auther
Vivek

July 7 · 5 min read

Why did the RBI introduce a new set of rules for BNPL companies?

Since we all know that from the past few years the BNPL industry has become one of the fastest growing industries in India and across Globe. And not only that, even the industry has made a humongous growth rate of 569% in 2020 and 650% in 2021.

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Source: abplive.com , newsindiaexpress, thehindubusinessline.

Are you also using Buy Now pay later services from the popular fintech companies like slice and Jupiter.

Then you need to hear this.

Hi everyone,

Since we all know that from the past few years the BNPL industry has become one of the fastest growing industries in India and across Globe.

And not only that, even the industry has made a humongous growth rate of 569% in 2020 and 650% in 2021.

But despite its rise, why did the RBI set rules on BNBL companies? And what's the reason behind that? Will they impact these BNPL companies?

You will get to know everything in just a minute, so keep scrolling down.

This information is collected by the renowned news sites such as: abplive.com , newsindiaexpress, thehindubusinessline.

So, Industry insiders say many ‘buy now, pay later (BNPL) companies misled customers by not explicitly disclosing the loans taken in the customer's name, eventually attracting attention from the Reserve Bank of India, which has now prohibited the loading of credit lines on PPI, a popular method used by such companies to offer credit.

This move has led many BNPL companies such as Jupiter Edge and EarlySalary to halt operations as they figure out alternative business models and bring changes. BNPL card slice has even started showing customers loan agreements and sanction letters with every transaction.

This is a welcome change for customers, who have taken to social media, expressing surprise that multiple postpaid and pay later products take a loan against their name without explicitly disclosing it

More on this, but first let's understand what exactly is: Buy now, pay later? How does it work? And what are the top BNPL companies in india?

What is the 'buy now, pay later model?

Buy now, pay later, which is also called BNPL, is a payment option where a buyer can make a purchase without paying from his own pocket. In this model, the buyer will collaborate with a firm that makes the payment.

Once the payment is done, the buyer has to repay the amount to the lender through installments in a stipulated time. Initially, no interest is levied under the BNPL model. However, if a buyer fails to repay the amount on time, then the BNPL firm can charge interest on the principal amount.

How does it work?

BNPL service providers share the same operational model with terms and conditions being the only differentiator.

Here’s how it operates:

  • Make a purchase at a participating retailer
  • Opt for the Buy now, pay later option
  • Make a small down payment of the overall purchase amount
  • The remaining amount shall be deducted in a series of interest-free EMIs

BNPL companies in India

Some of the BNPL firms operating in the country are in the following:

  • ZestMoney
  • LazyPay
  • Simpl
  • Amazon Pay Later
  • Ola Money Postpaid
  • Paytm Postpaid
  • Flex money
  • EPayLater
  • Capital Float

So What's the Issue?

BNPL has some serious issues which have raised the regulator's eyebrows. Various reports suggested that the BNPL service providers do not follow strict KYC checks on customers applying for loans.

Furthermore, the BNPL apps are reportedly not good with credit reporting also. So, the RBI released a notification cautioning users about the BNPL model.

News agency Bloomberg recently reported that the banking regulator doesn’t have a problem with 90-second credit.

The RBI 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.

According to experts, BNPL products are targeted at those buyers who do not have credit cards. A report released by financial technology company FIS said that BNPL is India’s fastest-growing online payment method.

Quick facts about BNPL

  • According to the Q4 2021 BNPL Survey, BNPL payment in India is expected to grow by 89.5% on an annual basis to reach $6.9 billion in 2022.
  • There are around 25-30 million customers of BPNL which will increase to around 90-100 million by 2026.There are around 25-30 million customers of BPNL which will increase to around 90-100 million by 2026.
  • RBI’s recent rule disallows non-bank prepaid payment instruments (PPI) issuers from loading credit lines.
  • One of the differences between BNPL and credit cards is that the latter doesn’t require more documentation.
  • The central bank will soon issue appropriate guidelines on payments involving BNPL.

So, that was all about why RBI introduced new rules on BNPL companies, and these companies are now changing the way they work and trying to adapt those rules, so they can still do business.