It seems that India’s central bank is no fan of “buy now, pay later.” But then, the regulator’s irritation with this newish fad in consumer finance is wholly understandable.
“Get Credit in 90 seconds. Shop at Millions of Merchants. Pay Later,” says the website of LazyPay, which claims to have 60 million eligible users in India. Rival Uni, which is backed by Lightspeed Venture Partners and raised $70 million in financing last December, tells customers to “Pay 1/3rd. Anywhere” using its cards. EarlySalary claims more than 10 million downloads of its app and promises up to 500,000 rupees ($6,400) in instant cash to “help you sail through your difficult moments.”
It was all getting a bit too much. So last week, the Reserve Bank of India brought out its regulatory axe and hacked away at a popular path to small-ticket fintech loans. According to new RBI guidelines, nonbanks can no longer load prepaid instruments — digital wallets, or stored-value cards — using credit lines. The only valid options for a buyer are to prefill their wallet with cash, or to debit their bank or credit-card accounts.
The RBI doesn’t have a problem with 90-second credit. The regulator was even willing to let nonbank finance companies, or NBFCs, retain their existing lead over banks in the origination of short-term consumer credit, especially for really small-ticket transactions. After all, shadow banking in India is no longer the shrouded creature it was a few years ago; NBFCs now face fairly stringent capital requirements, and have to make detailed disclosures of the risks on their books. However, the opportunism coded into their DNA makes them inherently risk-seeking; fintech players can still seduce them into what an RBI working group described last year as the “Rent-an-NBFC model” of digital lending.
That’s when the process stops being simple matchmaking between customer and lender. Instead, the fintech in the middle starts offering a first-loss default guarantee up to a certain percentage of the loans underwritten by a nonbank financier. This introduces credit risk on the balance sheet of digital intermediaries who don’t have to maintain any regulatory capital.
Read More at https://www.bloomberg.com/opinion/articles/2022-06-27/buy-now-pay-later-apps-proliferate-in-india-making-the-central-bank-nervous
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