BNPL specialists and banks. Following a Barclays plc report calling for stronger regulation of the sector, Klarna’s UK business head Alex Marsh said it was an attempt by the London-headquartered bank to step up its “high cost” loan installment offering.
In India, the typical credit period for a zero-interest loan is between 20 and 40 days, although durables purchased on installment plans come with longer repayment schedules and higher credit limits. BNPL is still nascent, but is expanding at a rapid pace due to the growing popularity of both e-commerce and digital payments. In January, Mumbai
Securities predicts that “pay later” merchandise value will grow 74% each year to create a $56 billion market by March 2026. However, the problem lies in the elusive path to profitability. “The BNPL model has a high reliance on late fees,” the brokerage said in its report.
Fintech players and shadow banks will undoubtedly lobby against handing over the entire industry to banks on a platter. (The shares on June 21, a day after the new guidelines of RBI
End Payment Services Ltd., the only publicly traded credit-card business in India, jumped nearly 7%.) In addition, BNPL is an innovation that now includes large tech players such as Apple Inc. and heavyweight banks such as JPMorgan Chase & Co. are. Klarna, Afterpay Ltd. And disrupt startups like Affirm Holdings. India cannot be left untouched by the mainstream of pay letter innovation.
Perhaps a compromise solution will be found between banks, non-bank lenders and fintechs to share the loot. However, one thing is certain: BNPL still has to prove that it is an economically sound and socially beneficial product. If regulatory arbitrage – such as not reporting all defects to credit bureaus – is how the industry will attract capital, then the RBI is looking to clip its wings before it is too late.