RBI’s cautious approach kept India safe from BNPL issues

NatWest in UK last week announced that it is ditching its BNPL products and many experts not are attributing this due to the over crowded market and banks may gradually become less interested in these products.

London still having a huge heft in the global financial market, has no regulation in place as yet and now Banks are left to decide by themselves to see what products are adding to their topline or are becoming a burden for their bottom line. Though the Financial Conduct Authority has sent consistent warnings to firms over potentially risky financial promotions under the BNPL portfolio, but regulations are still no where in sight.

This scenario has made Reserve Bank of India look very progressive and increasingly sensitive to the protection of common people when they came out with their statement saying non-banks can't load credit lines on prepaid instruments, way back in Jun 2022. Their official explanation and summary in The Economic Times were that RBI’s clarification is being seen as an effort to clamp down on card-based FinTech and firms operating as neobanks that have tied up with banks to offer credit lines.

As there was no clear regulation in place for non-banks to operate in these products, it was a wise move to clamp down the transgressions. This may have been seen as a restricting move but this is not the first time RBI has taken such a stance for non-bank entities. First time such a move was made back in 2006-07 when Airtel was discouraged to introduce phone to phone balance transfer scheme for its prepaid card users because of lack of KYC and due diligence checks, which were much less stringent for non-banks as compared to banks.

What is your take on RBI’s move in 2022 with the hindsight of 20 months? Do you believe they should’ve handled it differently? Please share your views.