After Chinese-owned apps, the government has turned its attention to fintech apps with links to the country, reported Mint. The central government is reportedly likely to add app-based lenders to the list of banned entities, which includes Chinese-owned apps such as TikTok, PUBG, ShareIt and WeChat. The Indian government has banned as many as 224 such apps in the past few months.
Unnamed sources told the publication that there are potential implications of a “data compromise” from fintech players as they share sensitive financial data of users to the lender. This data includes details of users’ income tax, Aadhaar and other sensitive details, and hence is riskier compared to the data users generally share with social media networks.
The government is reportedly concerned with the fact that several fintech companies have links to Chinese companies, and have Chinese nationals as members of their board of directors. One source told the publication that while the Reserve Bank of India (RBI) does not regulate such entities, as they don’t have public deposits, it can alert the central and state governments if it finds something suspicious.
Of late, the RBI has indeed been looking at the digital lending closely. In June this year, the central bank warned banks and non-banking financial companies working with digital lending platforms over non-transparency. The move was necessitated after the RBI had received complaints during the lockdown against lending platforms for charging exorbitant interest rates, calculated using non-transparent methods. The bank also flagged the unauthorised use of personal data and bad behaviour, a concern that is now being highlighted again.
The RBI told banks and NBFCs and the lending platforms to disclose their engagements to customers clearly. The bank or NBFC concerned were also directed to ensure oversight over the platform.
Fintech adoption soaring: The fintech industry is experiencing rapid growth in India, according to a report by Research and Markets. For instance, while the adoption of fintech worldwide grew at 64% in 2019, it grew in India and China by 87%. India also reportedly has the second-highest number of fintech startups in the world, after the US. The industry is expected to grow by 12% during 2020-2025.
The Indian government is showing interest in engaging directly in the space. Last month, the Economic Times reported that the central government would soon launch a digital lending platform called Kashi (Cash over internet) to approve loans to low-income households and small businesses. The NITI Aayog had earlier tweeted that Kashi would bring “seamless, paperless lending” to farmers and labourers in just five minutes. The platform would supposedly eliminate intermediaries, enable low-cost lending and ensure zero fraud risk.
The China concern, and how India is addressing it
Over the past few months, India has been engaged in a border clash with China in the Ladakh region. This has led to the intensification of a general sense of suspicion towards Chinese tech. Through this period, India banned 224 Chinese-owned apps, including extremely popular ones like TikTok and PUBG, citing national security reasons.
Concerns about Chinese tech are not limited to India. Earlier this year, the US has declared China’s Huawei, the world’s largest phone maker, and ZTE has “national security threats” for their alleged ties to the country’s intelligence services. The two companies, along with their affiliates, were earlier added to the US Department of Commerce’s “Entity List”, which prohibits them from importing or exporting American technology.
Even before the border clashes, India had been trying to restrict investments and acquisitions in India by Chinese companies by introducing bureaucratic hurdles for them. In April, the Department of Promotion of Industry and Internal Trade’s (DPIIT) issued the “Press Note 3 (2020 Series) to amend India’s FDI policies. Effectively, entities from countries that share a border with India can now invest in India only after getting approvals from the Indian government.
It was clear that the policy change was targeted at Chinese companies. It was also a reaction to the fear that China, through its state-owned companies and investment arms, might try and take advantage of the ongoing global economic meltdown by making opportunistic purchases in strategic interests in various countries. The key trigger was the fact that the People’s Bank of China had increased its shareholding in HDFC Bank just the previous month.