ETtech Explainer: RBI halts Simpl payment operations: What it means to BNPL players

Bengaluru-based fintech Simpl shut its payment operations on Thursday after the Reserve Bank of India (RBI) issued a letter, citing a violation under the Payment and Settlement Systems (PSS) Act, 2007.

“The entity is directed to immediately stop the business of payment systems carried out by involving functions of payment, clearing, and settlement,” according to a letter dated September 25, as reported by ET, which first reported the development.

This action against Simpl reflects a broader regulatory crackdown on the buy-now-pay-later (BNPL) sector that has been intensifying over the past years.


ETtech explains:

What is BNPL, and how does Simpl operate?

Buy-now-pay-later (BNPL) is a short-term debt financing tool that allows users to purchase products or services without paying upfront money from their pocket. This enables users to take instant credit without going through traditional forms of credit. BNPL platforms offer credit that users typically repay within 15-30 days, often without interest.

BNPL startup Simpl operates across ecommerce, food delivery, and quick commerce platforms. The company has positioned itself as a better alternative to credit cards/personal loans for instant everyday transactions.

Some of the major BNPL services include Klarna, Afterpay, Affirm, Zip, Flipkart Pay Later, and Amazon Pay Later, among others.

The regulatory violation

The RBI’s action centres on Section 4 of the PSS Act, 2007, which specifies that no company can operate a payment system without the central bank’s authorisation. It allows the central bank to supervise and regulate the payment systems in the country.

Simpl appears to have been operating payment operations, including clearing and settlement, without following the RBI guidelines, leading to the shutdown order.

Why now?

This enforcement action is part of RBI’s broader strategy to oversee and tighten the unsecured credit, which has grown rapidly over the last few years.

Fintechs such as Paytm and MobiKwik stopped their BNPL offerings earlier this year, as reported by ET.

The trend of credit tightening is not limited to fintechs; even banks and NBFCs, which were the backbone of many BNPL offerings, have pulled back from the space as macroeconomic risks rise in unsecured lending.

Also Read: Buy-now-pay-later offerings wane as fintechs pivot to EMI loans, consumer credit


How is the industry adapting?

Rather than completely closing short-term credit offerings, fintech platforms are pivoting to newer models. The largest players are either completely shutting down the BNPL services or shifting to EMI-based credit, as reported by ET in May.

Taking forward this trend, One97 Communications, Paytm’s parent company, launched a credit line on the Unified Payment Interface (UPI) called Paytm Postpaid last week.

This new facility, rolled out to select customers, allows users to get interest-free credit for up to 30 days and repay it the following month. These services are used across online shopping and UPI-based bill payments, among others.