'Buy Now Pay Later' Schemes Halted By Fintech Firms After RBI Scrutiny

Many fintech firms have stopped the buy now pay later (BNPL) services after a recent Reserve Bank of India notification. The new guidelines, issued by the RBI last month, stopped non-bank prepaid payment instruments (PPIs) from being loaded with credit lines.

The central bank's move comes amid rising concerns over card-based credit services and PPIs being loaded through credit lines.

According to the RBI, the new credit instruments could result in systemic risk. The new-age fintech firms are using lines of credit from banks and non-banking financial companies (NBFCs) to load customer wallets.

The bank regulator is apprehensive about a lack of due diligence while loading the PPIs through credit lines.

The new RBI guidelines, issued on June 20, have sent the fintech companies into a tizzy and many have temporarily stopped prepaid instruments.

According to the new directive, non-banking companies cannot offer credit cards or other PPIs without the prior approval of RBI.  However, the customers can load their pre-paid wallets with cash or use credit and debit cards issued by their banks for the same.

Fintech firms have requested a clarification from the RBI as the new guidelines have caused a disruption in the industry, especially adversely affecting small players.

Fintech startup PayU India's lending platform, LazyPay, has temporarily discontinued its buy now pay later product LazyPlus UPI. The product was launched in September 2020 and it was issuing credit lines upto Rs 1 lakh to the users.     

Now, LazyPay is planning to change its LazyCard offering from a prepaid card to a credit card in order to comply with the RBI guidelines, the Economic Times reported.

Online credit service platforms Jupiter, EarlySalary and KreditBee have temporarily halted all transactions through their prepaid cards.  Slice and Uni also have restricted issuances of new credit cards after the RBI directive, the ET report mentioned quoting sources.    

The online credit service platforms are following three models, which are under RBI's scrutiny. The three models include credit cards, an operator getting a loan and giving it to the PPI holder as card loading, and a PPI holder getting a loan from the operator. In recent years, interest-free borrowing has gone up and so there is a risk of falling into a vicious cycle of overspending, the RBI apprehends.