The Reserve Bank of India’s (RBI) new guidelines on issuing credit and debit cards take a bite out of India’s $31 bn fintech industry. This has raised concerns about the impact on the world’s third-largest fintech ecosystem. Let’s dive right in and find out!

Card-based fintech firms find it challenging to issue cards due to regulators’ rigorous approvals and limited access to customer transaction data. This has led to concerns that fintech firms, banks, and non-bank finance companies (NBFC) may form fewer partnerships.

What are the new regulations? 

According to the banking regulator, NBFC will not issue virtual or physical debit cards, credit cards, charge cards, or similar products without prior approval. Furthermore, in the future, partners in a co-branded card product will not have complete access to customers’ transaction data.

Why is this an issue?

The unique selling point (USP) of card-focused fintech firms is data collection, analysis, and stitching custom solutions for customers. This has allowed them to grow in popularity in recent years because, based on this data, they provide more specialised services than a bank or non-bank lender. These offerings are then tailored to the user’s needs through an entirely digital onboarding process.

In fact, fintech is driving technology and data-related functions for some of these banks. The worry is that firms are guided by the desire to be faster, more flexible, disruptive, and innovative. But how can they innovate if forced to rely on the banking system?

With this new system in place, further, the question arises: Why would a customer even choose a fintech card over a bank card when cross-selling and personalisation are no longer available?

What is the possible solution?

According to the RBI, these guidelines protect cardholders’ interests and regulate firms’ conduct. Moreover, fintech firms that have built their businesses in this space and application programming interface (API) companies that synchronise and connect fintech firms to banks to use tools and services are likely to bear the brunt of the blow.

However, there is a glimmer of hope in an established framework where these firms receive smooth approvals simply by providing the RBI with clear insights into their work. But how much of an impact will this have on the industry landscape, and under what conditions? Only time can tell. 

Neera Bhardwaj

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