Bank-led PPI issuers onboarding only full KYC users post RBI rap

Mumbai: Bank-led prepaid card issuers, such as Slice and Uni Card, are onboarding only full-KYC customers on their platforms after the Reserve Bank of India (RBI) diktat disallowed loading credit lines on such instruments, two people aware of the development said.

In the absence of clarity on the applicability of these rules announced earlier this month, fintechs are engaging with partner banks and non-bank lenders to assess how they can continue to offer prepaid payment instruments (PPI) without falling foul of the law.

In multiple representations to the central bank, fintech companies are asking that full KYC PPI be treated on a par with bank accounts, and allow loans to be disbursed to such instruments. Earlier, several fintech companies were onboarding minimum KYC customers on their platforms, inviting inevitable regulatory scrutiny.

"We are working with the bank that is the PPI issuer, and the partners have decided to only onboard customers with full KYC," said one of the players affected by the RBI diktat. "We are working with banks that are in turn working with the RBI on how to operate in the present environment."

The regulator recently mandated non-bank pre-paid instrument (PPI) issuers to stop issuing cards where the funds are loaded through a credit line.

In a representation sent to the regulator last week, fintech companies have requested treating full KYC PPI on a par with that of a bank account.

"This will allow a loan (given by a regulated lender) to be disbursed by the lender into a Full KYC PPI account," the letter stated. "A drawdown by the customer from a non-revolving credit line (which has been given by a regulated lender) is allowed to be disbursed into a Full KYC PPI."

As per industry insiders, the entire industry caters to nearly 10 million customers and was adding accounts at a very fast clip. It processes monthly payment volumes upwards of ₹3,500 crore.

"We want to know what is the intention behind this circular? We can tweak our business models, our intent is to be compliant with the RBI rules," said a fintech founder, who did not wish to be named. "We want that RBI should create a level playing field. Why can't we give credit cards to customers with some extra checks and balances?"

A report from Macquarie Research on June 21 named Slice and Uni among companies that will be impacted by new guidelines.

"The messaging is clearly misleading at times; some fintech companies are advertising their product as a credit card and that is not right in our view," said Suresh Ganapathy, associate director, Macquarie Capital, who is of the view that "this shows scant regard for compliance and has irked RBI".

"We are currently analysing the RBI's letter with our partner banks. We are committed to following all applicable laws," Slice has said in a statement. Uni didn't immediately comment.

Meanwhile, a report by Nomura Research said that if the RBI is creating a distinction between which regulated entity has issued th PPI, then the rules won't apply to Uni, Slice or PostPe (BharatPe-owned) cards, as all three of these fintech players piggyback on bank-issued PPIs. "We really don't see a big difference in loading a PPI with a credit card that has an underlying credit line and is an allowed form-factor as against a running credit line from any lender, which is being prohibited," Nomura said.