Future of FinTech and Finance in India
Future of FinTech and Finance in India
The banking and financial services sector have oft been pioneers of [and centers of] employing technological innovations, towards the delivery of banking and financial services to the end user. FinTech solutions emerged as a direct competitor to the legacy banking systems but have not moved on to become one of the facilitators in delivery of financial services.
Historically, keeping in view the diverse demography in India, with disparate socio-economic statuses, the banking regulator, the Reserve Bank of India (RBI) and other regulators have tightly monitored the technological innovations, in the sector. There was a halted roll out of technology in the sector, but with the utility that the services bring into the sector, even RBI moved on to creating regulatory sandboxes, and adopted the technological innovations as part of their regular activities, trade. Incidentally, the securities exchange regulator, also appreciates the incidence of Artificial Intelligence and Machine Learning and has made choices to incorporate the same into their functioning.
Typically, financial inclusion has been an area of policy thrust and priority, and fintech solutions have the potential to offer universalized digital payments in a convenient, safe, secure, transparent and affordable manner. As 2022 gears up to be a pivotal year in the fintech revolution, the regulators and legislators have identified their priorities for participating stakeholders: (i) to reach the vulnerable segments of the economy and population, and (ii) scale up production, technical R&D to cater to the ever-increasing digital financial transactions.
The Central Government’s proposal to set up Digital Banking Units (DBUs), focusses on delivery of financial services to Tier 6 cities of India, relying upon a skeletal digital infrastructure to offer financial products and services in self-service mode, at specialized fixed business hubs. Towards this end, RBI published guidelines for the establishment of DBUs by Domestic Scheduled Commercial Banks (excluding Regional Rural Banks, Payments Banks and Local Area Banks).
DBUs will rely upon smart equipment services and have been permitted to adopt an in-sourced or out-sourced model for operations of the digital banking segment. Self-service kiosks at DBUs will encourage vulnerable populations to take up responsibility and management of their own finances, build financial literacy and initiate [untapped] demographies into the mainstream Indian financial collective. To this end, the DBUs will be required to offer hands-on customer education on safe digital banking products and practices for inducting customers to self-service digital banking services.
The services on offer will include savings bank accounts under various schemes and will also range to include mass transit system cards, digital kit for merchants, UPI QR code, BHIM Aadhaar and point of sale (PoS). Digital mechanisms for grievance redressal have further been enforced under the guidelines, which may be addressed by the DBUs directly or through bank appointed digital business facilitator / business correspondents.
Financial inclusivity, a cornerstone of the United Nations 2030 Sustainable Development Goals, is a meaningless exercise without adequate technical infrastructure to support the projected rise in transaction volumes. To this end, RBI has proposed a framework for the commencement of new pan-Indian umbrella entities (NUEs), which will set-up, manage and operate new payment system(s) in the retail space.
NUEs will introduce novel digital payment solutions in India, and improve access to service, customer convenience and safety; the free-market forces will foster innovation, control service pricing and ensure tighter controls, and adherence to the regulatory regime. Upon authorization from the RBI, the NUEs will be entitled to operate and offer ATMs, White Label PoS; Aadhaar based payments and remittance services; newer payment methods and standards and technologies. Prospective consortiums have wasted little time to apply to the RBI for a license and intend to capitalize on a liberalized payment system network.
Mutual cooperation between legacy banking systems and innovation fintech solutions appears to be the way forward for now, under the watchful eye of the RBI and other regulators. However, introduction of private players into all facets of this sector will require stricter disclosure norms, data privacy and protection regime, for safe and sturdy flow of data. Presently, RBI’s sectoral guidelines on cybersecurity measures will be the primary statute for compliance, with banks duty-constrained to flow down obligations, and compliances of data protection on their partnering entities.
To surmise, when we look towards the future of digital financial services, we cannot overlook the transformational impact of blockchain and cryptocurrency technologies on FinTech services. While regulators have signaled their intent towards the creation of a Central Bank Digital Currency, it is vital that the regulators do not perceive this innovation as a threat too, but as the opportunity it brings, to revolutionize the financial services industry. With the apex court of the country coming down heavy on RBI for passing adverse circulars against imbibement of cryptocurrencies, the regulator will be wary of this, for once bitten twice shy.