Multiple fintechs impacted with RBI’s order against SBM India (2024)

Several Indian fintechs continue to be impacted by the Reserve Bank of India’s (RBI) order earlier this week asking State Bank of Mauritius (SBM) India to stop all transactions under the liberalised remittance scheme (LRS) until further orders.

Big names in the fintech space bearing direct impact of the RBI move include neobanking fintechs Niyo and Zolve, which was started by former TaxiForSure cofounder Raghunandan G, US-stock investment platforms such as IndMoney and Vested Finance, multiple industry leaders, people working with these fintechs told ET on condition of anonymity.

While Niyo has temporarily paused international transactions for its forex card in association with SBM India, Vested and IndMoney had to change user transaction flows to help load US brokerage accounts.

People aware of the development said at least seven or eight fintechs have been impacted by RBI’s move to stop LRS transaction on SBM India, along with several offline players that had active partnerships with the bank.

SBM India has been known in the industry for its fintech-first growth model and has marquee partnerships with at least 35 financial technology companies in the country.

It also works with the likes of BookMyForex, Instarem, and HopRemit for remittances in India.

The LRS scheme, which was introduced by the banking regulator in 2004, allows individuals in India to freely remit up to $250,000 per financial year for permissible transactions.

“In our understanding, fintechs which have a deep relationship based on an account opening arrangement with the bank particularly might be more impacted ,” said Sudarshan Motwani, founder and chief executive of BookMyForex. “It also depends on the levels of integration,” he added.

According to three fintech industry executives ET spoke with, the LRS ban impacts only international remittances for debit card customers of SBM India. Account holders with SBM can withdraw their deposits otherwise or make domestic payments, they said.

The impact
Among the deeply impacted is Niyo, which offers its forex card Niyo Global Card through an exclusive partnership with SBM India.

With RBI’s direction, Niyo has temporarily suspended transactions on its forex card, sources told ET.

“The whole move (of banning LRS transactions on SBM India) does not account for second or third order effects,” said one of the fintech executives who didn’t want to be named. “The decision by the regulator is expected to impact several Indian travellers currently abroad who won’t be able to access funds through their cards or will be facing failed transactions, creating anxiety. Further, some of these cards such as Niyo are also part of corporate spending or company policies, leaving the user in a fix,” the person said.

A Niyo spokesperson confirmed restrictions on its international debit card.

“Our SBM Niyo Global programme provides an international debit card with a savings account in partnership with SBM India, an RBI-regulated bank. Currently, international transactions on this debit card are paused in order to comply with the recent RBI order,” the person said in response to ET’s queries.

“However, users can continue using the card for their domestic spends and transfers through various transactions and payment modes – ATM withdrawal, UPI, IMPS, POS, ecommerce, etc.”

Niyo is closely working with SBM India and remains “hopeful for an early resumption of international transactions through the debit card”, the spokesperson said.

Queries sent to SBM India and Zolve founder Raghunandan did not elicit a response until press time on Friday.

For platforms such as IndMoney and Vested Finance, which allow Indians to invest in US stocks, the change has been largely on user experience and forex charges.

For instance, IndMoney went offline for almost 48 hours to change its transaction flow of how money is loaded to a user’s USD wallet. Earlier, foreign remittance transaction was a single-session experience for its platform users through SBM bank accounts, with direct messaging pipes to understand the timeline of the transaction.

“We are trying to understand what are the supervisory concerns with SBM Bank that have been highlighted by the regulator,” Ashish Kashyap, founder and chief executive of IndMoney, told ET.

“As a fintech partner, we want to assure that we follow stringent and tough processes to ensure that our systems and operations are compliant in the existing scope of guidelines and as prescribed by the bank. We are back live with the new flow now,” he added.

Kashyap said consumers are not impacted since they can continue to use IndMoney’s services, withdraw and make inward remittances of their funds to their native bank accounts or any other preferred source.

ET had reported on January 25 that Vested Finance paused processing of fresh deposits via Vested Direct, its rupee wallet that allows customers to load dollars into the platform’s US brokerage account.

Both Vested and IndMoney are allowing users to fund their US-brokerage accounts directly with their native bank accounts now.

“There could be different forex charges which customers have to pay depending on their banks,” explained Viram Shah, cofounder and chief executive of Vested Finance, as one of the impacts of customers loading their wallets directly.

According to BookMyForex’s Motwani, the platform was leveraging SBM India for its wire transfer business. It was able to move the transaction flow to other bank partners by the next day of RBI’s direction. “It took us some time to refund the money of some consumers since it was stuck. But that has been sorted now,” Motwani said.

Now, several fintechs affected by SBM’s LRS ban are looking at alternative banking partners to ensure business continuity, sources cited above said.