RBI Puts Brakes on Simpl’s Payment Operations, Startup Faces Regulatory Hurdle

The Reserve Bank of India (RBI) has ordered fintech startup Simpl to halt all payment operations due to operating without the necessary licence under the Payment and Settlement Systems (PSS) Act, 2007

Simpl, known for its "buy now, pay later" model, enables seamless online checkouts for millions of users on platforms like Zomato and BigBasket, but its operations have been classified by the RBI as a "payment system" requiring a Certificate of Authorisation

The startup is also under scrutiny from the Enforcement Directorate (ED) for alleged violations of foreign direct investment (FDI) norms, although Simpl's founder, Sharma, clarified that the RBI order is unrelated to this issue

Simpl's business model offers users a 15-day interest-free credit window, charging merchants a fee similar to traditional card networks, and has scaled to work with over 26,000 merchants and serve over 7 million users

The company has raised over $83 million from global investors, with a significant fundraising round of $40 million led by IA Ventures and Valar Ventures in October 2021

The RBI's directive highlights the increasing regulatory scrutiny on payment startups in India, particularly those operating within the Buy Now Pay Later (BNPL) sector

Simpl's approach as a payments utility, rather than a traditional lender, has raised regulatory concerns, prompting the need to possibly rework its model or obtain the necessary licence

The situation underscores the tightening regulatory environment for fintech startups in India, emphasizing that convenience must not compromise compliance

This development serves as a reminder to the fintech ecosystem that operating in regulatory "grey zones" is becoming increasingly risky

The outcome of Simpl's current challenges will be closely watched, as it could either navigate the regulatory storm successfully or serve as a cautionary tale in India's burgeoning fintech landscape