The Reserve Bank of India’s (RBI) recent regulation barring fintech companies from loading prepaid payment instruments (PPIs) such as prepaid cards and mobile wallets using credit offered by non-bank institutions is expected to affect the existing business model of buy now pay later (BNPL)/ non-bank entities in the short-term, says GlobalData, a leading data and analytics company.
Several fintech companies adopted a PPI-based BNPL model in India, wherein they provide short-term credit to customers which are funded by their partner non-bank entities. As per the new regulation, PPIs should only be loaded via banking instruments such account transfers, debit cards, and credit cards and not via credit lines offered by non-bank entities.
The new regulation will affect fintechs such as Jupiter and KreditBee, which offer credit lines as well as BNPL solutions funded via non-bank entities. However, companies like OneCard, which offer credit in partnership with banks, will remain unaffected.
BNPL has been a new trend globally and India has also witnessed rising demand with an increasing number of merchants, banks, and payment providers offering this service. Fintech players have thrived in this space as they have been targeting millennials, providing them with the flexibility to pay for their purchases at later dates with low or no-interest.
Nikhil Reddy, Senior Banking and Payments Analyst at GlobalData, comments: “While fintech players have gained prominence in the Indian BNPL space over the last few years, a large chunk of customers still prefer credit offered by banks in the form of BNPL solutions. Therefore, the new regulation will affect fintech companies but will not have a pronounced impact on the overall BNPL market.”
Unlike the well-developed BNPL markets such as Australia, the Indian BNPL space is still centred around banks. According to GlobalData’s 2021 Financial Services Consumer Survey*, 57% of the respondents using BNPL services indicated that they used bank credit, while only over a quarter of the respondents preferred third party providers/fintechs such as CashCare, ePayLater, LazyPay, ZestMoney, Simpl, and Slice.
In response to the government’s move, BNPL fintechs such as Jupiter, Kreditbee, OlaMoney, and LazyPay have temporarily halted some of their operations. However, they are gradually updating their terms and business models to comply with the new RBI guidelines.
Reddy concludes: “The RBI’s measure has caused disruption among the BNPL players, which will impact the market in the short-term. However, the overall growth in the market will continue to rise, supported by rising consumer and merchant acceptance, growing preference for electronic payments, and the increasing popularity of flexible payment methods. Furthermore, regulation will bring in more transparency in the overall Indian BNPL space, which in turn will push consumer confidence when it comes to using BNPL services, even from non-bank providers.”
*GlobalData’s 2021 Financial Services Consumer Survey was carried out in Q1 and Q2 2021. Over 52,742 respondents aged 18+ were surveyed across 42 countries
