Fintech startups freeze salary loan products as RBI cracks down on unsecured loans

A slew of financial technology Startups that offered short-term credit, mainly to office workers, are abandoning or scaling back their offerings as the central bank tightens its standards for short-term unsecured loans, people familiar with the matter said.Fintech startup Uni Cards, which offered a “payday advance” product called Paychek, recently discontinued the product. In communication to customers, the Accelerate and the Lightspeed Venture Partners-backed company, attributed this to regulatory changes implemented by the Reserve Bank of India.

Another Bengaluru-based company, Jupiter, which also offers a ‘salary advance’ product, is in the process of scaling back it, the sources said. Certainly, a salary advance is generally offered for a month or even less.

“The minimum tenure offered by NBFCs is around six months, and very few new ones still offer three-month loans,” said one of the people cited above.

Although Jupiter has its own lending license, Uni has worked with NBFCs such as DMI Finance and Northern Arc to facilitate these loans. As lenders scale back their short-term offerings, their fintech partners are also dropping these products, the sources said.

76% market share

THE salary advance product was designed to allow working professionals to take out an instant personal loan for a period of approximately one month, similar to a salary advance. It allowed employees to receive an amount equivalent to half of their salary in the middle of the month, and to reimburse it once the salary was credited.

In some cases, like Uni Paychek, customers obtained credit every month on a fixed day and returned the money once the salary was credited.

Typically, fintech companies charge an upfront fee of around 2%. If the customer repays within 30 days, no interest is charged. However, if repayment is not made within this period, interest rates of 24% to 36% per annum apply.

As consumer loan exploded through 2022-23, snapshot personal loans has become extremely popular. Industry data shows that 530 million personal loans were granted in the first half of 2024-25 and that 76% of the market was on fintech platforms.

However, the regulator cracked down on the sector mid last year, pushing many banks and NBFCs to slow down unsecured lending, impacting payday advance products.

Although some NBFCs are moving away from short-term credit products, others are extending the tenure they offer. For example, startups like Fibe have set a minimum duration of six months for their products. While another company, Kissht, continues to offer a three-month product, but on a limited scale.

High fees

Industry experts highlight the major challenges facing these companies, with consumers either unable to repay on time or unable to pay the high interest charged to defaulters.

“A one-month product showing a 2 or 3 percent defect implies an annual defect rate of 24 to 36 percent,” said a person familiar with the details.

For everything CFNB “Pricing these loans would mean that the effective interest rate charged to the customer could be as high as 50-60%,” the person added.

Even if the RBI has no official cap on the interest rates charged by NBFCs, “such high rates are termed as usurious. Therefore, the RBI does not want regulated entities to offer such products,” said a second source in the know.

A third person ET spoke to said that in Western countries, these products are labeled as payday advances and are not reported as loans. However, in India, the banking regulator classifies them as credit products. RBI ‘will not allow such products to operate in regulated ecosystem’