Fintales Issue 23: October 2022

“I never travel without my diary. One should always have something sensational to read in the train.”
    – Oscar Wilde

To: your computer screen

Subject: breaking the fourth wall

Hello Dear Reader,

Yes, you. We’re waving at you. Not the person behind you. But you.

Writing a newsletter can be lonely. We can’t help but wonder if we’re talking to the void. Which is why we love hearing from you. Your emails make our day. Do write to us at

And who are we, you ask? FinTales is written by the product team at Ikigai. We are lawyers who love tech – especially fintech.

We hope to use this space to share our insights and learn from you.
Here are a few of us (at our recent team retreat):  MayankAnirudhAparajitaAsthaDevdutta, and Priyam (left to right).

Now, back to our regularly scheduled programming and new FinTales menu.
Main course: a glimpse into a fintech entrepreneur’s diary and a deep dive into RBI’s concept note on CBDC.
Dessert: sweet news about UPI-credit card linkage.
Saunf: a quick refresher on developments in the fintech-verse.
Takeaway: articles, documentaries, and interviews to grab and go.


Main-course ?
? The diary of a fintech entrepreneur

A Tale of Two Cities begins with the now immortal lines: it was the best of times, it was the worst of times. If Charles Dickens wrote about the Indian fintech ecosystem today, we think it would be eerily similar, something like:
“It was the best of times, it was the worst of times,
it was the age of 
unicorns, it was the age of funding freeze,
it was the epoch of BNPL, it was the epoch of no FLDG,
it was the season of UPI, it was the season of zero MDR,
it was the spring of CBDCs, it was the winter of cryptocurrencies,
we had everything before us, we had nothing before us…”

2022 has been a tumultuous year for Indian fintech. This month, we got our hands on a fintech entrepreneur’s diary describing its highs and lows. Here’s a glimpse at how she’s been navigating business opportunities and regulatory curveballs with her trusted advisor, Cecil, by her side.
Dear Diary,
We’re now among the top five most downloaded fintech apps in India. Our marketing campaign was a hit, and it seems cashbacks and influencer promotions did the trick. Nonetheless, it wasn’t smooth sailing. The tech team struggled to keep up with the surge in users and the app crashed. Luckily, we were able to get it up and running within the hour.  
Dear Diary,
The pitch-deck is finally done. I was chasing my tail on the monetisation model. After several hours of brainstorming with Cecil, I added a few more slides on using payments data to cross-sell credit products – our core monetisation strategy. Fingers crossed.
Dear Diary,
We’ve been funded! Cecil and I jumped unabashedly on our couch, I must admit. I posted on LinkedIn about the fund-raise after running the post by Cecil. He thought it had the right mix of humility and aplomb for a newly funded fintech start-up – ‘humble brag’ as the kids call it.  
Dear Diary,
The investors asked us to tighten our KYC process. They’ve been spooked by the Dhani identity thefts. I’m wary of adding friction to the customer journey. But as Cecil reminded me, it’s a tradeoff between user convenience and security; and the latter, in fintech, always wins. I also watched the Netflix series on the Wirecard scandal. Scary stuff.
Dear Diary,
We received an offer to partner with a crypto exchange. Cecil and I are still bullish on crypto. Like Elon, Cecil’s favorite crypto is Doge. But our partner bank and payment aggregator vetoed the proposal. Sigh.
Dear Diary,
I’m tired. I woke up with a terrible hangover after Cecil’s birthday party. And if that wasn’t enough, our partner bank called to discuss our co-branded card. They’re reluctant to share transaction data with us anymore because the guidelines bar it. Our lawyers, bless them, found a loophole.
Dear Diary,
RBI banned credit-loading PPIs. Cecil and I had gone for a run. When we returned, I saw half a dozen missed calls from our legal team. That’s never a good sign. We were going to launch a credit-loaded PPI. Not anymore.
Dear Diary,
The digital lending guidelines dropped. Much has changed. It’s another reminder that the RBI holds the kill switch. I want to minimize disruption to our existing customers that we’ve paid dearly to acquire. Cecil’s been a rock – a voice of reason and calm. This too shall pass.
Dear Diary,
I’m in Bombay for this glitzy fintech event. The who’s-who of the fintech verse are here. There’s a lot of fist-bumping and chest-thumping on stage. But behind the scenes, the mood is sombre. I find these events tedious. I’d much rather spend my day tinkering with our app, discussing new ideas with Cecil, or talking to users. Alas.
Dear Diary,
It’s the last day to purge card data. We thought RBI would relent. It didn’t. Our payment aggregator said they’re prepared for tokenization. Cecil tells me to trust them. And that’s what I’ll do because that’s all I can do.
Dear Diary,
I woke up today without Cecil slobbering all over me – never a good sign. So I took him to the vet, which he hated, plus it took all day. My start-up can wait, Cecil is my priority.
Wishing Cecil a speedy recovery.
? CBDC: concept, dream, or reality?

