RBI to FinTechs: Non-Banks Can’t Reload Funds to Prepaid Wallets, Cards

FinTechs were alerted that non-bank issuers of prepaid payment instruments (PPIs) can’t load cards and digital wallets with funds through credit lines, the Reserve Bank of India (RBI) announced on Tuesday (June 21), according to multiple media sources.

“The PPI- master direction does not permit loading of PPIs from credit lines. Such practice, if followed, should be stopped immediately. Any non-compliance in this regard may attract penal action under provisions contained in the Payment and Settlement Systems Act, 2007,” according to the RBI circular addressed to non-bank PPI issuers.

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Non-bank PPI issuers in India surpass 35, according to the RBI, including Amazon Pay, Bajaj Finance, Ola Financial Services, Jupiter, slice, LazyPay, Fi, Bajaj Finance, PayU Payments, Phone Pe and others.

The RBI’s edict will affect FinTech firms offering credit lines to their digital wallet customers and those providing prepaid cards in partnership with a banking partner or a non-banking partner.

Companies comprising the non-bank PPI issuers space in India offer a wide range of services. Jupiter, for example, allows customers to load their credit line in a wallet, while slice offers credit via prepaid co-branded cards issued in partnership with banks.

“We are committed to be on the right side of regulation in letter and spirit and are working with our partner bank on this,” Rajan Bajaj, founder and CEO, Slice, told Business Standard.

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According to the circular, PPI instruments can be “loaded/reloaded by cash, debit to a bank account, credit and debit cards, PPIs (as permitted from time to time) and other payment instruments issued by regulated entities in India and shall be in INR only.”

The clarification follows a rise in the number of complaints against digital lenders in the country, Inc42.com reported. RBI Governor Shaktikanta Das has said that a broad regulatory framework is being developed to handle digital lending issues.

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RedCarpet Co-founder Sandeep Srinivasa told the Business Standard: “All buy now pay later products in India works on PPI. And the whole FinTech lending ecosystem in India works on the principle of credit lines through wallets and is built on top of PPIs. If this notification is binding on everyone, then what the RBI is essentially saying is, if you are not a bank you cannot lend on any digital payment mode. … The conclusion we can draw is RBI is saying do not give an infinite line of credit when you are disbursing to PPIs.”