With the incremental and intuitive development of digital use, banking and other financial sectors have taken primary role and one gets a local company to become a unicorn with billion-dollar performance. How does fin-tech products transform or intend to revolutionize Indian atmosphere?
RBI deputy governor Shri T Rabi Sankar, Deputy Governor, Reserve Bank of India on Tuesday, September 28, 2021 in an address to the Global Fintech Festival shared his views. Let us analyze it to view the tech future.
https://rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1129
What is fintech? Did we not usher in technology in finance long ago?
Financial services at the mercy of banks were slow spinning services and done at a huge cost. These services were done as if a favor is done to a customer. Expectedly, slow and high cost services were provided.
But Fintech, financial services with digitalization has the added advantage of speed and admission of lesser cost due to competition. So, digital technology is changing the way financial services are organized and financial products are delivered to a higher standard of service.
Can we recollect some of the notable digital products, with reference to India?
Some of them are:
- Fast payments systems like UPI and IMPS.
- Use of Aadhar for transaction authentication which in turn has effected large scale Government transfers instantaneously and directly into the bank accounts of beneficiaries.
- eKYC has contributed to safety of on-line payments. P2P Lending or Crowdfunding platforms are gaining popularity in substituting for bank credit.
- Technology such as AI/ML has been used in such diverse areas as investment advice, fraud detection, Help Desks etc. High Frequency Trading has changed the way financial market’s function.
One can easily understand the role of banks as keeper of deposits, bank accounts and provide loans at request of customers. But technology has enabled intermediaries like insurance companies, mutual funds, pension funds etc.to extend loans at a faster pace.
While banks are subjected to enormous regulatory provisions since they acquire someone’s money and lend to other at their risk, the intermediaries who just help facilitation of money from one bank’s account to another at some other bank accounts are not subjected to none of them.
This understanding of the limitations of technology prepares us better to manage the change that fintech is causing in banking and finance. It would also enable an effective approach to regulating fintech and the fast-mutating financial system.
Let me give an example of an insurance company taking one’s money from his insurance products which wrongly credits to someone else on maturity. While the bank maintaining the bank accounts is getting subjected to umpteen regulatory, risk, or supervisory measures, can the insurance company escape its responsibility? However, I do presume that the insurance company may be subjected to some other regulations which are not discussed here.
Now it is time to look out for regulation of fintech companies.
RBI deputy Governor did mention about the reluctance on the part of some to follow the regulations introduced by RBI in the past.
Nonetheless, one can see a persistent tendency to oppose customer friendly reforms – e.g., the introduction of tokenization to limit storage points of card credentials for customer safety, or to ensure 2FA for recurring transactions. We would only be able to reach a thriving and mature payments system if, over time, all stakeholders attach due importance to long-term improvements over short-term gains and internalize mature practices like informed consent and transparency of data usage.
One can easily see a persistent tendency to oppose customer friendly reforms – e.g., the introduction of tokenization to limit storage points of card credentials for customer safety, or to ensure 2FA for recurring transactions.
In the vision of RBI Dy. Governor, we would only be able to reach a thriving and mature payments system if, over time, all stakeholders take efforts to attach due importance to long-term improvements over short-term gains and internalize mature practices like informed consent and transparency of data usage.
He did draw our attention to the other developments like:
- JAM trinity has achieved high levels of financial inclusion unimaginable for our country.
- Small businesses and vendors have started adapting to digital payments. Can you believe one can pay a purchase of pan by Paytm. All my Uber payments are through Paytm only.
- Sandbox mechanism and efforts are on to mainstream those technologies.
Some new developments called “Indian experience” was emphasized by our learned speaker as under: (From page 5 of his speech)
1. Setting up the basic infrastructural entities which provided the rails on which innovative products can run – IDRBT and NPCI, to name two.
2. Regulation sought actively to facilitate wider participation to include non-banks (e.g., mobile wallets issued by non-banks) and increase interoperability among different payment systems.
3. Keeping costs low and minimizing risks to customer (2FA or AFA, positive confirmation, user-friendly switch-on-switch-off facility on card-not-present or on-line transactions).
4. Upscaling of supporting infrastructure like RTGS and NEFT to be available round the-clock for for customers and businesses alike.
5. Enhancing the availability to non-banks and reduce settlement risk of satellite payments systems.
6. A customer protection framework with limited liability for customers, online dispute resolution, digital ombudsman scheme.
7. Benchmarking payment systems to world standard.
8. The current reported fraud cases have come down to the lowest digital fraud cases.
He summed up, as under:
“The fintech landscape can be described in Dickensian terms – we are in the best of times, with the promise of technological innovation in finance and hope of substantial efficiency gains, better customer experience and greater social welfare. But we also need to deal with threats of online frauds, compromise of customer credentials and data privacy and safety for the spring of hope not to turn into the winter of despair.”
Let us have our views on the above speech.
Some of the questions that come to our mind when we visit our banks or other payment systems, small financial institutions or other non-bank institutions.
Will my deposits, advances, remittances, or any transaction undertaken safe from the marauding eyes of the on-line crime masters? Small time online robbers specialize on seniors, students, women, or others vulnerable for manipulation.
While systems like Paytm, Uber, debit/credit cards or other wallets have made the financial transactions as comfortable as possible, the lurking fear that these institutions have not provided the required and talented man- power to secure systems?
One does not see many improvements in the working of the nationalized banks who struggle to introduce innovations since their employees seem to lack motivation, adequate training, or learning desire.
It is sad to find them even using computers with one finger. Basic typing skills are abundantly missing among them. The banks have failed to understand that even a 5 year old kid in developed countries or school kids are forced to learn basic typing skills at young ages.
Conclusion
Let us hope the innovations attempted by the august body like RBI have the desired effect on our financial institutions to reach the world standard. I want RBI to have their regulatory, supervisory or risk monitoring tasks intact.
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