The country’s top digital finance companies including credit-card challenger brands and lending firms are joining together to petition the union government and the central bank for clarity on the regulatory directive barring non-bank wallets and pre-paid cards from offering credit lines on their platforms, people briefed on the matter said. The Payments Council of India (PCI), under the Internet and Mobile Association of India (IAMAI), is leading the effort to frame the communication to the Ministry of Finance and the Reserve Bank of India, they added.

“If certain safeguards are needed then those should be explained to us and one can work on it to satisfy the regulator's concerns,” one of the people briefed on the discussions told ET.
Pointing out that “there should be a level-playing field between banks, non-banking financial companies and startups,” the source added that the “final draft is still being finalised.”

The industry groupings are likely to also highlight the quantum of global capital that’s been invested in the space and how such disruption can affect the investor outlook, people aware of the matter said.

Challenger credit card companies have seen investments of more than $500 million over the last 18 months from investors like Tiger Global, Insight Partners, General Catalyst and others.

“With one letter, the RBI has wiped off a $5 billion credit card-based industry opportunity for fintechs. Hence, they will communicate the need for a broader regulatory system which brings more predictability to the fintech ecosystem,” said a second person source in the know.
Triggers confusion
Even as RBI’S note has stoked confusion across the fintech sector— with brokerage firms and sector experts spelling out differing views--industry sources told ET that credit card startups like Tiger Global-backed unicorn Slice and Uni Cards are more likely to be most impacted by the regulator’s move.
“The sector has attracted top dollars and investors are also worried by the central’s bank’s guideline that increasingly is indicating that it could cover a wide range of companies and not just credit card challengers,” according to people cited above.

A report from Macquarie Research on June 21 named Slice and Uni among companies that will be impacted by new guidelines.
“The messaging is clearly misleading at times, some fintech companies are advertising their product as a credit card, that is not right in our view,” said Suresh Ganapathy, associate director, Macquarie Capital who is of the view that “this shows scant regard for compliance and has irked RBI.”

"We are currently analysing the RBI’s letter with our partner banks. We are committed to follow all applicable laws," Slice has said in a statement. Uni didn't immediately comment.

Meanwhile, a report by Nomura Research said that if RBI is creating a distinction between which regulated entity has issued the prepaid payment instruments (PPI), then the rules won’t apply to Uni, Slice or PostPe (BharatPe-owned) card, as all three of these fintech players piggyback on bank-issued PPIs.
“We really don’t see a big difference in loading a PPI with a credit card that has an underlying credit line and is an allowed form-factor as against a running credit line from any lender, which is being prohibited,” Nomura said.

“A credit card is just a form-factor whereas the credit line is the actual lending service,” the financial services researcher stated.
To be sure, officials aware of the central bank’s thought process, have pointed out that RBI’s ban on loading wallets with credit lines is all inclusive and that it is applicable to both bank and non-bank PPI products. This is based on clarifications provided by the regulator during this week to queries from certain fintechs.

“The PCI representation is likely to state how fintechs have positively impacted the masses and that PPI is similar to a bank account, and therefore it should be  treated as the same,” said one person aware of the ongoing industry consultations.

“The representation will also touch upon the fact as to why there is a big distinction for the use of a credit line to load a PPI, but the same is allowed through a credit card,” the person added.
BNPL startups worst hit
According to experts tracking the industry, the RBI ban jeopardises several fintech companies with the buy-now-pay-later (BNPL) business models, which rely on this mechanism for providing payments-based credit.

As per the discussions between industry associations and fintech startups there was consensus on the need for bigger representation for fintech firms on key decision making committees on policy matters.
Earlier in January, the RBI had set up a fintech department headed by executive director Ajay Kumar Choudhary, which recently outlined its three year plan as part of the Payments Vision 2025.

This includes a discussion paper on regulating Big Tech in the field of finance, framework on regulating BNPL products and bringing in rules that allow domestic storage of payments data.
Macquarie Capital ‘s Ganapathy pointed out that “NBFC licenses are not tough to get but it comes with its own capital requirements, provisioning and greater supervision.” Those wanting to “do business, (must) come in a legitimate way will ( be) given the license,” he added.