Fintech platforms in a soup over RBI’s stricter lending norms

India’s tougher digital lending rules have disrupted card services for foreign-backed fintech firms and jeopardized loan offers to Amazon, prompting companies to map out a lobbying effort, according to industry sources and a document seen by Reuters.

Citing concerns over high interest rates and unfair practices, the Reserve Bank of India (RBI) said this month that a borrower must deal directly with a bank, dealing a blow to prepaid card providers and shopping websites that act as intermediaries and immediately process deferred loan payments.

India’s digital lending market has grown rapidly and is poised for $2.2 billion in digital loans by 2021-2022, with startups attracting foreign backers and giving traditional banks a run for their money in the credit business.

The new rules have already hit prepaid card offerings by Tiger Global-backed Slice and Accel-backed startup Uni, which have partnered with banks and allowed users to split purchases into interest-free easy repayments, a feature not available with typical credit cards.

Solving “time-sensitive cash crises” made Uni popular: its cards were swiped for an average of $67 million monthly, much more than the credit card usage of some smaller private and public sector banks in India.

The RBI has said the new rules should be implemented immediately, but added that “detailed instructions will be issued separately.”

Still, Uni suspended its card services this week due to the RBI rules, affecting hundreds of thousands of users, while Slice has put issuance of new cards on hold.

Concerns are also mounting that the rules will throttle plans by bigger players Amazon.com Inc and Walmart’s Flipkart to expand their popular buy-now-pay-later schemes that have drawn millions of users, three industry sources said.

That’s because Amazon and Flipkart are currently facilitating loans for their customers. The bank pays the online retailer, while the borrower later makes loan payments to the lender. The new RBI rules, sources say, may affect this route if online stores cannot receive payments directly.

“It is likely that the seamlessness of availing credit from the customer will be severely affected,” the Internet and Mobile Association of India, a peak industry group representing Amazon and Flipkart, said in a draft internal lobbying document prepared in collaboration with consultancy group PwC.

The group plans to push the RBI to grant direct merchant payments as an exemption under the new rules.

Flipkart has been bullish on the buy-now-pay-later business, saying in May that it doubled the user base for the service to more than 6 million in seven months.

Sources said two other groups representing payments firms and digital lenders also plan to lobby the RBI to reconsider some provisions.

Slice said in a statement that it was committed to complying with Indian regulations, which it said was in recognition of the fast-growing industry. It did not comment on the business challenges.

RBI, IAMAI and PwC, and none of the other companies responded to Reuters questions.

Among other new rules, the RBI has said that fin-tech firms should collect fees for facilitating a digital loan from their banking partners, not the borrowers. And the companies must also appoint nodal officers and have better control over user data.

Rahul Sasi, a cybersecurity expert who was on an RBI panel that helped draft the new regulations, told Reuters that while some disruption due to the new rules is inevitable, the ultimate goal is to protect consumers.

“The idea has always been to let the businesses run, it wasn’t about killing fin-techs,” he said.

Still, fin-tech firms are concerned, fearing that more regulation is on the way. Swapnil Bhaskar, chief strategy officer at Indian digital banking solutions provider Niyo, said the rules could lead to industry consolidation and slow down an industry that has been growing at a rapid pace.

The disruptions have disappointed some users.

Athul Bhadran, a 28-year-old engineer, said he happily used his prepaid Uni card to manage his budget by splitting larger purchases, such as the 19,000 rupees ($238) he spent on a washing machine. Now he can’t.

“I’ve always had peace of mind if I wanted to spend a large amount,” he said.