RBI Mandate Leads To Prepaid Card Business Crash

Following the restrictions on Fintech Firms by Reserve Bank of India, the issuance of prepaid cards has come crashing down by one tenth the level prior to the mandate. Industry executives report that firms like Uni and Slice have gone below the 1,00,000 prepaid card issuance level, this month.  

RBI barred fintech firms from loading onto prepaid payment instruments (PPIs) and wallets, in June this year. This mandate comes as reports suggest that some fintech companies in India have been getting into partnerships with banks and Non-banking financial companies (NBFCs) while offering credit in the form of prepaid cards or wallets, to their customers. Hence, some of these companies were known to be taking credit lines from NBFCs or banks in their customer’s names. Additionally, companies with PPI licence are not eligible to offer their customers with credit. Hence, the PPI-MD by RBI was getting violated by some of these firms.  

Reports suggest that before this mandate, credit providers like buy-now-pay-later (BPNL) and credit card challenger firms were issuing up to 7,00,000 prepaid cards per month, to their customers. Following the mandate, new transactions were stopped on the prepaid card by firms like EarlySalary and KreditBee. RBI’s mandates look to allow Non-banking financial companies (NBFCs) to issue credit cards.  

Akshay Mehrotra, CEO and Co-Founder, EarlySalary says that this segment facilitated the purchase of goods and services, financial services and remittance facilities, against the value stored therein. Fintech companies that are cash-based, merchant integrated BNPL based are not be impacted by the directive.

“For EarlySalary, the segment of customers to whom we were offering credit via PPI was very small compared to the customer base and was stopped as soon as the new guidelines were rolled out. For the way forward for SalaryCard, we are identifying opportunities to co-create products for customer use cases,” Mehrotra added.  

This slowdown in new issuances to its customers is attributed to lack of clarity in regulations. However, existing cardholders have been provided with support and these firms are turning towards building partnerships with lenders to ensure a smooth flow of service. Card-based fintech players like Uni and PayU-owned Wibmo are some such firms. Several other firms have started exploring options like expending cash directly to customer accounts, making provisions for banks to open customer accounts with add-on debit cards, etc.  

Mehul Mistry, Global Head Strategy, Digital Financial Services and Partnerships at Wibmo observes that the prepaid opportunity for India is estimated to be $ 150 billion in 2022 and expected to grow at a CAGR of 20.15 per cent and reach USD 375 billion by 2027.  

“July, 2022 saw a dip in the prepaid card issuance only for BNPL use case (after the RBI restriction) where in Prepaid Card was getting loaded from Credit Line at the time of purchase (using Just in time (JIT) Funding on the Prepaid Card),” said Mistry.  

Even though a significant crash was observed in the credit card issuance for this month, there has been no impact of the RBI’s mandate on certain other uses of the PPI instruments.  

“BNPL on Prepaid Card issuance was about 7 lacs cards per month before the RBI restriction, the same has come down to about 75k cards per month. However, there is no impact on the other use cases like Gift Card, Rewards & Recognition Card, Employee Benefits, Health & Wellness, Travel & Expense Management Programme,” Mistry added.  

As the crash came down hard in the month of July, the Payments Council of India (PCI), under the Internet and Mobile Association of India (IAMAI), put forth their suggestion for the stepping in of the government to resolve the issue based on RBI’s recent directive.  

It is now to be seen how these firms would be tackling the new regulations and would their business models be justified as per the mandate. With revolutionised business models in places, these fintech firms would look towards charging only origination fee, as Direct Selling Agents (DSAS). It will be a task to control revenue lines for these firms since RBI wants to focus on the retaining of control by banks and regulated entities. In the lack of clarity on the directives, these fintech firms have a possibility of turning into cash loan app providers, due to lack of headroom under constant regulations.