“How is it different from regular mobile bank transactions?” asked a Nigerian restaurant owner during a survey about Nigeria’s Central Bank Digital Currency (CBDC) – eNaira. Turns out, this is a vital question to understand if an e-Rupee makes sense for India. The RBI’s concept note on CBDC (released earlier this month) offers some insight. The long and short of it: the general public (the retail segment) will likely get a bank-distributed, token-based, non-interest-bearing, and semi-anonymous CBDC. And financial institutions like banks (the wholesale segment) are likely to get an RBI-distributed, account-based, traceable CBDC.
The note defines CBDC as “legal tender issued by a central bank in digital form”. It goes on to make a few tall claims about CBDC:
First, CBDC is safe because it’s the liability of the RBI, and not of a commercial bank. Unlike bank deposits, CBDC is free of credit or liquidity risk. So, you don’t have to worry about losing money if your bank fails. CBDC could indeed protect people from bank failures. However, the RBI is mindful that banks are necessary to create credit in the economy. It wants to avoid a situation where depositors flee from banks. That’s why the RBI decided against an interest-bearing CBDC which could compete with bank deposits. The RBI is also considering imposing limits on CBDC balances to avoid eroding the banks’ deposit base. So, any protection offered by CBDCs against bank failures will be limited, and perhaps rightfully so.
Second, an offline CBDC may foster financial inclusion in areas without banking or internet access. Although several existing financial products already meet this need. Take, for example, prepaid payment instruments (PPIs) which offer many of the functionalities of a bank account. Or UPI 123Pay which can be used by feature phone users who don’t have reliable internet access. It’s not clear why a CBDC would do a better job at serving the unbanked and underbanked compared to these established options. But a potential answer could be a CBDC which doesn’t require any KYC (at least for small amounts) much like cash. Unlike PPIs which require minimum KYC and UPI which is linked to a KYC-ed bank account, low-value CBDC wallets could be issued without any KYC.
Third, CBDC may increase the competitiveness, resilience, and efficiency of domestic payment systems. While UPI is a huge success, it has also raised concerns about concentration risks in payments. With PPIs and credit cards being linked to UPI, these risks will only increase. However, UPI’s success is attributable to the work done by app providers in onboarding merchants and customers. A similar public-private partnership is needed for the widespread adoption of CBDC. In fact, the CBDC may also piggyback on existing payment infrastructure to avoid reinventing the wheel. For example, CBDC could be designed to leverage existing QR codes and PoS machines. CBDC wallets can also be integrated with widely used fintech apps. So, there may be a trade-off between efficiency and promoting competition while rolling-out CBDC. Besides retail payments, a wholesale CBDC could facilitate faster inter-bank settlements. This will reduce settlement risk and the cost of maintaining settlement guarantee funds.
Fourth, CBDC may enable more efficient cross-border payments. Cross-border payments currently rely on the correspondent banking system. This means that a transaction is routed through multiple banks in different countries, leading to high costs and delays. Indians receive $87 billion as inward remittances annually – the highest in the world. If central banks work together, they can align their CBDC standards or build bridges to settle cross-border payments directly with each other. There are several early examples of such collaborations like the m-CBDC Bridge Project and Project Dunbar. But this isn’t something the RBI can do alone and its success will depend on the attitude of other central banks.
Fifth, the note claims that CBDC can provide a risk-free alternative to private cryptocurrencies. But CBDCs and cryptocurrencies are fundamentally different. Unlike CBDCs, cryptocurrencies are global and open-source. They can already facilitate cross-border payments, which CBDCs may or may not be able to do. However, stablecoins may see reduced demand if CBDCs become usable for cross-border payments, which is one of their main use-cases. Moreover, anyone can build apps on top of a blockchain that is powered by cryptocurrencies. While CBDCs may also allow apps to be built on top of them, it’s likely to be a closed system in which only regulated entities can participate.
To further understand the potential of CBDC, we spoke to Dileep Seinberg, Founder of MuffinPay. He explained that CBDC opens the door to a “…plethora of payment options that help businesses run smoothly. It will lead to multiple products, including instant high-value fund transfers 24×7. It will create doors for more secure and sustained payment solutions for the users.” He added that CBDC “will lead to instant cross-border payments and provide higher liquidity to enterprises and businesses. The dependence on banking services for financial needs will decrease, and individuals or businesses will have more power with them.”
The promise that CBDC holds is immense. But the devil lies in the details – which are still being deliberated. Countries like Nigeria and the Bahamas have already launched their CBDCs. The results have been mixed. The Bahamas Sand Dollar has been adopted by around 5% of the population. The Nigerian e-Naira has struggled due to technical glitches and a lack of awareness. A poll conducted by Ventures Africa found that only 4% of respondents had used the e-Naira. More worryingly, 64% of respondents hadn’t even heard of it. The decisions that RBI takes subsequently will determine whether the e-Rupee can avoid this fate.


