New Buy Now Pay Later Regulations
Buy now, pay later (BNPL), which can be used to purchase everything, including household goods, gift items, trips, and so much more, has proven to be a smashing success for several fintech startups.
As the world grows a little more impatient and focuses more and more on "right now," the expansion of BNPL as a booming sector will only accelerate. However, there's a slight turn of events as The Reserve Bank of India (RBI) has become an active ingredient in India's Buy Now, Pay Later (BNPL) sector due to its rapid expansion.
RBI's New BNPL Regulations
With its institutional spade, the Reserve Bank of India attacked a much-liked route to low-interest fintech loans. New RBI regulations prohibit nonbanks from using credit lines to load prepaid equipment, such as e-wallets or stored-value cards. A buyer's sole options are to preload their wallet with cash or to charge their credit card or bank accounts.
The official statement released by RBI stated, "The prepaid payment instrument (PPI)-MD does not permit loading of PPIs from credit lines. Such practice, if allowed, should be stopped immediately. Any non-compliance in this regard may attract penal action under provisions
contained in the Payment and Settlement Systems Act, 2007."
Several BNPL companies have been compelled to reconsider their business strategies due to the RBI's June advisory regarding prepaid payment instruments.
Where does RBI think BNPL is lacking?
The regulators have expressed concern about BNPL's significant problems. According to many reports, BNPL network operators don't strictly adhere to the KYC check for clients seeking loans. Additionally, it has been said that the BNPL apps struggle with credit monitoring and information. Therefore, the RBI issued a statement alerting customers to the BNPL formula.
The regulatory environment governing the BNPL category is currently more accessible for fintech companies, especially as numerous companies have licenses to offer prepaid payment instruments (PPIs). In contrast, banks are the majority of credit card providers.
Regulators must remember that BNPL services generally serve those that may not be capable of obtaining conventional credit lines owing to a lack of creditworthiness or a bad credit score. Fintech companies operating in the BNPL ecosphere have the potential to solve this problem by creating alternative methods of creditworthiness evaluations that take into account a variety of new data points and compliance requirements with the legal requirement that credit is disbursed only via licensed banks.
The BNPL Sector and its Disappointment
Fintechs partnering with NBFCs and banks for credit have stated that they are helping the underprivileged and the new to credit. Industry participants consider the RBI's action to threaten the fast-expanding business models of numerous fintech, such as LazyPay, and Slice.
As per Benori Knowledge, a leading supplier of highly advanced analytics and research solutions, India presently has between 22 and 25 million BNPL consumers. According to sources, 8 to 10 million subscribers, or around 40% of all customers, may be impacted by the RBI's decision.
Leading organizations, such as the Internet and Mobile Association of India (IAMAI) and the Payments Council of India (PCI), were ready to question the RBI and government agencies' position on encouraging innovation and access to financial services, according to a Moneycontrol study released in June.
Not only have fintech companies been confused by the issuance, investors, and customers. Many fintech would ask for clarification on the precise requirements of the RBI so they can develop their business models adequately.
The Scope of BNPL in the Future
Many Indians might still be unfamiliar with the word "BNPL." Still, the idea has been around for quite a while, like a consumer credit, allowing consumers to divide payments.
High-risk lenders will likely keep using BNPL applications for various digital transactions despite the RBI's regulations because getting credit from banks can be extremely difficult. Due to their exclusive deals with e-commerce sites, mobility platforms, and food ordering applications, these tools appeal to the middle and working class.
Furthermore, there is a large market for BNPL in Tier 2 and Tier 3 regions, where several customers seek out small-ticket credit for immediate requirements but are ineligible to avail of credit cards. In these circumstances, BNPL apps are their best choice to facilitate trouble-free digital purchases.
The new RBI regulations do not necessarily mean that it's for BNPL players. Within the BNPL spectrum, the concerned were already anticipating regular modifications in the rules for lending fintech firms. However, both BNPL providers and RBI need to find a way to be on the same page to serve the customers better and enhance financial accessibility.