In a sharp action to clamp down on fintech lending platforms, the Reserve Bank of India (RBI) has ordered Bengaluru-based Buy Now, Pay Later (BNPL) company Simpl to shut down its payment operations with immediate effect.
The RBI move reflects its determination to oversee the fast-growing digital credit market, which has been at the center of concerns regarding unsecured lending norms and a lack of consumer protection.
Simpl, owned by One Sigma Technologies, allows consumers to make deferred payments at the point of sale, working with around 26,000 merchants.
But the company was operating a payment system without the express permission of the RBI, which is against financial rules as per the Payment and Settlement Systems Act of 2007. The act requires that any organization running a payment system have prior approval from the central bank.
The RBI instruction is being considered one of the evolving regulations against the previously unregulated and fast-growing digital credit market.
BNPL services have been enjoying consumer preference as they provide instant credit. However, they have come under scrutiny for possibly pushing customers into unsustainable debt and for being inadequately regulated.
In 2022, RBI already stepped in by banning BNPL companies from loading prepaid payment instruments with borrowed money, essentially moving them towards the regulatory perimeter of digital lending.
The current situation of Simpl is a reflection of an earlier crackdown when card networks were fined for facilitating business-to-business payment transactions through unauthorized third parties.
In both cases, the shared offense was the acceptance of clearing and settlement systems without the necessary licenses.
Outside of RBI measures, Simpl is also being probed by the Enforcement Directorate for suspected flouting of India's foreign direct investment (FDI) and foreign exchange rules.
The firm allegedly took in Rs. 913 crore by availing itself of the 100% automatic FDI approval as an IT services company. However, authorities argue that the actual business model of Simpl better suits financial services, which require prior government sanction, which it did not receive.
In response to the RBI directive, a high-ranking official from Simpl insisted that the company uses its own funds and collateral, stating that no government money is being used in its operations.
The official went on to explain that Simpl does not collect interest on its service but generates revenue through merchant charges and includes a flat late fee to ensure customers do not get trapped in interest-based debt cycles.
This move indicates stricter regulation for digital lending platforms in India. Market players expect that RBI action can lead to other BNPL providers revisiting their regulatory compliance and rethinking the alignment of their operations with the set digital lending framework.
The central bank prioritizes financial stability and consumer protection, placing them high on its regulatory agenda, so that the expansion of digital credit services does not compromise good lending standards and consumer well-being.