Fintech: Card-based fintechs switch to plan B for biz continuity
Several fintech companies have contacted leading banks to explore alternative credit models, sources told ET. These include opening a bank account – plus an additional debit card – with lenders to disburse loans, issuing co-branded credit cards instead of PPIs, and disbursing the credit as cash directly to a customer’s existing bank account.
“The logic that fintechs (like us) explore is that there is no difference in Know Your Customer (KYC) standards for issuing a PPI or opening a bank account,” said the founder of a card-based fintech company, who spoke on condition of anonymity. so. “This model will result in credit being paid to customers in their newly opened bank accounts with a debit card issued on top of it, which is permitted under applicable rules.”
Although the model can help banks add new accounts, fintech companies are unsure whether this will receive the regulator’s approval.
“We are pressuring compliance teams of banks to check with RBI whether such a model is allowed,” said the fintech firm’s founder.
Last month, the Payments Council of India (PCI) and several fintech companies called on the government to step in to resolve the fallout from the RBI directive. The council said that full KYC wallets (or PPIs) should be treated in line with bank accounts and that they should be allowed to pay out credit.
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In recent weeks, fintech companies have reached out to lenders as and to explore different models so that customers are not affected.
“Yes, we have been contacted by several fintech players, it is still early days, but we are trying to assess models that make business sense and are also in line with RBI’s thought process,” said the head of the card division at a large private sector lender. “We are thinking about how we can make customer acquisition an easy proposition for us by using these fintech companies.”
However, the Banking Supervision Authority has told some fintech companies that they should apply for licenses to continue operating.
“It is doubtful that a model where a bank account is opened just to pay off credit will be allowed by RBI. RBI is very clear that there are enough guidelines and licenses in place to operate in the country and no new guidelines are needed. need to issue a credit card, then they must have a license to do so, “said the founder of another digital lending startup, which has been in talks with the regulator. “What RBI has really cracked down on is regulatory arbitrage.”
At present,
of Mauritius is the only significant player offering its platform to card-based fintech companies for doing business. This has helped fintech players such as Slice and Uni, who have been affected by RBI’s recent moves, to continue to support their existing cards.
ETtechJoint partnership
The affected fintech companies are also considering collaborating with banks for a co-branded credit card from the previous practice of issuing prepaid cards.
While the fintech unit will acquire customers and manage their experience, the credit card will be in the bank’s name. However, this will prevent fintech companies from operating in this area.
“Fintech companies are constantly reaching out to banks, but there are limitations. Fintechs will not be able to flexibly change the (credit) limits of the customers they serve. Another challenge is that fintechs will no longer have free hands and will have to jointly create guarantee models with partner banks that will take at least 2-3 months to develop, “said the founder of another startup that has issued card-based credit products.
In addition, the integration of fintech platforms with older card management systems is another challenge, said the founder.
ET was the first to report on June 23 that several fintech companies have considered re-issuing credit cards to comply with RBI’s directive.
Global fintech giant PayU’s lending arm LazyPay, for example, has stopped issuing its ‘LazyCard’ prepaid product and now appears to be issuing it as a credit card in partnership with banks, ET reported, citing sources.
“It’s not as easy as it seems. Banks have become cautious in the current market downturn and will not let a fintech unit make the guarantee if it is their product on the line. It requires a certain level of trust and an existing partnership for a bank to agree to create a joint underwriting, “said another branch manager, asking for anonymity. “There is also the issue of customer training and consent where a borrower must be informed that the product is from a particular bank. This will put an end to the practice of giving loans in 5 minutes.”
For now, industry sources said, card-based fintech companies are using the traditional method of paying credit to a customer’s bank account until there is regulatory clarity in the matter.
