Will RBI’s upcoming digital lending norms impact BNPL and fintech industry?

Digital lending companies have been waiting for this Working Group report from RBI and it has been welcomed by everyone as it talks about all crucial points important for safety of consumer data, controlling illegal activities, charges, fund transfer and many more.

The Answer to the question is “Yes” this will impact the BNPL and Digital Lending part of Fintech Industry in many ways. I have tried to cover the each important recommendation below with the Industry and how it will affect it.

We all have seen the Fintech Industry growing in India at a rapid space and how its affecting the consumer behaviour of Indians, How they transact today is much different than a decade back. Buying groceries via Payment App, Paying Parking, Sending money to your loved ones. Everything is now available at your fingertips.

Lending has also been part of this Journey, Fintech Players partnered with NBFC’s to tap this market. Big Fintech’s have their own NBFC’s as well. With digitisation in every field the Loan Journey was shorten by the Tech Innovation which fuelled the Fintech Industry to come up with Products like BNPL, Short Term Loan, Low ticket personal loans, Digital Credit Card etc.

The regulation were never clear which created a chaos in the market during COVID-19 Spread in India last year. When consumers were unable to pay, the NPA’s started hitting high for every lender in the market, which led to the wrong practices, harassment and other things after which Working Committee was formed. This report surely focus on regulating this process in welfare of customers and also to secure verified and Legitimate NBFC’s who wants to grow in market.

For Existing Digital Lenders this is positive report, it now gives direction to businesses how to operate in compliant manner, also it eliminates the illegal digital lending activities, fake apps and non-serious players. It will also create transparency in the Industry. The recommendation of WG to provide a key fact statement in a standardised format including the Annual Percentage Rate will help Digital Players to showcase the charges and borrowers will also be able to have better perspective on the charges they would have to pay.

This might impact the growth chart of the Industry, new players will not find problems in scaling up as they will have to comply with lot of compliances and regulations. Start-up eco-system initially focuses on generating revenue and then gradually fixes the system. With SRO and Nodal Agency the process of starting the business will become little difficult for new entrants.

Data has been the most important part of the digital journey of the customer and with financial app its utmost important. RBI has been very strict on it, they have de-barred many big tech giants as well in the past due to this.

It would impact the credit analysis of the customers that fintech has been doing by collecting the information from customers. BNPL and Digital lending is done only based on Alternate data points which examines the risk assessment of the customers. Borrower consent is to be provided for all the data collected from consumer with the audit trails.

This might affect in customer acquisitions for BNPL and Digital Lending Clients.

Formation of nodal agency DIGITA (Digital India Trust Agency) to be formed who will supervise the Digital Lending Apps. Every digital lending app should be verified by DIGITA. It will take care of Updates, and patch handling as well as publisher certificate forgery.

Basic digital guidelines will be issues by DIGITA for which every Digital Lending App has to comply with. Many more such suggestions are added by the working group.

This would have a positive effect on Industry as it will help Digital lenders to get verified by following the compliance and promote them as verified business as well.

Consumers will also be able to decide and go to verified lenders only, so that they don’t get harassed or avoid any type or frauds.

Overall this report talks about all the loopholes of current system and how it can be done better both for lenders and consumers. This working group report is welcomed by everyone in fintech Industry as it removes the unwanted risk for Fintech’s and also a direction has been shown by the Reserve Bank of India and GOI. RBI is waiting for public comments till December 2021. Please share it to frame a better policy for growing fintech Industry.