The most important decision for any digital lending entity is choosing its operational model. This choice defines their regulatory obligations, capital needs, operational flexibility, and long-term compliance framework. Understanding the comprehensive implications of each model is not merely advisable but absolutely critical, as this foundational choice will reverberate through every aspect of your business operations, from customer acquisition strategies to revenue optimization and scalability potential.
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🎯 Your model will shape compliance, funding options, scalability, and customer relationships, making it one of the most consequential choices for your business.
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In India, digital lenders typically operate through two pathways: LSPs or NBFCs. Each comes with distinct regulatory requirements, risk profiles, and business model implications. Selecting between them is a critical step that will influence your compliance obligations, growth trajectory, and room for innovation.
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💡Before deciding between an LSP and an NBFC, operators should first understand the basics of business incorporation and governance. The **Startup Compliance Toolkit** provides this foundation. It covers:
*Please note that both NBFCs and LSPs have to be incorporated as ‘Companies’ under the Companies Act, 2013.
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Jupiter, the neobank, initially operated as an LSP, offering financial services and credit products through partnerships with regulated NBFCs. This model allowed Jupiter to enter the market quickly without bearing the heavy upfront compliance costs of an NBFC license. In 2023, Jupiter secured its own NBFC license under Amica Payment Services Private Limited, enabling it to lend directly from its balance sheet. This shift gave the company greater independence, control over credit underwriting, and the ability to scale its lending business sustainably.
Flipkart, the Walmart-owned e-commerce giant, initially offered credit to its customers through partnerships with banks and NBFCs, operating essentially as an LSP. In a strategic pivot, Flipkart obtained an NBFC licence in 2025 under the entity Flipkart Finance Private Limited. This license empowers the company to issue loans directly, reducing reliance on third-party partners and enhancing profitability in its financial services operations.
Amazon initially enabled consumer credit in India by partnering with banks and NBFCs, functioning effectively as an LSP through its “Amazon Pay Later” product. While this allowed rapid adoption, Amazon faced limitations on underwriting and compliance control. To strengthen its financial services play, Amazon completed its acquisition of Axio (formerly Capital Float) in 2025, an RBI-licensed NBFC. This acquisition gave Amazon a direct foothold in regulated lending, enabling it to lend from its own balance sheet, and manage credit risks more effectively.
🔎 Founders lens: Most early-stage fintechs choose LSP for speed, then transition to NBFC as they scale.
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⚠️ Note the disclaimers regarding the document's limitations and the need for professional legal advice.
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Ready to move forward with your chosen model? Let’s dive into the statutory foundations and examine the core registrations and licensing pathways required to operate lawfully. Proceed to Step 2: Core Licensing & Registration.
Or revisit the Toolkit Flow Overview to see the entire roadmap at a glance, or return to the Toolkit Homepage.
Need clarification on terminology? Refer to our comprehensive Glossary.