Home » Technology » India’s central bank cracks down on fintech startups – TechCrunch

India’s central bank cracks down on fintech startups – TechCrunch

India’s central bank cracks down on fintech startups – TechCrunch

For nearly all fintech startups, lending has long been the end game. A notice from India’s central bank this week has thrown a wrench in the ecosystem, scrutinizing just who all can lend.

The Reserve Bank of India has informed dozens of fintech startups that it is barring the practice of loading non-bank prepaid payment instruments (PPIs) – prepaid cards, for instance – using credit lines, in a move that has prompted panic among – and existential threat to – many fintech startups and caused some to compare the decision to China’s crackdown on financial services firm last year.

Several startups including Slice, Jupiter, Uni and KreditBee have long used the PPI licenses to issue cards and then equip them with credit lines. Fintechs typically partner with banks to issue cards and then tie up with non-banking financial institutions or use their own NBFC unit to offer credit lines to consumers.

The central bank’s notice, which doesn’t identify any startup by name, is widely thought to be impacting just about everyone including buy now, pay later firms such as ZestMoney who also use a similar mechanic to offer loans to customers. Amazon Pay, Paytm Postpaid and Ola Money are cautious, too, because many believe that they might be impacted as well.

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“The rule is very confusing and strange,” said a fintech founder on condition of anonymity to avoid upsetting RBI officials. “What the RBI is essentially saying here is that don’t load credit line on PPI. The way things work with PPI currently is that the money finally goes to merchants. You’re saying now that NBFCs can’t give credit lines to merchants and their money should only be routed to bank accounts of customers.”

The founder added that this new stance risks erasing all the innovation that…

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