83. Payments Digest IX
“Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes” — Benjamin Franklin
Benjamin Franklin is not the first one to quote about death and taxes in a single line; that credit goes to a 18th century playwright Christopher Bullock (1716)
Anyway… the point is not who quoted first but ‘tax is inevitable’… Looking at the Indian online gaming industry, not only the tax but the death (of many smaller companies) is inevitable.
Skill based gaming has witnessed many ups and downs since last year
(+) Google PlayStore allowed Fantasy and Rummy merchants to distribute their App without the need of using Google Billing System (so no ~30% commission)
(+) MeitY issued draft guidelines for gaming merchants (Read Here)
(+) Fantasy Sports companies earned Rs.2800 during 2023 IPL and 61 million users participated
(-) 28% GST on deposits to play the games. (Note: Do not forget 30% TDS on winnings)
28% GST is quite high… Gaming merchants, experts and also, LOLs (Leaders of LinkedIn) are quite vocal about it — they have requested revision of GST rate and also proposed alternatives. But looks like the decision is final (for now) and will be effective from 1st Oct 2023.
Note: Only crypto businesses in India could beat the gaming merchants in the game of ‘ups and down’. Recently crypto assets were included under Prevention of Money Laundering Act (PMLA). For other ‘downs’ — read). The second place goes to Digital Lending sector which went through big shocks last year (credit line on prepaid, digital lending guidelines etc.)
Indian Payments League — NUE
Talking of fantasy sports… Do you recall the IPL of the Payments industry…. No?
Let me refresh your memory
In 2020, RBI floated ‘Draft Framework for authorisation of a pan-India New Umbrella Entity (NUE) for Retail Payment Systems’….
Hey… what is it?
Basically, back then RBI felt that NPCI has become super big and is a single point failure for retail payments. So the RBI came up with the idea wherein a bunch of companies can come together to form NUE and are expected to build something useful, practical and may be awesome!
A bunch of excited companies formed groups… kind of IPL among payment companies
Then started the confusion (why SBI and HDFC are not in this?), scepticism (why MNCs are so keen) and excitement (what are they going to build?)
But the bigger question was — Will they build something better than ‘UPI’?
(It was like asking someone to come up with a better ‘Idli’ (as a concept)… yeah, you can put a dry fruit on top of Idli but can you beat the concept of Idli… :) )
Finally, in Jan ’23, RBI rejected all NUE proposals as none proposed anything groundbreaking that met RBI’s expectations.
Hmm… kind of disappointing end to Indian Payments League 🙁
PA/PG License Status
Since Aug ’22, RBI has been announcing in-principle approvals. I did cover a few of those updates or gossips in the last Payments Digest (here).
This is the latest status of approval (Refer this link for the latest updates)
Note: As on 3-Aug-23, 4 PAs (PayU, PayTM, Cashfree and RazorPay) are not allowed to onboard new merchants.
RBI Updates:
A. Credit Card Guidelines
Last year, the RBI published credit card (including co-branded credit card) guidelines. [Read here]
In July 2023, RBI issued another interesting guidelines for card issuance
Summary: Credit card issuers (banks) should allow a user to select the card network and should not have exclusive partnership with one card network.
Implications:
- Banks to change the partnerships (get rid of exclusivity) and processes
- Customers have choice (in case they know what to do)
- This regulation will boost the RuPay credit cards which in turn will boost UPI transactions as RuPay credit card can be linked to UPI (do note that choice is still with customer)
Will it be applicable for co-branded credit cards as well?
B. Co-branded PPI wallet:
RBI asked PPI issuers (list — Banks and Others) to stop co-branded wallet programs.
What is a co-branded wallet? — Co-branding is where the PPI license holder allows a brand/merchant to use its licence to build its own semi-closed wallet [Qwikcilver (Pine Labs) licence was used by Dream11 to have own wallet that can be used on dream11’s subsidiaries]
Reason: Clause 11.6.3 of Master Directions on PPI
PPI holders shall be on-boarded for UPI by their own PPI issuer only. PPI issuer shall only link its customer wallets to the handle issued to it. PPI issuer as PSP shall not on-board customers of any bank or any other PPI issuer.
