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Fintech Transforms into Bank Signals Shift in the Banking Sector
Fintech unicorn Slice's merger with North East Small Finance Bank, approved by the RBI, signifies a transformative shift in India's banking sector, propelled by the booming shift of the fintech industry aligning with the banking sector.
Author: Saurav Kumar
Published: October 7, 2023
In a groundbreaking move, Slice, a unicorn fintech valued at $1.5 billion, is set to merge with the North East Small Finance Bank (NESFB).
This merger is a historic event as it marks the first instance of a fintech company transforming into a full-fledged bank, a development authorised by the Reserve Bank of India (RBI) through a No Objection Certificate (NOC).
The decision emerged after the Reserve Bank of India (RBI) gave nod to the merger via No Objection Certificate (NOC) to the first instance of fintech becoming a bank.
However the merger comes amid the guidelines laid down by the RBI which clearly denied any credit line facility to non-banking finance companies (NBFC).
The RBI notification dated 20 June 2022 said, “Prepaid Payment Instrument (PPI) providers do 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.”
Slice ahead of Competitors
Slice is a payment solution designed exclusively for the youth which gives them access to hassle-free credit through a Slice-VISA card, an app to manage expenses and a set of curated rewards to make shopping delightful.
Despite the growing influence of fintech in the banking sector, these companies are obligated to adhere to the regulatory framework established by traditional banks.
However, Slice appears to be one step ahead of its rivals. The approval for the merger positions Slice ahead of competitors like Navi Technologies which is still awaiting regulatory approval, and Paytm bank which faces customer onboarding restrictions imposed by the RBI.
Merger Signals Shift?
The rapid expansion of India's fintech industry is forecasted to generate approximately $200 billion in revenue by 2030. This signals an impending transformation in India's banking sector.
The RBI's green light for the Slice-NESFB merger underscores the apex bank's willingness to accommodate fintech companies within the banking sector, provided that their operations, compliance, risk management, and governance practices align with regulatory requirements.
A noteworthy development is Slice's strategic shift from credit lines to classic term loans in response to the RBI's prohibition on non-bank fintechs offering credit lines. Similarly, the practice of issuing prepaid cards with revolving credit lines, which mimicked credit cards, was halted by the RBI.
This regulatory approach is based on the principle that a product's functionality determines its regulation. Products similar to credit cards must comply with credit card regulations.
This merger may be the harbinger of a new era in India's banking landscape, one where fintech plays a major role in shaping the banking industry.