Events and Initiatives 38

Existing Integration: A QR code payment system has been implemented in many offline establishments, including Kirana retailers. Because of financial apps like MobiKwik, Paytm, PayU, consumers who make offline purchases can also take advantage of BNPL. It is integrated with the purchaser's e-wallet, like, Paytm

RBI Regulations on BNPL Schemes

The BNPL industry in India showed a massive growth of 569% and 637% in 2020 and 2021 respectively. Moreover, the thin line between credit cards and BNPL schemes was reducing. In India, only banks are allowed to issue credit cards; even an NBFC is not allowed to issue credit cards. This required BNPL companies to shift their business model and shift to Prepaid Payment Instruments. The prepaid cards issued were topped up by a credit line or loan from an NBFC. The cards were issued from a bank, but the credit line was evolving from NBFC arm of the BNPL companies. For example, Slice came up with its prepaid cards, which was issued by State Bank of Mauritius and credit line coming from Quadrillion Finance, which is the NBFC arm of Slice. This was clearly a case of bypassing the formal banking system. Moreover, the number of cards issued by the fintech firms was around 2 million as compared to 1.5 million credit cards issued by banks. Due to these circumventions, RBI banned PPIs with credit lines.

RBI Governor Shaktikanta Das had told that BNPL also comes under lending activity. So it implies that the fintech firms offering these services will be under the supervision of RBI in the future. Earlier the KYC process was diluted by the fintech firms and easy credit was provided even to customers whose creditworthiness is doubtful. Several complaints were registered related to loan disbursement without consent, KYC discrepancies etc. It was also revealed that there were 1100 unauthorized digital loan providers in India. The proliferation of BNPL schemes will create a situation of overleverage in the market and this can lead to another financial crisis, if not appropriately managed.

Conclusion

Even though BNPL schemes have been showing robust growth in recent years, especially among the Gen Z population of India, their legal validity was always in question. The moves made by these companies to circumvent the regulations have been put on a hard stop by the RBI. These regulations have halted the business model of these firms. The moral hazards or BNPL schemes will be unknown to the users. The audience these firms are targeting is mostly the young population who will be finding more utility in instant gratification rather than finding value in delayed consumption. This euphoria in consumption can create a lot of chaos in the market. One of the causes of the Great Depression of 1929 was the idea of buy now pay later which was adopted as the motto of the majority of the population at that time. The regulations imposed by the RBI will be helpful to both society and the fintech companies to reinvent their business models. Unsupervised lending will only lead to larger problems, and this has been evident from history. So it is advisable for the BNPL schemes to reinvent their business models, leading to responsible lending.

Jerry George & Saumyata Arora IIM Tiruchirappalli 3rd Position Fintellect- Article Writing Competition