Gentle watch over prepaid instruments

The Reserve Bank of India‘s (RBI) Payments Vision 2025 document (bit.ly/3xQkKjE) released last week vows to develop a conducive framework for long-term growth of prepaid instruments (PPI) with security of transactions. This signals the regulator’s intent to encourage innovation in this segment of the payments industry. Nevertheless, its recent communication to fintechs disallowing non-bank prepaid payment issuers from loading their credit lines on to their products has reportedly sent the wallet and ‘buy now, pay later’ industry into a tizzy. RBI’s concern over new-age companies assuming a lender’s role without building sufficient safeguards is not entirely misplaced. An unsecured business can boomerang if not managed properly. Its April master direction on credit and debit cards, that includes NBFCs as card issuers, has set a ₹100 crore net worth requirement for finance companies to issue cards with a prior nod from RBI to enter the card business. RBI wants fintechs to play by the rules, not by arbitrage. One bad apple can set the clock back for the entire industry.

PPI is an evolving area with multiple players and varied business models. Swiftly fine-tuning regulation and supervision for fintechs factoring in the dynamics of the financial sector makes sense. Fintechs must complement, rather than compete with, mainline banking. They can more effectively provide payment and credit services to geographically dispersed populations with small-ticket needs. The union of data, technology and money can transform finance, especially at the small end of the spectrum of individual borrowers, investors and businesses.

RBI wants to bring regulatory order in this space due to the rising impact of this segment at both macro (financial stability and cybersecurity) and micro (consumer protection) levels. Regulation must be light touch, enough to protect consumers with checks and cross-checks sensitive to the size of their business and the clientele they serve (e.g., MSMEs) and to the innovation and technology they bring to the table.


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