Fintech companies have been in the favor of the lending sector for a few years now; the reason behind the immense demand for these companies is their explicit features of lending and borrowing instant loans. Over the years with the aid of technology, the companies have evolved the process of applying for and regulating loans in a faster and more efficient fashion.
The word Digital lending comes into the act when the process of providing and retrieving loans is done through online platforms and smartphones. In this system, the borrower receives an instant loan in a few minutes after applying with the help of Fintech Company as a mediator that links up the customer with a suitable lender. The procedure is eased by an alliance between LSP (Lending Service Provider) and NBFC (Non-Banking Financial Company).
New regulations
In contrast to previous regulations where RBI banned NBFCs (Non-Banking Financial Companies) from filling up their PPI (Prepaid payment instrument) with credit lines, due to some impetuous activities of a few companies that were lending borrowers’ beyond their capacity.
On 10 August 2022, the RBI introduced a new framework to regulate digital lending. According to this RBI has classified digital lending into three groups,
- Entities that are allowed to convey lending business under the regulations of RBI.
- Entities not regulated by RBI but are authorized to carry out lending according to other statutory or regulatory.
- A lender that lends outside the reach of statutory or regulatory requirements.
Additionally, new guidelines have been designed by the RBI constituted Working Group (WG) to incorporate credit lines into customers' accounts so that lenders, borrowers, and fintech firms can all benefit from the digital lending system without exploiting the institution.
- All transactions must happen between borrowers and an entity’s accounts which will eliminate the hindrance of intermediaries.
- All fees, charges, and annual percentage rates need to be stated prior in a standardized format to the borrower by the lenders.
- Charges payable to LSPs involved in the intermediaries’ process should be paid directly by the bank and not by the borrowers.
- No entity can increase the credit limit without the explicit consent of the borrower.
- The digital lending apps must acquire the consent of borrowers for collecting their data and can audit if required.
- Banks and LSPs must provide a nodal grievance officer to receive and resolve fintech-related complaints.
- Borrowers can take their complaints to the authority of RBI, in case their problems are not resolved within 30 days by banks.
- Regulated entities have to ensure that all digital lending (either through digital lending apps or Buy Now Pay Later) is reported to CIC (Credit Information Companies).
Prepaid cards as lending devices
The fintech companies that fall under the stated three groups categorized by the working group (WG) can help their customers link their cards to bank accounts for transactions as per RBI guidelines.
NBFCs (Non-Banking Financial Companies) must manage a relationship between LSPs (Lending service providers) and borrowers by appointing an officer especially for resolving the complaints.
Provide a properly CIC-reported App to maintain the convenience of prepaid customers interested in digital lending.
Moreover, prepaid cards have been proven to be a great solution for overspending and always helped their customers to rise above credit. Once the transactions are made through bank accounts of LSPs to the borrowers’, the amount can be then transferred to the prepaid card wallet for better use by setting expenditure limits to overcome overspending.
Customers can also utilize their prepaid cards to save interest amounts apart from their bank accounts.
LSPs can provide a card to the borrowers with a merchandise purchase limit so that it will be easy for the borrowers to spend only on the products for which the amount was borrowed. In addition, LSPs can track the usage of their amount as per the lending agreement.
BankIT prepaid cards
BankIT already provides 24*7 customer services to handle any queries or complaints.
BankIT enables its customers to make transactions across 400+ banks, invest, manage their finances, etc.
With BankIT it is easy to set an expenditure limit for the card that helps to control overspending.
BankIT gives you an App that makes the use of a card more convenient by giving it a virtual effect and is easy to manage. A web portal is also provided for the use of multiple issuance and management of multiple cards.
BankIT is also well versed in setting a merchandise limit so that the user can only purchase those products for which the amount is loaded.
Use smart cards for online or offline purchases through any POS device.
