Rising participation of fintech in Indian financial sector Threat or Boon

What’s Buzzing?

Two consecutive reports (annual report and Financial Stability Report) by the RBI has raised concerns over the contagion risk that arises from involvement of Big-Tech in financial services sector. The regulator is also mulling over having a policy framework for fintechs and Big Tech companies offering financial services in India.

Context

The Indian fintech industry is among fastest growing in the globe and is expected to reach ~$150 billion (~| 12 lakh crore) by FY25 from $50 billion in 2021. As of June 2022, India has 23 Fintech companies, which have gained ‘Unicorn Status’ with a valuation of over $1 bn (Source- Invest India).  Fintech companies have disrupted the banking, financial services, and insurance segment in its way of product structuring, data analytics and delivery of services. Example- BNPL players like LazyPay, Olamoney, ZestMoney that have similar offering as credit cards and, thus, pose direct competitive threat to incumbent players. These players with use of customer information and advance analytics have been able to understand deep consumer behaviour and offer products accordingly at a quick turnaround time.

Our perspective

We believe fintechs can promote financial inclusion, broaden offering of financial products and services, increase efficiency for delivery of financial services, and also improve affordability. However, as exposure of consumer data to various entities increases and considering the complexity of inter-linkages within various stake holders’, concerns over issues like cyber security, consumer protection etc. are increasing. Introduction of central bank digital currency (CBDC), plans to set up digital banking units, initiatives like regulatory sandbox and establishment of Innovation Hub, etc. are all part of RBI’s various steps towards facilitating and promoting growth of technology in financial services sector with adequate checks and balances. Steps towards having some regulatory framework are necessary for risk mitigation while scaling up and ensuring sustained growth of all participants. The path involves a balancing act between being strict from a risk management perspective and at the same being innovation-friendly.

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