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One interesting development during the week was that Bajaj Finance got RBI approval to issue and operate SEMI-CLOSED Prepaid Payment Instruments (PPI) with PERPETUAL validity.
Here is an explainer thread
on what this means for Bajaj Finance and potential implications.
1/9
Here is an explainer thread
on what this means for Bajaj Finance and potential implications.1/9
What are PPIs?
PPIs are instruments that facilitate purchase of goods & services or interpersonal money remittances, etc, against the value stored on such instruments.
While PPIs aren't entirely new (remember Sodexo coupons, Edenred cards), it was formalized by RBI in 2017.
2/9
PPIs are instruments that facilitate purchase of goods & services or interpersonal money remittances, etc, against the value stored on such instruments.
While PPIs aren't entirely new (remember Sodexo coupons, Edenred cards), it was formalized by RBI in 2017.
2/9
How is it different from Credit Cards?
Prepaid payment instruments come with a pre-loaded value and in some cases a pre-defined purpose of payment (more on this later).
PPIs makes it more convenient to get credit at the retail store, or to get an EMI without a physical CC.
3/9
Prepaid payment instruments come with a pre-loaded value and in some cases a pre-defined purpose of payment (more on this later).
PPIs makes it more convenient to get credit at the retail store, or to get an EMI without a physical CC.
3/9
RBI categorizes 3 types of PPI wallets - Closed, Semi-closed and Open.
Closed: Brand-specific gift card, wallets etc (Sodexo, Ola Money, etc). More prominent in 2000s.
Semi-closed: Mostly e-wallets issued by Fintechs and NBFCs.
Open: Issued by Banks (eg: Travel cards).
4/9
Closed: Brand-specific gift card, wallets etc (Sodexo, Ola Money, etc). More prominent in 2000s.Semi-closed: Mostly e-wallets issued by Fintechs and NBFCs.Open: Issued by Banks (eg: Travel cards).4/9
Let's understand the landscape of PPI players in India. As we can see, single use closed wallets were prominent earlier and have since given way to mostly semi-closed PPIs/ e-wallets.
Open wallets such M-pesa (ICICI Bank) and Payzapp (HDFC Bank) have seen limited success.
5/9
Open wallets such M-pesa (ICICI Bank) and Payzapp (HDFC Bank) have seen limited success.
5/9
This brings us back to Bajaj Finance (BF). What does the PPI license mean for them?
BF had indicated its' Vision 2.0 via "Bajaj Pay" in their Q3 earnings call - an integrated payments solution of UPI, PPI & EMI Store (zero EMI). As per analysts, this should help cross-sell.
6/9
BF had indicated its' Vision 2.0 via "Bajaj Pay" in their Q3 earnings call - an integrated payments solution of UPI, PPI & EMI Store (zero EMI). As per analysts, this should help cross-sell.
6/9
Over time, Bajaj has built a network of over 1 lakh merchants and ~5 crore customers. The two together create a base for a strong marketplace model, wherein payment capabilities was a missing link.
BF needs new legs to maintain growth, a key reason for its valuation premium.
7/9
BF needs new legs to maintain growth, a key reason for its valuation premium.
7/9
How big can this be for BF?
There have been two recent regulatory changes on PPI:
1. Mandatory interoperability for full KYC PPIs
2. Increased limit from ₹1 Lakh to ₹ 2 lakhs.
With these, some believe e-wallets may soon function as a Bank account.
8/9 https://www.livemint.com/news/india/rbi-policy-governor-das-announces-three-changes-to-mobile-wallets-11617772820637.html
There have been two recent regulatory changes on PPI:
1. Mandatory interoperability for full KYC PPIs
2. Increased limit from ₹1 Lakh to ₹ 2 lakhs.
With these, some believe e-wallets may soon function as a Bank account.
8/9 https://www.livemint.com/news/india/rbi-policy-governor-das-announces-three-changes-to-mobile-wallets-11617772820637.html
Conclusion:
While market reaction to this has been neutral, credit card expert @sandeepssrin had an optimistic take on this: "NBFC O/D line + prepaid + 2lakh limit + cash withdrawal + mandatory UPI linkage could be killer!"
Note: This is not an investment advice on BF.
9/9
While market reaction to this has been neutral, credit card expert @sandeepssrin had an optimistic take on this: "NBFC O/D line + prepaid + 2lakh limit + cash withdrawal + mandatory UPI linkage could be killer!"
Note: This is not an investment advice on BF.
9/9
What do you think of this development?
Let us know and we would love to discuss.
Please follow our page and subscribe to our blog ( http://blog.multipie.co ). We are just getting started.
Also do checkout our last podcast with @WeekendInvestng here:
https://podcast.multipie.co/alok-jain-founder-of-weekendinvestingcom-and-sebi-registered-investment-adviser/
Let us know and we would love to discuss.
Please follow our page and subscribe to our blog ( http://blog.multipie.co ). We are just getting started.
Also do checkout our last podcast with @WeekendInvestng here:
https://podcast.multipie.co/alok-jain-founder-of-weekendinvestingcom-and-sebi-registered-investment-adviser/
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