Introduction
Based on the real-time information, the Reserve Bank of India (RBI) has asked PPI issuers to stop Unified Payments Interface (UPI) in a co-branding arrangement by June 30. This move restricts co-branded PPI apps, such as non-bank and non-PPI license holders, from offering UPI services on their platform. Around 15-20 players have been severely impacted by this directive. The haste in which this order has been floated and the way it's being implemented has shocked the entire industry. The PPI industry now has a number of questions and is looking for answers as to what made the RBI take this decision.
What does NPCI says ?
The National Payments Corporation of India (NPCI) has sent an email to issuers of prepaid payment instruments (PPIs), including both banking and non-banking institutions, instructing them to discontinue co-branded Unified Payments Interface (UPI) services. This communication from the NPCI is in accordance with the Reserve Bank of India's (RBI) master directions on PPIs issued in August 2021 and updated in February of this year. As per an RBI directive cited by Entrackr, PPI holders should be onboarded for UPI by their own PPI issuer only. Additionally, a PPI issuer should only link its customer wallets to the handle issued to it and not onboard customers of any bank or any other PPI issuer.
According to the founder of a prepaid cards provider company, who is another source for this information, the impact of the directive to halt UPI service has been severe. The company has been using the prepaid stack to develop products for the last few years, and UPI was a much-needed breakthrough for them. The founder also highlighted that QR codes are more widely accepted than cards.
It is important to note that only PPI license holders, including both banks and non-banks, can issue UPI on any prepaid instrument. If a PPI issuer has collaborated with a fintech or enterprise for a co-branded prepaid card, it will not be able to provide UPI for payments.
How they works
- Muvin, a fintech company that functions as a customer retention and management channel, does not possess a PPI license. Instead, it partners with a PPI issuer, Livquick, to provide cobranded prepaid cards to its customers. Muvin acquires customers, performs KYC, and offers prepaid cards to students, enabling them to make payments through its PPI issuer.
- After onboarding, Muvin's customers receive either virtual or physical prepaid cards, which are connected to the online wallet provided by Livquick. While Livquik, as a registered non-bank PPI issuer, can offer UPI payments as a feature because it has its own prepaid card, Muvin cannot. It only has a wallet and card as payment options routed through Livquik.
Why RBI is Focusing on Cobranded Prepaid Cards
In India, there are 54 non-banking and 58 banking PPI issuers that provide prepaid instruments that can be reloaded with cash to purchase goods, services, or enable remittance facilities. The prepaid instrument could be in various forms such as smart cards, magnetic stripe cards, mobile accounts, internet wallets, and paper vouchers. While most banking PPI issuers have their own instruments like ICICI Pockets, YONO SBI, and HDFC Payzapp, non-bank PPI issuers partner with fintech players to offer cobranded prepaid cards. Recently, the RBI allowed UPI to route via PPIs, which created a backdoor entry for fintech players without a PPI license. The RBI realized this issue and issued a notification in June 2022 to authorized non-bank PPI issuers stating that PPI-MD does not allow the loading of PPIs from a credit line. This notification impacted several big players such as Slice, Jupiter, Unicards, and OneCard.
Question Remained
Can the RBI expedite the issuance of PPI licenses? Is it possible that the lack of clarity could pose a problem for consumers who are unaware of whether their cobranded partner has permission for UPI transactions? If fintech players collaborate to launch credit cards that include UPI, how will it impact the industry? Additionally, since many of the players associated with NPCI-promoted Rupay cards are in co-branded partnerships, will this also be affected?
Conclusion
The entire industry is finding the situation to be quite confusing. Many individuals with whom Inc42 has spoken believe that the RBI could have made things simpler by defining categories that are not allowed to enter the financial space. As things stand, they are struggling to comprehend the reasoning behind the move. Despite adhering to all the regulations and guidelines of cobranded agreements, the industry is still facing difficulties. Indian fintech players are seeking an explanation for the RBI's move and hoping that the central bank avoids sending such shocks that could have a detrimental effect on businesses.