The Reserve Bank of India (RBI) has granted a three-month extension after June 30, 2022, for certain provisions under the changes for credit, debit, and co-branded card norms.
“Considering various representations received from the industry stakeholders, it has been decided to extend the timeline for implementation of the following provisions of the Master Direction to October 01, 2022,” the announcement by the RBI read.
As per the previous reports, the banks had requested a six-month extension on the modifications to the Master Directions for cards through the apex organisation Indian Banks’ Association (IBA).
The extension has only been granted for the provision that required card-issuers to ask cardholders for One Time Password (OTP)-based consent before activating a credit card if has not been activated by the customer themselves for more than 30 days from the date of issuance.
The second provision mandated that the credit limit is not breached at any point in time without seeking explicit consent from the cardholder, and lastly no capitalization of unpaid charges/levies/taxes for charging/ compounding of interest. As of now, no exceptions have been made to the rules that would affect players in the fintech industry on July 1.
Certain provisions in the Master Direction limited the role of co-branding entities to marketing and distribution of credit or pre-paid cards, casting a shadow on the viability of the business models of card issuing fintechs such as Slice, Uni, OneCard, Fi, PayU’s LazyPay and Jupiter.
The changes said that the co-branding partner shall not have access to information relating to transactions undertaken through the card. This could potentially hit the business models of these companies that use customer transaction data to provide customers a snapshot of their spending and extend rewards based on this spending.
fintech companies and their partner banks, such as SBM Bank India, RBL Bank, Federal Bank, etc., are looking for a means to get past these regulations so that the primary co-branding business won’t save data.
The fintechs are mulling creating a separate entity that will be a Technology Service Provider (TSP) which can access the data. The TSP will fall under RBI’s IT outsourcing norms under which banks can outsource data to such an entity. The main co-branding entity under the fintech will be a separate entity and will not be allowed to access data, according to industry sources.
According to reports, it will be difficult to complete this workaround by June 30 and it might have an impact on operations in the interim.
These rules also apply to other jointly issued credit cards by banks and retailers and e-tailers like Amazon, Flipkart, Zomato, etc. Through various associations, fintechs had asked RBI to make a distinction between them and other merchant co-branding businesses when enforcing the rules.
A fintech executive had said, “Merchant co-branding entities don’t have any oversight from banks. Fintech co-branding entities, on the other hand, work under the direct supervision of banks. Unfortunately, the norms do not differentiate between both kinds of entities.”The move impacts some of these fintechs even more after RBI issued a clarification on June 20 saying issuing credit lines through prepaid instruments like wallets and prepaid cards is prohibited, threatening the business models of players like Slice, Uni, KreditBee, and others.