Context:
RBI Steps Up Examination of P2P Lending Platforms to Ensure Compliance.
Peer-to-peer (P2P)
Peer-to-peer (P2P) banking is a way to transfer money between individuals without using banks as intermediaries. P2P banking can be done through digital apps or online.
How does P2P banking work?
- Users link their bank accounts or cards to a P2P app.
- Users can send money to other users by entering their mobile number or email address.
- Users can also scan a QR code to send money.
- P2P apps may charge fees for instant transfers or international transactions.
What can P2P banking be used for?
- Sending money: Reimbursing friends or family, splitting bills, or sending cash gifts
- Collecting money: Collecting money for group gifts
- Sharing expenses: Sharing expenses with roommates
- P2P lending: Also known as crowd lending or social lending, P2P lending can offer higher interest rates than traditional bank loans
How can you use P2P banking?
- You can use P2P banking through apps like Cash App, Zelle, and Paytm.
- You can initiate P2P transactions by linking your bank account to the app.
RBI Moves at a Glance
- The Reserve Bank of India (RBI) has intensified its examination process for Peer-to-Peer (P2P) lending platforms following a revision of guidelines.
- The RBI has sent out a detailed questionnaire to eight major P2P companies, including LiquiLoans, Monexo, i2iFunding, and IndiaP2P.
- The examination aims to assess the level of compliance with the updated regulations.
Key Areas Covered in the Questionnaire
- Compliance with Revised P2P Guidelines
- The platforms are required to specify whether they are following the updated guidelines, particularly in operational processes, fund transfers, and borrower-lender matching.
- T1 Timeline Adherence
- The RBI is monitoring adherence to the T1 timeline, ensuring that funds stay in escrow accounts for no more than one business day.
- Fund Flow Representations
- Visual documentation has been requested to ensure transparency in the flow of funds within the platforms.
- Advertising and Cross-Selling Practices
- The RBI seeks illustrative advertisements for P2P loan products and clarification on whether they are being marketed as investment products, which would be against the guidelines. The scrutiny also includes cross-selling practices to prevent misleading consumer representations.
Context of the RBI’s Scrutiny
- This questionnaire marks a significant shift from the previous practice of submitting quarterly data.
- Issues flagged include
- Lack of reporting on lender losses.
- Lender complaints about disbursal of loans without approval.
- The RBI has warned platforms against operating as deposit-takers or lenders, emphasizing their role as intermediaries.
