the new RBI guidelines on BNPL is considered a severe crackdown on their facilitations. Mr. xx from Snapmint explains why it was necessary, what brands can do about it and how Snapmint is looking forward to growing its 8 mn+ user base with the same guidelines.
Primary KW: BNPL (8538-avg. searches per month)
Secondary KW: buy now, pay later sites (311)
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There are clear advantages to offering installment financing options to customers. An installment loan provides a borrower with a fixed amount of money that must be repaid with regularly scheduled payments. One such way is the BNPL option.
BNPL is an abbreviation for Buy Now, Pay Later. Like any other installment option, it allows the customer to purchase a product on a fixed amount through a borrower. They then need to make the repayments on regular scheduled times. Snapmint is a BNPL financing solution as well. It is a registered Non-Banking Financial Company (NBFC) that holds an RBI licence. This licence allows us to smoothly underwrite a customer and approve them in a two-step process.
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With 250M GenZ and Millennial consumers now buying online, it has become clear to brands that BNPL is the key to unlocking more traffic. Why? The GenZ and Millennials use the BNPL option to either make bigger purchases or help them manage personal expenses. Since Credit Card holders are less than 20M among these consumers; buy now, pay later increases sales and repeat consumers. Buy Now, Pay Later (BNPL) sites/companies like Snapmint help them acquire new consumers, bring the cost of RTOs down and increase sales from existing consumers.
Globally, Installment Buy now, pay later finances over 140 Billion USD in purchases. In India Buy now, pay later purchases have accounted to be just about 4B USD in purchases. However, it is a steady growing market.
And, installment financing is not a new concept. Remember how you could buy a new flat screen TV on 0% finance through Bajaj Finance? Installment Financing is offered for specific purchases. Bajaj Finance, Home Credit, HDFC, Mahindra Finance have all been operating in the offline market with this product for more than a decade. A transaction is treated on its own merit, and customers are financed only for that specific purchase.
A transaction can be denied if deemed risky. Consumers cannot resolve the outstanding balances. Consumers have to pay in full every installment and loan tenures tend to be short 3 months to 36 months. This decreases systemic risks to a huge extent since the risk is limited to the period of the loan.
Installment Financing offered by NBFCs is a completely different product. Thus, before partnering with a BNPL, it will be prudent to ensure that your partner has a valid NBFC license. Avoid partnering with Visa/MasterCard/Rupay or any other open-loop network. NBFCs are regulated by RBI and have to adhere to all governmental guidelines. This will ensure merchants are able to reap the benefits of financing products, while being compliant with the regulator and the law of the land. Snapmint is an RBI regulated NBFC. If you are a brand looking to partner with us, please reach out to us here.
RBI frowns upon non-regulated entities who take credit risks by partnering with NBFCs. Credit risk is a risk of default on a debt that may arise from a borrower failing to make the required payment. RBI has not given them a right to take credit risks or view KYC records or credit records of consumers so that they don’t over leverage consumers (CIC Act 2008….xxx).
Let’s take a look at what is behind the recent RBI guidelines on “credit lines to pre-paid instruments”. Credit lines or Line of credit is a credit facility extended by a bank or other financial institution to a government, business or individual customer that enables the customer to draw on the facility when the customer needs funds. According to the Reserve Bank of India, prepaid instruments can be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers and any such instruments which can be used to access the prepaid amount (collectively called Payment Instruments hereafter).
RBI protects the interest of consumers and small merchants while prudently managing systemic financial risks. Credit Card is one such industry where managing prudential norms and capital adequacy risks. Prudential regulation refers to a set of laws and rules designed to minimise the risks banks assume and to ensure the safety and soundness of both individual institutions and the system as a whole. The capital adequacy ratio (CAR), also known as capital to risk-weighted assets ratio, measures a bank's financial strength by using its capital and assets.
When challenger credit cards like Slice and Uni entered the market offering prepaid cards, RBI decided to take a close look at the underlying product. A lot of companies were privately owned entities and did not have NBFC licenses. They advertised for limits as high as 10L with card expiry periods ranging from 3 years to 5 years. Customers could use the card at any outlet of their choice. These companies partnered with NBFCs to fund the purchases. However, it is to be noted that the NBFCs weren’t fully aware of every underlying transaction.
Our estimate is over 10M-15M such cards were issued in the market. (Remember India has just 28M consumers with credit cards). This changed the risk profile for consumers, merchants and financial markets considerably. There has been a sharp spike in consumers using this credit product. However these were front-ended by non-regulated entities (Which, as mentioned above, RBI frowns on).
They did not have to comply with requirements of capital adequacy or any other norms typically required for financial institutions. Since the addressable market for these cards were at least 250M you can imagine the risk (10x that of credit cards). To reign this in, RBI recently released guidelines which basically say that only regulated entities such as NBFCs and banks can offer such credit products. Thus, you see, the regulations were to reel in this practice to manage a potential financial crisis.
Snapmint is a RBI licence holder NBFC. Thus, our practices are in line with the norms set by the RBI. This helps us in two ways:
Other advantages include our 2-day easy integration with the brands without changing their code structures, customisable plans and the resultant conversions that come with it. Brands like The Sleep Company, Traya health and Street Style Store have reported higher AoVs and revenues after partnering with us.
BNPL is a type of financing solution. Companies that offer BNPL options may or may not be regulated by RBI. Snapmint, for example, is an NBFC offering a BNPL solution and is RBI regulated.
According to new RBI guidelines, nonbanks can no longer load prepaid instruments — digital wallets, or stored-value cards — using credit lines.
RBI is not regulating BNPL, rather regulating it to decrease credit risks in the market.
BNPL entities can be unsecured (A.k.a. non-regulated entities). Make sure to opt for a RBI registered BNPL like Snapmint.
All monetary policies are regulated by the RBI in India. Thus, BNPL is regulated by the RBI since they form a part of the financial system.
Every BNPL entity has their own set of values. Choose which suits you the best. Make sure that your BNPL partner is RBI regulated.