Fintechs fear new Rbi credit card rules will sever their data lifeline

NEW DELHI : The party was just getting started for Indian fintech companies, and the central bank has taken the bowl away.

Fintech firms betting on co-branded credit cards fear the Reserve Bank of India’s (RBI) latest rules on issuing credit cards will cut off their access to customer transaction data. The rules limit the role of a co-branding partner entity to marketing and customer acquisition.

“The fintech USP was getting that data, analyzing it, and customizing solutions for customers. Although enforcing this (stopping access to data) is another challenge, if you stop this flow of data, it will hit fintechs hard,” said Shilpa Mankar Ahluwalia, Partner, Shardul Amarchand Mangaldas .

“Currently, the technology on which most of these cards run is that of these partners and not the banks. The value proposition is that you want to be faster, flexible, disruptive and bring innovation. But if you depend on the banking system, how can you bring innovation? It’s too hard for fintechs,” a payments industry veteran said on condition of anonymity, adding that it will ensure continued reliance on banks.

A senior banker said on condition of anonymity that RBI could rely on banks to ensure data rules are followed. “The level of questions posed by RBI to banks is now very detailed.”

Two fintech executives said the policy would also create problems for API companies such as M2P that connect fintechs to banks’ APIs and also handle some of these functions for banks. Banks such as South Indian Bank, SBM and Federal Bank use these fintech partnerships.

“For some of these banks, the technology and data-related functions are driven by these fintechs. Some of these banks do not operate the card business themselves. Now the concern is how will these banks prove to RBI that they have full control over it, and do they have the technicians to drive this,” the banker quoted earlier asked.

According to Ahluwalia, the new rules tilt the playing field, with banks gaining a clear advantage over fintechs and non-bank financial companies.

According to a fintech industry consultant, it is clear from several RBI rules released last year that the central bank wants to regulate everything in the financial and payments ecosystem. “RBI is slowly covering everything in the payment system value chain, to place every section of this payment transaction somewhere under its jurisdiction,” the consultant said on condition of anonymity.

Many believe that RBI wants to eliminate digital lending risks of the type represented by fake Chinese loan apps and unsolicited Dhani loans.

“With all this scamming of Chinese lending apps, the mis-selling and misuse of data has become so rampant that it’s become an industry in its own right,” the previously quoted banker said. “On the other hand, all of a sudden, many savings accounts were promoted and marked as powered by such a bank with the fintech partner brand more visible, and then, valuations were also discussed, which led the banks to complain to RBI.”

According to the banker, who spoke citing his interactions with RBI officials, RBI wants better customer service for credit cards, transparency and information security; reduced possibility of regulatory arbitrage; and wants to eliminate the use of customer data in related areas.

“They (RBI) want to reduce the potential for any regulatory arbitrage between regulated and unregulated entities. Over the past two years, some fintechs have created credit card/loan type instruments on PPI (prepaid instruments, commonly referred to as wallets). RBI wants fintech to behave exactly like an app, i.e. technology and marketing; and he doesn’t want people to take a BIN (a bank identification number that represents the first four to six digits of a credit card) from a bank and treat it like a third instrument. They want players to keep a separate loan, PPI and credit card license and not start arbitrating and using one for the other,” he said.

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