With the deadline for RBI’s digital lending rules ending on Wednesday, Fintech lenders are gearing up to comply. These guidelines cover the areas of lending processes, disclosures, technology and data collection by regulated entities.
Fintech lenders are gearing up to comply with the Reserve Bank of India’s new rules on digital lending, with the deadline ending on Wednesday. While some expect short-term disruption and an initial increase in compliance costs, fintech says it is ready to embrace the new regime. The guidelines focus on protecting consumers from unethical collection practices and fraud by unregulated entities amid growing digital lending penetration.
These guidelines cover the areas of lending processes, disclosures, technology and data collection by regulated entities, their Digital Lending Applications (DLAs) and the Lending Service Providers (LSPs) they have engaged. . RBI had given regulated entities (REs) involved in digital lending until November 30 to ensure existing digital lending complied with the new lending guidelines
“The industry is largely ready for the guidelines. It is important to note here that most fintechs were already adhering to these rules. Some operational changes had to be made for most of the industry, which is easily achievable for 90% of the industry. Those operating on a wildly different spectrum obviously had to change their business model and discontinue specific products, but that would barely represent 5-10% of the entire industry,” Freo co-founder Anuj Kacker told CNBC. -TV18.
“Over 50% of our fintech members (non-NBFC/Banks) have had to change their workflows due to these guidelines. But based on our discussion with the member base, no one faces an existential risk as a result to these new rules. There will of course be some changes and some discomfort, but nothing serious.” said Anurag Jain, founding member of the Digital Lenders Association of India (DLAI) and founder and executive director of KredX. DLAI counts Paytm, Cred, Lendingkart, Zest, Money Tap, Mobikwik, Uni and Capital Float among its members.
“Fintechs brought innovation and disruption through technology, and some business models such as PA, P2P, etc. were subsequently regulated, which shows their importance in the overall Fintech landscape. Being ‘unregulated’ should not be viewed negatively as it does not necessarily equate Just as NBFCs were needed where banks could not directly reach, fintech has been the torch bearer of some unique business models that can significantly change the way banks financial services work in the future. Jain said, adding that fintech now at least has a roadmap and guidelines to follow; there is no gray area. “We will continue to work in collaboration with other other ecosystem stakeholders.”
“Most of the industry was already compliant. But for those who weren’t and needed fundamental changes to their business model, yes, it will mean that more and more consolidation is on the cards. Responsible innovation will become the key to success in the coming days,” added Kacker de Freo.
New regime for digital loans
RBI first announced the digital lending rules in August this year, followed by more detailed guidelines next month in September. These guidelines prohibit third parties or the loan service providers (LSPs) they have engaged from engaging in the disbursement and repayment of digital loans and prohibit them from saving personal information of borrowers, except data primary for operations. It clarifies that all data collected by digital lending applications (DLAs) should be needs-based only and done with the prior explicit consent of borrowers.
The new rules also prevent any automatic increase in credit limits by lenders without the express consent of the borrower and allow a cooling-off period of at least three days for loans with terms of seven days or more and one day for loans with a term of less than seven days. Meanwhile, borrowers can exit digital loans by repayment without penalty.
It also stipulates that any fees or charges payable to language service providers engaged by regulated entities must be paid directly by those regulated entities and not by the borrowers.
RBI has also ordered REs to disclose aggregate annual charges in a clear format to borrowers when taking out loans and publish a list of prominent DLAs and LSPs they have incurred on their website. Therefore, customers are aware of these aspects.
Upheavals in the industry
Shortly after RBI announced the new rules in August, fintech startup Uni, which offers buy-it-now and pay-later solutions, temporarily suspended card services to its existing users. Similarly, digital lending and payment platform Slice halted card services in September. The two players previously disbursed loans via prepaid cards to their customers and had to change their business model to pay loans directly to customers’ bank accounts later.
Earlier in June, RBI separately issued a notification explicitly prohibiting the loading of prepaid payment instruments (PPIs) via credit lines in the run-up to tightening digital lending guidelines.
“The guidelines created a lot of disruption for some companies; they had to go back to the drawing board. But in the startup world, we say it’s not over until it’s over. And we keep going. therefore to innovate,” said Jain of DLAI.
“As a fintech company, we are hoping for more clarity on FLDG’s position and while this may cause a few months of disruption in terms of business model change, the industry as a whole may not have an impact. As a Loan Service Provider (LSP), we are following all guidelines and have made changes to our disbursement and repayment processes,” Anubhav Jain, co-founder and CEO of Rupifi told CNBC-TV18. .
November 30 deadline
“All seem ready to adhere (to the RBI guidelines) by our members,” Sugandh Saxena, CEO of the Fintech Association for Consumer Empowerment (FACE), told CNBC-TV18. “Systems, including tech stacks, are ready to comply with regulations. After all, regulatory expectations for digital lending, which are quite simple, have been in the public space for quite a long time and lenders have brought any necessary changes,” she said.
“While the guidelines have changed a few workflows for digital lending companies, they have provided safeguards for the industry and will benefit the entire ecosystem in the long run. Most businesses have adapted to the new ‘normal’ and will respect them in letter and spirit,” Anuraj Jain added.
Saxena sees no significant disruption from the new guidelines for the industry. “It goes without saying that our members have worked hard to comply with the regulations over the last few months. In all honesty, this is the first time we have had such rules, and therefore some problems with interpretation are sure to arise. Wherever the industry needs clarity, it refers to the regulator and will be guided by the regulator.”
“By combining the framework of customer protection and partnerships between REs and LSPs, DLG (digital lending guidelines) significantly enhances market confidence, whether customers, lenders and other actors of ecosystem DLG will create a trusted digital lending ecosystem for customers as customers can expect to get a uniform and consistent experience and guarantees when accessing loans, despite the diversity of partnerships behind the digital lending applications (DLA),” Saxena added.
“RBI, over the past two years, has created regulations focused on consumer protection and transparency. This has empowered the financial services industry to rethink the way lending and borrowing can be done… We hope to see a smoother transition into the future of digital lending with the utmost ease and confidence,” said Rahul Kothari , commercial director of Razorpay. .
(Edited by : Sangam Sing)
First post: STI