Hello everyone,

Welcome to the 48th edition of The Pattern, a weekly newsletter where I bring you the latest from the worlds of finance, economy, and technology. 

This week, we saw a lot of action as the government and the RBI attempted to lay down the law for FinTechs. Despite its clumsy faux pas around the lending app ban, there were some sincere attempts at giving regulatory clarity.

Reversal of ban 

Just last week, I wrote about the RBI’s ban on 94 digital lending apps including some big names like LazyPay, Kissht, Indiabulls Home Loans, and Quik Finance. A lot has happened since the clampdown, resulting in a reversal of the ban  –

On February 8, at least 15 companies met MeitY officials to make representations about investors and capital structure, data localization, whether they were working with an NBFC and how long they had been operating. These companies were asked to share documents cementing their claims that they were regulated by the RBI.

Now, the RBI is set to publish a white-list of digital lending apps that it will encourage borrowers to use – essentially acting as a seal of approval. 

The U-turn, that took place within a week of the ban, could be perceived as the regulator fumbling at the response to illegal, usurious lending. But notwithstanding this awkward whirlwind of course-correction, it is heartening to see that the RBI has an ear to the ground and is working closely with the most important stakeholders of its regulations.

Payment aggregator license  

Publications reported the latest development around payment aggregator licenses in wildly different ways. Where some announced the  sanction  of the license to tech heavyweights, others bemoaned that the central bank had  impeded  the path for others.

Here’s what happened - the RBI gave in-principle approval for the payment aggregator license to 32 entities that were already operating as payment aggregators. It also gave in-principle authorisation to 19 new ones, although these companies aren’t allowed to operate until further notice.

At the same time, it said that 28 applications including PhonePe and Cred were still under review. Meanwhile four were rejected or returned, Paytm, PayU, Freecharge and Tapits Technologies among them.

But all’s not lost for those whose names didn’t make the list – the RBI seems to be generous with second chances. These entities can reapply for the license within 120 days. Although no new merchants can be onboarded in the meantime, they can continue with business as usual.

The approval process is indeed strict. However, the option of reapplying for the license, along with the fact that the regulator hasn’t given a final nod to any payment aggregator yet, signals that it is giving players time to set their house in order and adjust to the new regime. 

Clarification on DLG

In the spirit of fine-tuning regulation in response to the fast-paced developments in the fledgling industry, the RBI retrospectively issued 18 points of clarification around its digital lending guidelines.

Some of the clarifications of note included:

1. The definition of LSPs covers only those service providers who are engaged in digital lending transactions.

2. Payment aggregators do not fall under the purview of the digital lending guidelines, unless they also act as a LSP.

3. The flow of funds absolutely cannot be controlled by a third party.

 To sum up…

Codified scrutiny over the digital lending space will take time. For now, it is piecemeal interventions like these that help the regulator respond to the concerns on the ground. Evidently, its approach is to formulate  with  and not simply  over  FinTech players as both navigate uncharted waters. 

Between the digits

Rs 69,000 : What senior citizens can earn every month in pensions after changes introduced in the budget

453 : The number of employees laid off by Google in India as part of its planned 6% reduction in staff globally

6,500 : The number of new pilots Air India will need to man the 470 planes it is set to be supplied by Airbus and Boeing over the coming years 

Reading list

Can TReDs pull some threads to capture its Rs 8 lakh crore opportunity?

RBI’s nod to payment aggregators signals start of light-touch regulation

Is it time for a World Bank president from India?

RBI shouldn’t play the game of ‘For your eyes only’

Credit Suisse needs a cockroach exterminator

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on Twitter  here  and follow  FinBox on LinkedIn  to never miss any updates. 

Cheers, 

Mayank 

All opinions expressed are own and do not necessarily reflect the views of FinBox or its promoters.