Fintechs’ regulatory arbitrage ends after RBI’s latest letter

Fintech startups have been chipping away at banks’ massive home advantage in financial services for a few years now. This disruption is most evident in how they provide payment products mimicking credit cards to a new generation of consumers. But an RBI notification this week blunted their crucial tool — prepaid payment instruments (PPIs).

This leaves fintechs’ push for innovation and new business models in limbo at best and in a downward spiral at worst. On the other side, it appears to help banks regain the upper hand in the credit-card game.

The notification was addressed to players which issue PPIs, essentially digital or mobile wallets. It states that credit lines cannot be used to load these wallets with monetary value. The terse message is accompanied by a warning: “Any non-compliance in this regard may attract penal action.”