The National Payments Corporation of India (NPCI) has suspended eSign-based electronic mandate, used in a paperless automated collection of loan payments from customers, for digital lenders.
According to the circular from NPCI, the eSign-based eMandate product would be suspended from November 26 (Monday). Though, it would give digital lenders time till November 30 to clear all the existing mandates.
The development has come at a time when the digital lending industry is already been going through a tough time. First, in September, the Apex Court curbed digital lenders from doing Aadhaar based eKYC. This has already led to the rise in operational cost.
Then came the liquidity issue and limited access to the credit line, which led to slow down in their businesses.
And now eNACH is getting blocked.
eNACH is a new method of e-payment. With the help of eNACH, a customer can give his Aadhaar number to a merchant for auto-charging of his account online.
As per industry experts, this will further add to the cost of operation for digital lenders and NBFCs. The physical mandate for NACH entailed about ten times the cost in comparison to a paperless mandate. It also has 50 per cent failure rate.
NPCI CEO Dilip Asbe said they have to be in compliant with SC ruling on Aadhaar not allowing private firms for Aaadhaar authentication for eKYC and trying to find a solution.
The problem with continuing eSign on eNACH is it uses eKYC infrastructure to obtain authentication from the UIDAI database. This may result in contempt of the Supreme Court order if continued. The ecosystem in consultation with the government and the UIDAI need to identify the appropriate solution, till then eSign on eNACH will be suspended, he was quoted as saying by an ET report.
Meanwhile, the NPCI has some respite for fintech firms as it has introduced alternatives in the form of net banking-based mandate and planning to launch debit card-based eNACH in coming months.
Digital lending to MSMEs in the country to go up to Rs 6-7 lakh crore by 2023, according to a report by Omidyar and the Boston Consulting Group.