Several fintech startups offering short-term credit, primarily targeting salaried professionals, are either discontinuing or scaling back their services as the Reserve Bank of India (RBI) enforces stricter regulations on short-term unsecured lending, according to sources familiar with the matter.
Uni Cards, a fintech startup backed by Accel and Lightspeed Venture Partners, recently discontinued its ‘advance salary’ product, Paychek. In communication with its users, the company cited regulatory changes introduced by the RBI as the reason for shutting down the offering.
Similarly, Bengaluru-based fintech firm Jupiter, which also provides an ‘advance salary’ product, is reportedly scaling down this service. Notably, advance salary products typically offer credit for a month or less.
“The minimum tenure that NBFCs are offering is around six months, with very few new ones still offering three-month loans,” said one of the people cited above.
While Jupiter has its lending licence, Uni worked with NBFCs such as DMI Finance and Northern Arc to facilitate these loans. The sources said that with lenders reducing short-duration offerings, their fintech partners are also discontinuing such products.
The advance salary product will provide working professionals with instant personal loans for about a month, functioning similarly to a salary advance. This service allowed employees to access up to half their salary mid-month, with repayment scheduled after their salary was credited.
For example, Uni Paychek provided customers with a fixed credit on a specific date each month, expecting repayment once their salary was credited. Fintech companies generally charge an upfront fee of about 2% and do not impose any interest if the repayment is within 30 days.
However, if customers delay repayment, the companies charge annual interest rates ranging from 24% to 36%.
As consumer lending surged in 2022-23, instant personal loans gained significant traction. Industry data shows that lenders issued 530 million personal loans in the first half of 2024-25, with fintech platforms capturing 76% of the market.
However, regulatory interventions in mid-2024 prompted banks and NBFCs to scale back unsecured lending, directly impacting advance salary products. In response, some NBFCs have reduced their focus on short-term credit offerings, while others have adjusted their strategies. For instance, startups like Fibe have extended the minimum tenure of their products to six months, whereas Kissht continues to offer a three-month option, albeit on a smaller scale.
Industry insiders point to the significant challenges these firms face, with consumers either unable to pay back on time or pay the high interest charged to defaulters.
“A one-month product showing a 2 or 3% default implies an annual default rate of 24 to 36%,” said one person aware of the details.
For any NBFC, “pricing such loans would mean that the effective rate of interest imposed on the customer could reach as high as 50 to 60%,” the person added.
Even though the RBI has no official ceiling on interest rates charged by NBFCs, “such high rates are branded as usurious. Hence, the RBI does not want regulated entities to offer such products”, said a second source in the know.
A third person said that in Western countries, such products are labelled salary advances and not reported as loans. However, in India, the banking regulator categorises them as credit products. The RBI will “not allow such products to operate in the regulated ecosystem.”
