RBI’s clarification is bad news for India’s BNPL sector

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Editor's note: A clarification on the prepaid payment instrument rules issued by the central bank to digital wallet companies late on Monday night has sent India’s fledgling but well-funded buy now pay later sector into a spiral and for all the right reasons.   From the circular (not yet uploaded on the RBI website): “The [Prepaid Payment Instruments - Master Directions] does not permit loading of PPIs from credit lines. Such practice, if followed, should be stopped immediately. Any non-compliance in this regard may attract penal action under provisions contained in the Payment and Settlement Systems Act, 2007.” According to four industry executives, the implications of this clarification are severe. “It serves a knockout punch for the business model of most, if not all, variations of buy now pay later products currently serving the market,” says the chief executive of a fintech firm partnering with multiple BNPL startups.   A prepaid payment instrument, or PPI, is industry speak for digital wallets and prepaid cards. Several pay later companies, such as Slice, Uni and Dhani, offer credit card challengers, which are essentially zero-value prepaid cards …