India's digital lending rules spark disruption, firms plan pushback

Rules seen hitting Amazon, Flipkart loan offerings: sources

Citing concerns over high rates and unfair practices, the Reserve Bank of India (RBI) this month said a loan borrower must deal directly with a bank, dealing a blow to prepaid card providers and shopping websites which act as intermediaries and instantly process deferred loan payments.

India's digital lending market has grown quickly and facilitated $2.2 billion in digital loans in 2021-22, with start-ups attracting foreign backers and giving traditional banks a run for their money in the credit business.

The new rules have already hit prepaid card offerings of Tiger Global-backed Slice and Accel-backed start-up Uni, which have partnered with banks and allowed users to split purchases into interest-free easy repayments, a feature not available with typical credit cards.

Solving "time-sensitive money crunches" made Uni popular: its cards were swiped for $67 million on average monthly, much more than credit card usage of some smaller private and public banks in India.

The RBI has said the new rules were to be implemented immediately, but added that "detailed instructions will be issued separately."

Still, Uni suspended its card services this week due to the RBI rules, hitting hundreds of thousands of users, while Slice has put new card issuance on hold.

Worries are also rising that the rules will throttle plans of bigger players Amazon.com Inc. and Walmart's Flipkart to expand their popular buy-now-pay-later schemes that have tapped millions of users, three industry sources said.