The Credit on PPI Conundrum
Its been a week since RBI released the notification clarifying that PPIs can not be loaded by credit lines. Reams have been written about it since then with reactions ranging from exasperation, frustration, even anger to hope and reconciliation. Brilliant metaphors were used like “RBI let out the cat amongst the BNPL pigeons”, “No country for fintechs” “ RBI just nuked Indian fintechs” etc. With all that done and dusted, trying to jot down here my interpretation of the episode from a broader industry perspective and where do we go from here.
Lets get one thing out of the way first, RBI has not said anything new. The PPI Master Circular released in Aug 2021 (and revised in Nov 2021) clearly says what has been written in the clarification, so its actually wrong to claim that RBI has suddenly woken up one fine day to kill the BNPL card fintechs, supposedly at the behest of credit card players.
A crude analogy that I could think for this situation is the difference between when you play Tennis ball cricket in a gully/basketball court vs Season ball cricket on a proper cricket ground. In tennis ball cricket, no one ever follows the LBW rule, its all about hitting the ball out of the park. Doesn’t mean the LBW rule doesn’t exist, the players also very well know it does, its just that they have decided not to follow it and since there is no umpire to care to enforce it, you can throw caution to the wind and just focus on hitting runs. However, when you go to a proper match, you have to play with the LBW rule, you can’t cry foul to the umpire that I didn’t know about this rule. The same applies to BNPL fintechs too, RBI has just asked them to prove their mettle in the proper cricket ground and play by proper rules laid down for everyone, if they want to scale up and make a material impact to the credit ecosystem, as simple as that.
Having said that, the question is why did RBI need to do this now? The model has been in place for at least 3-4 years now, why intervene now. There are various versions and opinions around it and the answer probably is an amalgamation of all of these
So what next.
In my view, while this is definitely a speedbump in the India fintech story, I would like to genuinely believe that this is a sign of better times to come. I say so because this practically means that fintechs are becoming materially relevant to the financial ecosystem in the eyes of the regulator. In the context of the cricket example, they are ready to play the Season ball match in a proper cricket ground with all the rules under the eyes of a proper Umpire. If that means to take a pause for a while, get all the right equipment, train well and then go for the big match, so be it. Its only to ensure no one gets hurt.
Secondly, I honestly think many innovations in the fintech space relied heavily on ambiguity of RBI circulars while playing on the edge of regulations, with almost a sense of pride in India’s jugaad culture. While that may work in other industries like ecomm, social media, technology etc, it can’t be the name of the game in regulated industries like financial services and healthcare where there is a clear tangible risk if things go wrong. We have just seen both Theranos and WeWork stories unfold, no one died because WeWork collapsed, however lives were at risk because of Theranos misdiagnosis.
There is always a reason why a regulation is spelt a certain way. In order to ensure the sustainability of the ecosystem, I strongly believe we need to play by the rules in letter and in spirit. May be continue to try to work with the regulator reform the regulation in parallel through dialogue, but avoid trying to find loopholes to try and circumvent it. Because sooner or later you’ll be called out for it and in regulated industry like financial services, you’ll have no option but to abide by the rules.
To conclude, with a slew of circulars awaited from RBI regarding fintech, I think the next 6 months are going to be extremely exciting to watch and work towards creating genuinely innovative products and business models. As a part of the fintech ecosystem, I would take this circular on my chin and move forward to find ways to change processes to do the business within the rules of the game to build a long term sustainable business. After all that’s we are in it for, solving ambiguous problems day in day out, that’s where the fun is, isn’t it !!!!
Lending Growth | Credit Risk | Applied AI & ML | Underwriting
2 年Loved the views. 360 degree and well balanced !
AI & Data Product Leader @ Salesforce | Sharechat/Moj | Amex | IIMK | NITR
2 年RBI seems to be taking its role as "Ban King" pretty seriously now.. ?? but, jokes aside, very valid take - many of these regulations are required and augur well for the future
National Sales Head - Fintech | Manipal Technologies Limited | MCT Cards & Technology
2 年Brilliantly written! Very balanced view on the current situation.
Business Solution - Retail Asset
2 年It’s a wait and watch time I guess …mostly looking forward to new financial inovations
FinTech Leader | Strategic Partnerships | IIMA 06-08
2 年One of the best reads on this event! Thanks for sharing