Daily Management Review

India's Digital Lending Rules Cause Disruption, And Businesses Prepare To Respond


India's Digital Lending Rules Cause Disruption, And Businesses Prepare To Respond
Card lending services in India foreign-backed fin-tech companies have been disrupted because of the stricter regulations on digital lending by the Indian government, according reports based on industry sources and a document available with the media. The incident has also jeopardised Amazon's loan offerings in the country and has prompted companies in this sector to team up and plan a lobbying effort to do something about it.
The Reserve Bank of India (RBI) said this month that a loan borrower must deal directly with a bank due to concerns over high rates and unfair practises, dealing a blow to prepaid card providers and shopping websites that serve as middlemen and instantly process deferred loan payments. 
India's digital lending market has expanded quickly, enabling $2.2 billion in digital loans in 2021–2022 as startups draw foreign investment and compete with traditional banks for customers.
The new regulations have already affected the prepaid cards provided by startups Slice, backed by Tiger Global, and Uni, backed by Accel. These companies partnered with banks to offer users the ability to divide purchases into simple, interest-free payments, which is not possible with regular credit cards.
Uni gained popularity by helping people with "time-sensitive money crunches"; on average, $67 million was swiped each month, far more than some smaller private and public banks in India.
The RBI stated that the new regulations would go into effect right away, but they also stated that "detailed instructions will be issued separately."
However, due to the RBI regulations, Uni suspended its card services this week, affecting hundreds of thousands of users, while Slice suspended the issuance of new cards.
Additionally, concerns are growing that the rules will stifle plans by larger competitors Amazon.com Inc. and Walmart's Flipkart to expand their well-liked buy-now-pay-later programmes, which have drawn in millions of users, according to three industry sources.
That's because Amazon and Flipkart currently help their customers get loans. While the borrower later makes loan payments to the lender, the bank pays the online retailer. If online retailers cannot accept payments directly, the new RBI regulations may have an impact on this method, according to sources.
"It is likely that seamlessness of availing credit by the customer will be severely impacted," the Internet and Mobile Association of India, a top industry group representing Amazon and Flipkart, said in a draft internal lobbying document crafted in collaboration with consulting group PwC.
The group intends to exert pressure on the RBI to make direct merchant payments an exception to the new regulations.
Flipkart has expressed confidence in the buy-now-pay-later industry, announcing in May that its user base had doubled to more than 6 million in just seven months. According to sources, two additional organisations representing payment companies and digital lenders also intend to lobby RBI to reevaluate some provisions.
In a statement, Slice stated that it was committed to abiding by Indian regulations, which it claimed recognised the rapidly expanding industry. On the commercial difficulties, it made no remarks.