Reserve Bank of India (RBI) governor, Shaktikanta Das, highlighted that there was a need to pay attention to “potential risks to public policy objectives of maintaining competition, market and business conduct, operational resilience, data privacy, cyber security and financial stability” in his address at the third edition of the Global Fintech Fest.
The three-day hybrid event was organised by the National Payments Corporation of India (NPCI), Payment Council of India (PCI), and Fintech Convergence Council (FCC).
Concentration risk from Big Tech: Das’ speech, titled ‘Fintech as a Force Multiplier’, pointed out that the wave of changes brought by fintech has had a “positive impact” but it has also resulted in the generation of huge trove of consumer data which was being leveraged only by a few entities (Big Tech) on account of their huge customer base.
- The phenomenon raises concerns over “concentration risk” and “potential spillovers” as the companies would only become more entrenched within the financial system in the future, according to Das.
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Increased scrutiny on digital lending: Das also flagged material concerns over the “unbridled mushrooming of digital lending apps”. “The need of the hour is to ensure assurance of safety after following a process of green-lighting (whitelisting) and due-diligence by the regulated entities,” Das said, adding that the central bank was taking steps to address the issue.
What are the concerns: Das said that the sector has served the needs of many but it has also thrown many challenges—
- Usurious interest rates,
- Unethical recovery practices
- Data privacy issues.
Steps taken by the RBI: Das said that the central bank has taken steps to address these issues “proactively”. He said that regulatory guidance was provided to our RBI’s regulated entities. He added that entities need to strengthen the level of due diligence and oversight exercised by them on their outsourced activities.
“The recently issued regulatory guidelines on digital lending strike a well considered balance between customer protection and business conduct on the one hand and supporting innovation on the other,” Das said.
- He stressed that innovations must be responsible and should enhance the efficiency and resiliency of the financial system for the benefit of the consumers.
- “Robust internal product and service assurance frameworks, together with fair and transparent governance, will go a long way to safeguard the interest of customers and ensure long-term sustainability of the fintech entities themselves,” Das concluded.
Why it matters: Das’ speech suggests that the RBI is keeping a close eye on the developments taking place in the fintech space. It implies that the central bank may announce a slew of measures in the near future. Moreover, the acknowledgement of problems in the digital spending sector may be an indicator that RBI is going to crack down further on digital lending apps.
Focus on governance: Das urged that it was “important” that adequate attention is placed on governance and conduct issues.
“At the end of the day, sustainability of any FinTech activity or business is about enhanced customer protection, better cyber security and resilience, managing financial integrity and strong data protection,” Das said.
- He said that the central bank expects the “ecosystem to pay attention to governance, business conduct, regulatory compliance and risk mitigation frameworks”.
What did RBI launch at the event: Das announced that the RBI has launched two features in UPI and eased the process of paying bills for Non-Resident Indians (NRIs)
- UPI Lite: It is an on-device wallet feature that allows users to make real-time small-value payments of up to Rs 200 without using a PIN.
- Linking credit cards to UPI: The central bank has also facilitated the linking of RuPay Credit Cards to the Virtual Payment Address (VPA) i.e. UPI ID. Customers of Punjab National Bank, Union Bank of India, and Indian Bank will be the first to be able to use RuPay Credit Card on UPI with BHIM App.
- Bharat BillPay Cross-Border Bill Payments: The launch of the service will make bill payments easier for people residing out of India but also maintaining a house in India, Das said. The facility will enable NRIs to pay utility, water, and telephone-related bills on behalf of their families in India.
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