Dessert ?
?‍♀️ UPI-credit card linkage: Avengers meets Justice League

Last month, UPI-linked Rupay credit cards were launched at the Global Fintech Fest. Subsequently, NPCI released operating guidelines for UPI-linked Rupay credit cards as well. It was during the Fest that an NPCI official described the linkage as Avengers meets Justice League. We couldn’t agree more.  While UPI is commonly used for small-value peer-to-peer (P2P) payments, credit cards are used for high-value peer-to-merchant (P2M) payments. With Rupay credit cards being linked to UPI, these two worlds are set to collide. The value proposition of linking credit cards with UPI is obvious. The merchant network for UPI is far wider than credit cards. Compared to 70 million QR codes, there are only 7 million PoS machines in India. Imagine being able to pay your auto-rickshaw driver through your credit card. That’ll be possible soon.
The guidelines also address the elephant in the room: payment fees. The guidelines state that UPI based credit card payments will be free if the transaction value is up to INR 2000 and the recipient is a small merchant with an annual turnover of up to INR 20 lakhs. In contrast, high-value transactions over INR 2000 and payments to large merchants will be chargeable at existing Rupay interchange rates. Most interestingly, the merchant’s payment service provider bank (Payee PSP) must transfer 0.08% of the transaction value to the customer’s payment service provider bank (Payer PSP) and third-party application provider (TPAP) each. As an example, suppose I use my HDFC credit card through my Google Pay app to buy clothes from Zara. My UPI ID is abc@okicici which means the Payer PSP is ICICI Bank. Let’s say Zara’s UPI ID is zara@axisbank which means the Payee PSP is Axis Bank. In this transaction, Axis Bank will receive payment fees from Zara and it must share a portion of that payment fees with ICICI Bank and Google Pay. This is a big deal because it creates a revenue source for UPI ecosystem participants.
The guidelines also provide insight into how the role of TPAPs may expand. The NPCI wants TPAPs to provide complete credit card lifecycle management. This will ensure customers don’t have to keep hopping between their UPI app and bank app. For instance, TPAPs must now enable customers to make repayments, check transaction history, available balance as well as total outstanding dues for their credit card accounts. In the future, TPAPs may offer value-added services such as EMI conversion, limits management, reward updates and redemption, spend analysis, pre-blocking funds, etc. With these new features, TPAPs could metamorphose into a one-stop solution for payments and personal finance management. Moreover, with the broad userbase that TPAPs have acquired, new players hoping to break into this segment will have their work cut out.


Saunf ? 

?‍⚖️ BillDesk-PayU deal falls through

The $4.7 billion acquisition of BillDesk has been terminated by PayU. The stated reason is failure to meet necessary conditions before the contractual deadline. Reports further suggest that the deal’s termination may be on account of a delay in RBI approval and the general economic downturn.

⚒️  Interoperable regulatory sandbox goes live

Hybrid fintech products can now be tested in an interoperable regulatory sandbox jointly administered by RBI, SEBI, IRDAI, PFRDA, and IFSCA. These products will be subject to the regulations of the principal regulator which will be decided based on the product’s ‘dominant feature’.

? NPCI launches partner program

NPCI’s new partner program will allow selected participants to get early access to APIs, increase brand awareness, attend exclusive workshops and form strategic partnerships.

? NPCI grapples with UPI concentration challenge

Google Pay and Phone Pe want NPCI to push the 1 January 2023 deadline for implementation of the 30% market share cap on UPI transactions by 3-5 years. NPCI is now in talks with the government and industry to understand the implications of a deferred timeline. 

? Offline PAs face regulation

The RBI announced that in addition to online payment aggregators (PAs), it intends to regulate offline PAs as well. The RBI will issue detailed instructions on the regulation of offline PAs soon.

??‍⚖️ Regulation by taxation for crypto-industry

While the US debates regulation of the crypto-industry by enforcement, India’s moving towards regulation by taxation. After introducing direct taxes, the government now reportedly plans to levy GST on virtual asset transactions (including mining and air-dropping). Preliminary reports suggest a new GST slab (18-28%) may be created for these transactions.


Takeaway ?

  • A documentary on the fall of German fintech darling, Wirecard. [Netflix]
  • A Jon Stewart podcast interview with SEC Chair, Gary Gensler. [Apple Podcasts]
  • An exploration of what the history of banking teaches us about digital lending apps. [MoneyControl]
  • A newsletter on the economics of newsletters. [The Diff]
  • An insight into what’s happening with Elon Musk’s Twitter Deal. [Bloomberg]
  • A Ken podcast interview with Nithin Kamath, Founder, Zerodha. [The Ken]


That’s it from us. See you in November.
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