The tightening of compliance regulations by the Reserve Bank of India (RBI) may prompt banks to lean towards collaborating with larger fintech companies for co-branded card partnerships.
Bankers cite the risk of non-compliance with the RBI regulations as the prime concern, fearing that smaller fintechs may lack the expertise and resources to fully understand and adhere to regulatory requirements.
“The message is clear from the central bank that whether it partners with a fintech or non-fintech company, the bank will be held responsible for any compliance violations. Now, banks will prefer partnering with those fintechs which have flawless track records in adhering to RBI’s rules,” a senior official of a private bank told FE. “Banks will now avoid partnering with early-stage fintechs for co-branded cards.”
Banks have become wary of joining hands with smaller fintechs for co-branded cards after the RBI amended the rules for credit and debit cards. The central bank on March 7 amended the master direction on credit and debit cards and asked issuers to establish a robust system for monitoring the end use of funds.
Following the amendments, Federal Bank and South Indian Bank have decided to stop issuing new co-branded credit cards. According to sources, the RBI had instructed these lender to stop issuing co-branded credit cards.
“We have received multiple calls from our banking partners after Federal Bank and South Indian Bank stopped issuing new co-branded cards. They wanted to know whether we are fully compliant with amended rules,” said founder of a fintech firm which has partnerships with several banks for co-branded cards.
According to the revised guidelines regarding co-branded credit cards, it is mandatory to explicitly state issuance of cards under such collaboration. The name of the card issuer must also be prominently displayed in all marketing and advertising materials. This disclosure will be exclusively visible to the cardholder on the co-branding partner’s platform. Card issuers are instructed to verify that all co-branding agreements adhere to the RBI directives.
“Understanding RBI regulations requires a dedicated team with specialised expertise and compliance mindset, which often comes with experience and time. Profitable, stable fintech firms have the advantage in this regard,” said Avinash Godkhindi, MD & CEO, Zaggle. “Opportunities to partner with banks for co-branded cards would now possibly reduce for smaller fintechs.”
Partnering with small fintechs makes commercial sense for banks. When collaborating on co-branded cards, smaller fintech firms typically seek a smaller share of the revenue compared to larger players. Small and mid-sized banks have been forming partnerships with smaller fintech firms for co-branded card ventures.
