Big Tech in the financial system poses concentration risk: Shaktikanta Das

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The growing involvement of Big Tech in the financial system could lead to concentration risk and there are potential spillovers, which require careful attention, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Tuesday.

“…huge amounts of consumer data are being generated and mined by a few entities (the so-called Big Techs) due to their huge customer base. Such developments raise concerns about concentration risk and potential spillovers as their level of engagement with the financial system grows in the coming years,” Das told Global Fintech Fest 2022.

“Therefore, potential risks to the public policy objectives of maintaining competition, market and business conduct, operational resilience, data privacy, cybersecurity and financial stability require attention. special,” he said.

RBI – in the past – had signaled Big Tech’s increased engagement in the financial services space, which has implications for financial stability.

Big tech companies such as Google, Amazon and WhatsApp are already involved in the Indian payment ecosystem, involving the Unified Payment Interface (UPI). The regulator said the use of digital channels in financial services is a welcome move. However, the potential downside risks inherent in these efforts should be considered.

Das also pointed to the unbridled proliferation of digital lending apps, saying the need of the hour is to ensure security after going through a green light (whitelist) and due diligence process by regulated entities. The RBI, in association with other agencies, is taking steps to address this issue and will take further action, if necessary.

Speaking of the recently released digital lending guidelines, Das said, the guidelines strike a well-considered balance between protecting customers and conducting business, on the one hand, and supporting innovation, on the other. Digital loans have proliferated during the pandemic, with part of the population resorting to short-term emergency loans. This was to meet their needs as a result of the economic difficulties caused by Covid.

“While it served the needs of various segments, it also raised several concerns, which manifested in a series of complaints about usurious interest rates, unethical clawback practices and security issues. data privacy,” Das said. Das emphasized that the intent of the guidelines is not to penalize anyone or stifle any activity. “All we’re saying is follow the traffic rules,” he said.

The RBI had formed a digital lending task force and published its recommendations in November last year. The central bank in August 2022 issued a press release, accepting several recommendations from the task force. Many were accepted in principle, but they were not implemented because they required further deliberation.

Earlier this month, RBI issued detailed guidance on the task force recommendations which it had accepted for immediate implementation, but gave players three months to transition.

“Not everyone is painted with the same brush. There are regulated entities and unregulated entities, so there is a clear distinction between the two. We have studied the whole sector and we have established ground rules. Based on the ground rules, if anyone is having difficulty, they are welcome to come and discuss it with the RBI. First, we issued a press statement and then issued guidelines in which we gave a three-month deadline for the transition,” the RBI Governor said.

“I want to assure the fintech community that the RBI will continue to encourage and support innovation. At the same time, we expect the ecosystem to pay attention to governance, business conduct, regulatory compliance and risk mitigation frameworks,” he said.

Hailing the increase in digital payments during the pandemic, Das said, the period from March 2020 to August 2022 saw a massive 427% growth in UPI transactions. They hit a new high of 6.57 billion transactions in August 2022 alone.

The number of UPI QR code payment acceptance points increased by approximately 90 million (up 86% year-on-year) to reach 200 million at the end of July 2022. This shows the growing acceptance and preference for payments without touching.

Meanwhile, the National Payments Corporation of India (NPCI) has launched three products: RuPay credit cards on UPI, UPI Lite and Bharat Bill Pay Cross Border Bill Payments.

The linking of RuPay credit cards to UPI was announced in the June monetary policy. RuPay credit cards will be linked to a Virtual Payment Address (VPA), i.e. UPI ID, thus directly enabling safe and secure payment transactions.

Initially, customers of Punjab National Bank, Union Bank of India and Indian Bank will be able to use RuPay credit card on UPI with BHIM app.

As for UPI Lite, the upper limit of a UPI Lite payment transaction will be Rs 200. The total UPI Lite balance limit for the on-device wallet will be Rs 2,000 at all times.

Eight banks use this feature including Canara Bank, HDFC Bank, Indian Bank, Kotak Mahindra Bank, Punjab National Bank, State Bank of India, Union Bank and Utkarsh Small Finance Bank.

And, when it comes to Bharat BillPay cross-border bill payments, Federal Bank, along with UAE’s Lulu Exchange, will be the first to bring this solution online.

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Don F. Davis