Riding on the demand from millennial and Gen Z generations as well as borrowers in under-served and unbanked smaller towns, the BNPL market has been growing at a rapid pace in India.
Given the growth of many existing payment platforms, digital wallet operators and even major e-commerce companies have built a BNPL offering on top of their existing payments business.
Now, one can get BNPL offers from Paytm Postpaid, MobiKwik, Freecharge, ZestMoney, LazyPay, ePaylater, CapitalFloat, Amazon Pay, among others. Even traditional banks have jumped on the bandwagon.
There are also BNPL cards such as Uni and Slice that allow you to convert your monthly spends into three EMIs.
However, there are several regulatory loopholes such as no standard KYC norms, the lack of data protection laws, as well as lender-side issues such as inadequate collection frameworks when it comes to BNPL.
The ambiguity also arises as many lenders market the product as a payment service rather than a credit facility.
Nitin Gupta, Founder and CEO, Uni, clears, “Loan is typically used to buy assets such as a car, a home or a two-wheeler. In case of BNPL it is a loan to buy a particular item at that point of time. Now you may be buying food or buying a laptop. Both are BNPL transactions, as both are loans through which transactions have been done."
"It behaves like a payment product, but it’s a loan first which is used to purchase an item of any size. It is regulated very much by RBI through NBFCs and only NBFCs and banks can give out a BNPL loan," he notes.
Gupta unequivocally adds “Every fintech player should get an NBFC licence from RBI. This is because after getting a licence RBI will be reviewing your business, which is a very important thing. The RBI licence will ensure that the business is done in a right way and minimum hygiene is followed while disbursing loans.”
There are media reports that the Reserve Bank of India (RBI) has sought details from non-banking financial companies (NBFCs) about their BNPL arrangements with e-commerce players.
“RBI going deep will only make sure that bad actors are weeded out and the customer always stays protected. This is a good thing,” says Gupta.
Business Today earlier did a cover story citing regulatory gaps and how BNPL is giving regulators a headache.
Major global players such as Affirm, Afterpay, Klarna, PayPal, and Zip are already on the radar of US regulators for issues ranging from regulatory arbitrage to data harvesting.
The UK regulator is also exploring a regulatory framework for the BNPL industry. Back home, RBI recently came out with a working group paper on digital lending, which also includes BNPL.
"The RBI working group has clearly said that BNPL can only be done by NBFCs or licensed entities as a balance sheet product," says Ahluwalia of Shardul Amarchand Mangaldas.
The issue here is that the entire BNPL ecosystem of credit assessment, consumer protection, data privacy and payment recovery is outside the banking system.
Moreover, there isn't much control over the disclosure practices regarding charges and interest rates at unregulated front-end companies.
“The terms and conditions are imposed on us by the regulated partners. They are in turn regulated by RBI. We follow the process and guidelines as set by our lending partners," adds Gupta.
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