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PAST IMPERFECT, FUTURE TENSE: RBI’S FINTECH AGENDA

By Naina Sood
December 23, 2022, Updated on : Fri Dec 30 2022 11:54:34 GMT+0000


Fintechs are waiting for regulatory bodies to offer more clarity on a number of
issues that were raised in 2022, or even earlier, such as on the much hyped New
Umbrella Entities.
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Fintech startups came in for a hard realisation this year—always anticipate
regulatory conflict. 




With the Reserve Bank of India undertaking a closer oversight of the sector this
year and issuing guidelines that changed the course of several startups,
particularly for digital lenders, it’s become imperative to stay within
boundaries yet to be drawn.




The central bank has been busy trying to rein in digital lenders to ensure
customer and data protection, curtail mis-selling and unethical recovery
practices, and build more secured offerings. 




For this, it introduced a slew of guidelines, including curtailment of lending
through prepaid payment instruments (PPI) such as prepaid cards and wallets, a
ban on short-term loan securitisation, and scrutiny on the issuance of
licences. 




While startups offering ‘buy now, pay later’ products were among the most
affected, the wider impact of RBI’s increased oversight of the fintech sector is
expected to play out in the coming year. 




Digital lending will remain a focus, but industry stakeholders are also
anticipating the rollout of credit via UPI and more nonbanks to be allowed to
issue credit cards. 




Offline payment aggregators are also likely to come under the purview of RBI,
and would need to apply for a licence to operate, just like online gateways. 




Industry stakeholders are also awaiting more clarity on the much-hyped ‘new
umbrella entities’, which had Tata Group, Reliance’s Jio Platforms, Facebook,
Google, Flipkart, Amazon, leading banks and other large companies forming
consortiums seeking NUE licences.




YourStory spoke with sector experts to understand what fintechs, particularly in
the lending space, could expect in 2023 from a regulatory point of view. Here’s
a snapshot:


GUIDELINES SPILL OVER: FLDG, TRANSACTION DATA 

One of the major aspects of the Digital Lending Guidelines introduced by RBI in
September was the First Loan Default Guarantee arrangement between banks and
fintechs. This is meant to ensure that fintech startups compensate their partner
banks or non-banking financial companies that actually extend credit to their
customers in case of loan defaults.




Sugandh Saxena, CEO at Fintech Association for Consumer Empowerment, expects the
guarantee proposal to be among the core topics of discussion during the first
half of 2023. 




The regulator is expected to ensure implementation of the guidelines and offer
clarity on several of its sub-sects, including on prepaid cards, in the coming
year.  




Overall, the industry expects more guidelines around disclosures and collection
practices, says Gaurav Chopra, Founder at IndiaLends, and a founding member of
the Digital Lending Association of India.

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WHITELIST OF LOAN APPS 

The Finance Ministry led a major crackdown this year on illegal digital loan
apps, several run by unknown entities with Chinese links. 




The ministry froze their assets and stepped up scrutiny on online payment
gateways that facilitated these transactions. The Enforcement Directorate blamed
the gateways for “lax due diligence” and “non-reporting of suspicious
transactions”, which it said allowed the racket to flourish. 




The crackdown is expected to continue in 2023 with more aggressive audits for
gateways, according to the founder of a payments fintech startup. 




RBI, meanwhile, is preparing a “whitelist” of lending apps that can be hosted on
app stores.  


NBFC CREDIT CARDS 

So far, RBI has been stringent on the issuance of credit cards by non-banking
entities. At present, most NBFCs can only distribute credit cards of banks they
have tie-ups with. Only two NBFCs—SBI Cards and Payment Services and BOB
Financial—are allowed to issue their own credit cards.

> “RBI is and should be actively considering opening up a few credit card
> licences in 2023. We are hearing three to five,” says a financial service head
> of a leading consultancy.

Given the rising demand for smaller credit lines, consumer-facing NBFCs will
likely be the first to get these licences if the proposition moves forward. 




For fintechs or new-age players, however, the idea is still a distant dream.
That said, he adds, “The regulator may consider issuing licences to one player
to promote innovation and take forward the idea of both NBFC and fintechs
working together to help expand the large credit pace.”  




Fintechs with an NBFC licence, such as LazyPay, Slice, and Uni, already issue
prepaid cards through tie-ups with banks. For such players, RBI’s nod to issue
credit cards will help expand their offerings.

ALSO READ
Dawn of the Account Aggregators


CREDIT ON UPI 

In September, following RBI’s authorisation, the National Payments Corporation
of India (NPCI) launched the RuPay credit card on UPI (United Payments Gateway).
Now, banks and fintech companies are expecting UPI to be extended to other
credit products as well, particularly ‘buy now, pay later’.




Ranvir Singh, Founder and CEO at consumer lending fintech Kissht, is hoping for
a favourable announcement and clarity in a couple of months. 




In a recent press conference, tech industry veteran Nandan Nilekani also pitched
for the same, saying: “... as RBI gets more confidence with this, they'll open
up to more forms of credit on UPI card and, therefore, there'll be new native
credit abilities on UPI, like BNPL, and so on”. 




RBI is also weighing the possibility of allowing peer-to-peer platforms to
venture into secured lending. Industry discussions are expected to be started
next year. 


NEW UMBRELLA ENTITY 

In a bid to boost the Retail Payment System, RBI had pitched the idea of ‘New
Umbrella Entities’ as an alternative mechanism to India’s flagship payments
processor, the National Payments Corporation of India (NPCI).




While the eligibility for the licence and responsibilities of an NUE were laid
down, its authorisation has been delayed or put aside owing to data storage and
localisation issues. 




A five-member committee under the chairmanship of P. Vasudevan, Chief General
Manager, RBI, was directed to review licence applications, and analyse
macroeconomic impact and security risks in light of the proposed framework. 




Rakesh Pozhath, Partner, Bain & Co. expects the NUE framework to be revived in
2023. 


BANKING LICENCES FOR NEOBANKS

Finally, on neobanks, or digital-only banks. 




RBI has remained tight-lipped about issuing full-stack digital banking licences,
and is expected to continue keeping the proposition at the backend, according to
industry experts. 




This, although the government’s think-tank NITI Aayog had released a discussion
paper rooting for authorities to allow neobanks to become fully licensed digital
banks. 




In 2023, it would be ‘business as usual’ for neobanks, with further integration
with traditional banks remaining a key focus area for growth and innovation,
says Ankur Maheshwari, Chief Financial Officer at Freo, a neobank.

--------------------------------------------------------------------------------

Edited by Saheli Sen Gupta and Feroze Jamal



 * Fintech trends
 * Reserve Bank of India (RBI)
 * digital lending apps
 * fintech lender
 * Outlook 2023


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