According to the RBI, prepaid payment instruments (PPIs) are payment instruments, which facilitate the buying of goods and services, including the transfer of funds, financial services, and remittances, against the value stored within or on the instrument.
Slice, Uni, Fi, PayU’s LazyPay already offer credit through prepaid cobranded cards but are mostly tied up with banks. I’m not really sure if this affects those who are tied up with banks.
But, I think RBI is making a point here that these PPIs are not allowed to get into credit and lending facilities.
Will the business model of all these fintechs change? anybody who has better idea on this …kindly share your views
Say for example, A has 50k credit limit on his credit card issued by his bank.
What A does is, he uses his 50k credit limit on the Credit Card to top up his Prepaid Money wallet with PPI service provider X.
After toping up his prepaid wallet with X, A then makes a withdrawal request of 50k to his Bank account.
Thus A becomes a money issuing entity just like RBI from the comfort of his home, creating money out of thin air.
Converting Virtual Credit limit on his Credit Card to Physical cash using a previously legal Money Rotation loophole.
What RBI has now done is , they have put a ban on A’s money printing business.
So now, No credit entry can be made in a PPI prepaid wallet, where the source of money is from a loan or a credit line like a credit card.
Great news to stop the flood of predatory / hidden loans by many NBFCs
designed to prey on the financially unaware.
It looks like no longer can someone be unwittingly subscribed into a loan/credit-line disguised as a “freebie”. ( eg. Buy Now Pay Later schemes, 0% EMI payment schemes, … )
I didn’t get the significance of this scenario.
How is this different from opting for a personal-loan and withdrawing the amount in cash?
Why do you think this scenario of encashing one’s credit (indirectly) must be discouraged?
@Jason_Castelino does this. He explained this in detail few days ago on how he do this.
Seems someone forwarded that thread to RBI and his ponzi scheme is now busted.
Personal loan carries interest. Credit cards don’t as long as you pay on time. So people were withdrawing money to their bank accounts, earning interest for interest free period and then paying back. Not any more
I have no idea why people call that those stupid notes with pictures of dead people … Uhh I mean physical cash as money. They are all fiat currency. Money is a store of value, fiat currency we isn’t. Fiat currency is created in two ways:-
When a central bank prints currency out of thin air (those notes i.e physical cash, these days it’s more of electronic numbers like having a 0 bank account that won’t get bounced and writing any digit of checks, imagine you have 0 bank account and you have a magic pen by which you can write any amount on a check and presto currency formed. Yes that’s the truth, I am not joking)
When some dumb guy or entity takes personal loan/credit card/car loan etc.(this is called as credit)
92% of currency is created in the banking sector called credit through a process called fractional reserve banking where one man’s credit amount becomes the deposit amount of another man and banks relent the deposit as credit and that amount comes back to bank as deposit. These currency don’t exist as physical cash, they are just plain old numbers typed in computers.
Now if you take BNPL , RBI hardly even would care. In reality those folks sitting in RBI don’t want to see another big potentially fast growing bubble, especially with that bursting at these times might even cause depression. There are enough bubbles for us already .
Great news to stop the flood of predatory / hidden loans by many NBFCs
