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NEW DELHI : The party was just getting started for India’s fintech firms, and the central bank has taken the bowl away.

 Fintech firms betting on co-branded credit cards fear that latest Reserve Bank of India (RBI) rules on credit card issuance 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 USP of fintechs was getting that data, analyzing it, and customizing solutions for customers. While enforcing this (stopping data access) is another challenge, if you stop that data flow, this is going to hit fintechs badly," said Shilpa Mankar Ahluwalia, partner, Shardul Amarchand Mangaldas. 

“Currently, the technology on which most of these cards run are of these partners and not banks. The value proposition is that you want to be faster, flexible, be disruptive, and bring innovation. But if you are depending on the banking system, then how can you bring innovation? This is too harsh on fintechs," said a payments industry veteran on condition of anonymity, adding this will ensure continued dependency on banks.

A senior banker said on condition of anonymity RBI may lean on banks to ensure that the data rules are followed. “The level of questions by RBI to banks is highly detailed now."

Two fintech executives said the policy will also spell trouble for API companies such as M2P which connect fintechs with banks’ API and also handle some of these functions for banks. Banks such as South Indian Bank, SBM, and Federal Bank use such fintech partnerships. 

“For some of these banks, technology and data-related functions are being driven by these fintechs. Some of these banks don’t run the card business themselves. Now, the worry is, how will these banks prove to RBI that they have total control over it, and do they have technical people to drive this," asked the banker cited earlier.

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

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

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

“With this whole Chinese lending app scam, misselling, and misusing data became so rampant that it became an industry of its own," said the banker cited earlier. “On the other hand, all of a sudden, many savings accounts were promoted and branded as powered by so-and-so-bank with the fintech partner brand more visible, and then, valuations were also getting discussed, which led to banks complaining to RBI."

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

“They (RBI) want to reduce potential for any regulatory arbitrage between regulated and unregulated entities. Over last two years, some fintechs have created a credit card/loan kind of instruments on PPI (prepaid instruments, popularly known as wallet). RBI wants fintechs to behave exactly what an app does i.e. technology and marketing; and it doesn’t want people to take a BIN (a bank identification number that represents the first four to six digits on a credit card) from a bank and treat it as a third instrument. They want players to keep a loan, a PPI and a credit card licences distinct and not start arbitraging and using one for the other," he said.

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