How does SBM’s LRS ban by RBI affect major Fintech companies?

Several Indian fintechs have been affected by the Reserve Bank of India’s order this week. The order has asked the State Bank of Mauritius (SBM) India to stop all transactions under the liberalized remittance scheme. The charge will be imposed until further changes.

Big names in the fintech four have directly influenced RBI’s decision. That includes neo bank fintechs such as Niyo and Zolve. The company is started by TaxiforSure co-founder Raghunandan G. Other platforms affected by the decision were IndMoney, Vested Finance and other industry leaders.

Niyo has stopped its international transaction for the forex cards which are in collaboration with SBM India. On the other hand, Vested and IndMoney had to change their user transaction flows to help load US accounts for brokerage.

People aware of the changes have stated that seven or eight fintechs are affected by the new regulations from the RBI along with many other offline tasks that have partnered with SBM.

SBM India has been popular in the Indian economy for its first fintech growth model and has increased partnerships with 35 fintech companies in India.

The bank collaborates with various platforms like BookMyForex, Instarem and HopRemit which help in remittances in India.

The LRS scheme was introduced in 2004 by the banking supervisors. As per the policy, Indians can freely pay an amount of USD 250,000 every financial year for various permissible transactions related to the SBM bank.

Fintechs working with SBM are in deep trouble:

Sudarshan Motwani, the founder, and CEO of BookMyForex has stated that based on their understanding, fintechs that had a good relationship based on account opening agreement with SBM may be more affected by the decision. It will depend on the degree of integration.

Furthermore, three fintech companies have stated that the LRS ban will affect the international transfer for debit card customers of SBM India. Account holders with SBM can still go for domestic payments or withdraw deposits.

The most affected fintech company is Niyo. The company offers its forex card Niyo Global Card which has an exclusive partnership with SBM Bank.

RBI’s orders have resulted in suspension of transactions made by Forex Global Card.

One of the fintech leaders has stated that the ban on LRS transactions on SBM India does not take into account third-order impacts. The decision will mainly affect travelers abroad who will not be able to access their money through their cards or cannot complete a transaction. The decision will create anxiety for them. In addition, some of the cards are part of the expenses of the corporate sector, which will cause great problems for users.

A spokesperson has confirmed the ban on international transactions on the Niyo card.

The Niyo Gloal program card allows users to have an international debit card with a savings account in partnership with SBM India. Currently, international transactions have been stopped to comply with RBI’s order. However, users can continue to use the card for their domestic expenses and transfer funds through various payment methods like UPI, ATM withdrawals, etc.

Niyo has been working closely with SBM India and expects to resume international transactions through their debit cards.

The change has been demonstrated in the user experience and exchange costs for platforms such as IndMoney and Vested. They allow users to invest in US stocks.

IndMoney had to remain offline for 48 hours to change the methods of the transaction as per RBI’s new regulations. Previously, foreign remittance transaction was a one-time experience for the users where transactions can be done through the SBM banks.

Ashish Kashyap, the founder of IndMoney has stated that they are currently addressing the concerns of the RBI with the SBM bank transactions.

As a fintech partner, IndMoney has to go through strict measures and tough processes to ensure that operations and systems work in accordance with the existing guidelines given by the bank.
Various fintech companies have been affected by SBM’s LRS ban and are seeking alternative methods of banking and transactions to ensure the continuity of their business.

edited and proofread by nikita sharma