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.
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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.

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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.

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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).
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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.

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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.

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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.
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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

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.

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What do you think of this development?
Let us know and we would love to discuss.

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