In simple words: RBI wants to make sure that UPI + PPI linking is done only by the PPI licensed wallets and not the co-branded wallets
Note: No restrictions on PPI entities issuing co-branded prepaid cards.
C. Lightweight Payment System for emergency
RBI plans to roll out a lightweight payment and settlement system (LPSS) for emergencies or calamities. LPSS will not use the same infrastructure as that of our regular rails (NEFT, UPI etc.).
You may wonder why LPSS is needed during calamities.
No matter what happens (beautiful monsoon or flood or war), people have to pay for things… so we need payment rails, ATMs etc.
And not to forget, during calamities products/services will become expensive (Reason: Supply <> demand, profiteering… but mostly the latter)
Do you remember how much you paid for a N95 mask or for pulse oximeters in the early days of COVID-19?
Exactly… (my point)
So an LPSS makes sense.
Let’s wait and see what shape and form it will be!
Digital lending Guidelines:
A) Role of Payment Aggregator (PA)
Digital Lending Guidelines brought in a lot of clarity and compliance to lending space (Read This Here).
And just like with any guidelines, there were few doubts. The FinTech ecosystem wanted clarity and even PAs were not far behind in seeking clarity about what their role would be.
Earlier guidelines prohibited PAs to be in the middle of fund movement. But it is technically not possible as many of the payment modes (e.g. Net-Banking) requires PA to be part of the fund movement.
RBI shared clarification (Link Here)
Payment Related: It is clarified that PAs can move the funds (of collection — i.e. PG, Recurring Payment Suite) through their escrow account as long as they are not LSP. Relief!
Interesting one: RBI clarified that Digital Lending Guidelines are applicable to physical (brick and mortar) as well (Ha.. ha… RBI knows how startups like to play in grey area… or as they call in fancy words — regulatory arbitrage)
B) FLDG
In Jun ’23, RBI capped the FLDG (First Loss Default Guarantee) arrangement between Digital Lending Apps (DLAs — FinTech/LendingTech) and Regulated Entities (REs — NBFCs) to 5%
Let’s understand FLDG
FinTech: Hey NBFC Bro, let’s partner. I will bring you customer and you give the loans via my App
NBFC: Okay ! But how do you make sure the borrowers will pay back the loan amount
FinTech: I will use alternate data and do AI/ML thingy!
NBFC: Fancy… but what if still borrowers fail to pay back
FinTech: I will bear the losses
NBFC: How much?
This ‘how much’ (number or percentage) is the FLDG — where the partner bears the part of losses that arise out of defaulted loans or Non-performing assets.
Earlier, this ‘how much’ could be any number… 20%, 30% (etc.), depending on the appetite of FinTech (or in layman terms — how much of VC money a FinTech could burn).
Now, RBI has capped it to 5%.
FLDG is acceptable only in three forms: (1) Cash deposit with RE (2) FD with scheduled bank and lien in the name of RE (3) Bank Guarantee (BG) in favour of RE.
Also, RBI mandates the partners to have legally enforceable agreement to cover the aspects of FLDG and
“You can take it to the bank” — Interesting expression.. Isn’t it?
In the beginning of 2023, we witnessed the fallout of a bunch of banks in the USA (Silicon Valley Bank, Signature) and then Credit Suisse in Europe… and I am sure you read all about it from LOLs (Leaders of LinkedIn). Also, few LOLs reminded us about Indian banks including the Yes Bank moratorium of 2020.
That is all in the past…. (Until it happens again.. Shhh)!
But if Banks keep failing at this rate then we may have to change the above expression
“You can take IT to the bank… but you may not get IT back” :)
But that doesn’t mean… you can keep IT at home, especially if you are in India and if you have Rs.2000 currency notes…
RBI declared that Rs.2000 will be phased out by 30-Sep-2023.
[Rs.2000 notes were printed to meet the demand for cash during demonetisation. Simple na… print one note of Rs.2000 instead of 4 x Rs.500 notes. Now it is the time to pull back these BIG notes]
Demonetisation was a black swan event… but this event is more of a little a sparrow level event… so… nothing to panic, just go to the bank and exchange the notes!
That’s it for now!
