India’s BNPL journey is off to a rough start

Last week, the Reserve Bank of India, the country’s central bank, banned loading pre-paid payment instruments using credit lines. The regulatory shift effectively outlaws the business strategy of major BNPL providers in the country.

Why should we care?
India has seen over $14B poured into its fintech sector by venture capitalists over the past eighteen months, and this sudden halt to the country’s prevailing BNPL model leaves VCs like Tiger Global, Accel, General Catalyst, and Insight Partners in a sticky situation. Granted, the writing was on the wall: The RBI established a new fintech department earlier in the year, and this ruling is only the first on its list. It seems banks are the winners in the medium term, since buyers can fill their prepaid wallets with either cash, debit, or link to their credit-card accounts. (Shares of the only credit-card business listed on India’s stock market surged 7% in the wake of the news.) The new regulations may put a serious dent in BNPL’s predicted 74% year-on-year growth in the country, but it may also protect consumers from an upcoming downturn, especially given BNPL providers’ arguably predatory marketing schemes. On provider said its loans will “help you sail through your difficult moments,” while another said its prepaid cards help you “Pay 1/3rd …anywhere” without mentioning the need to repay the rest of the cost over time. If the RBI is just getting started, then we should expect other under-the-hood strategies as well as public messaging schemes to be in the regulator’s crosshairs as well.