Is Fintech a Force Multiplier?

1.1 What is this all about?

Recently, the third edition of Global Fintech Festival (GFF) got over in Mumbai. It was an august gathering of the best of minds from the financial services, tech and business world including the rapid growing start-ups of India (Bharat). The National Payments Corporation of India (NPCI), the Fintech Convergence Council (FCC) and the Payment Council of India (PCI) were the pioneers in organizing the event.

?In the context of “Fintech in Bharat”, we have seen Bharat emerging as the third-largest start up ecosystem in the world after the US and China as per the latest Economic Survey 2021-22 released. To foster the innovation and better alignment between industry stakeholders, Reserve Bank of India (RBI), the Central Bank of India has set up a separate Fintech Department. Furthermore, the Reserve Bank of India Innovation Hub (RBIH) is another step towards promoting, nurturing the culture of innovative product development which go a long way towards “Ease of Living” not just for Bhartiya but for the world as a whole. Afterall, the ethos of Bhartiyata is on Vasudev Kutumbakam which mean “One World Family”.

?It also ideal for Bharat to make in India (Atmanirbhar or Self Reliant) and make for the world, by sharing its open system-based technologies. The recent such examples which are the testimony of this statement is sharing of CoWin Application (which helps administer Covid 19 Vaccination) to many countries and the UPI (Unified Payment Interface) towards smooth and precision-based payments platform. UPI can now be accepted in many countries including that of France, Doha etc.

?After the 2008 economic crisis, the world has seen lack of confidence in the global financial eco-system. The question which emerged after 2008 was fourfold:

?Q1 – Is the global financial system based on the right solid fundamentals and susceptible to the sway of hypes & bubbles and it can handle the stress scenarios posed by ever-changing business and geo-political dynamics?

?Q2 – Is there a need for a decentralised approach which could be an alternative to existing set mechanism of dealing in the financial world?

?Q3 – Is the innovation of financial products can cater to the customer centricity using the technology, thus the emergence of Fintech?

?Q4 – Does the financial inclusion and serving the unserved be looked at differently and to give the momentum digitization is leading usage of fintechs as propellers?

?And, with the above comes the much important argument.

?Is Fintech, which is envisioned as an accelerator for growth, innovation, is a Force Multiplier?

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?1.2 Bharat so far in the financial world.

?The answer to the question lies on facts what Bharat was? & How it is taking innovative steps towards new future by bringing in path breaking tech-based solutions which are regulatory compliant as well?

?Let us delve this further.

There has been exponential growth of technological enablers in India. Telecom penetration, availability of internet services, adoption of technology in facilitating access to credit, more efficient payment systems and deepening of financial inclusion have made significant progress and are continuing to progress further.

?As per the data from TRAI (the Telecom Regulator of Bharat), the total number of broadband internet users in India stood at 80.7 crore at the end of July 2022. With more than 46.5 crore Jan Dhan accounts (these are leveraged for direct benefits transfer schemes by the Government, thus no handing of cash in between. Hence, no corruption), 134 crore Aadhaar enrolments (this has helped eKYC so smooth that many banks in Bharat are opening accounts in just 4 minutes) and 120 crore Mobile connections (now launched 5G), new opportunities are opening for implementing innovative ways of integrating and delivering services.

?This can be further gauged from the emergence of 100 unicorns in the country with record 44 unicorns established last year (per the latest PIB Press release dated May 6, 2022). Though due to global recession looming there have been ups & downs in the fundings into the eco-system. But these appears to be transitory and long term seems to be booming leaps and bounds.

?In the financial world, in the recent times, Bharat has seen enormous transformation. Products like internet and mobile banking, electronic funds transfer, UPI, Aadhaar e-KYC, Bharat Bill Payment System (BBPS), QR Scan & Pay, digital pre-paid instruments and similar other initiatives have transformed the traditional banking operations. Banking hours have been transcended.

Bharat has digital-mobile-anywhere-anytime banking. While several initiatives originated from the industry, the government and the regulators have created an enabling ecosystem to promote the FinTech sector. Initiatives like Start-up India, Digital India, India Stack, Account Aggregators, Peer to Peer (P2P) lending platforms and 24x7 digital payment systems have proved to be key enablers.

?The Fintech ecosystem in India has indeed evolved and is poised for a giant leap.

?During an address to the GFF, Shri Shaktikanta Das, the Hon’ble Governor, Reserve Bank of India on September 20, 2022, mentioned this phrase – “Fintech as a Force Multiplier”.

?His address not only covered the steps, initiatives which regulators, Government, has taken to incubate the new ideas, foster innovation and accelerate the growth but also touched upon the way forwards for all the stakeholders in the financial eco-system.

1.3 Fintech – the way forward & the road ahead.

?The recent efforts of fintech players in the lending space has been much appreciated in credit delivery in partnership with traditional lenders, especially in rural and semi urban areas. Timely availability of credit at reasonable cost, especially for agriculture and allied activities and MSMEs, is very crucial for our economic growth.

?It is well known that fintechs contribute to objectives of Financial Inclusion by enhance efficiency in terms of service delivery and in bringing down costs. By way of customised products and customer interfaces, new age fintechs provide an enriching and seamless consumer experience.

During his address to the GFF, the Hon’ble Governor also added that “the emergence of FinTech players and the growing popularity of their innovative products have challenged the existing players in financial services in maintaining their market share, margins, and customer base. The incumbent firms are responding to these challenges by adopting various strategies, which include making investments in FinTech companies and partnering with them. They are also enhancing their in-house capabilities to adapt to the new realities.”

?While there has been tremendous positive news and growth prospects, the unheard and scrupulous saga of fake & predatory digital lending applications has surfaced which has raised eyebrows for the regulators as also for the enforcements agencies. Off late, we have seen many enforcement actions on such fake pseudo digital lending apps to the extent that RBI had to clearly articulate the clear regulatory regime and roles, responsibilities of each participant in the digital lending space viz., Lenders like Banks, NBFCs, Loan Service Providers (LSPs) and Digital Lending Apps (DLAs).

?These digital lending apps which were operating and supported by elements across the borders were operating in Bharat without having proper authorization. Necessary regulatory compliances and adherence to the fair practices code for lending was not followed.

?With this we also need be cognizant of the Compliance Culture. The cost of compliance could be worse if one doesn’t follow the law of the land. The regulatory guidelines, circulars stipulated by the regulators is to ensure that firms operate effectively and efficiently. Compliance is not a speed breaker rather an enabler for business success. This is what I see as a regulatory compliance professional.

?As a word of caution, it was pointed out by the regulator that while they continue to support technological advancement and innovation, it is equally important that adequate attention is also placed on governance and conduct issues. At the end of the day, sustainability of any Fintech activity or business is about the following 4 aspects:

?1.????enhanced customer protection,

2.????better cyber security and resilience,

3.????managing financial integrity and

4.????strong data protection

?With the continued support of the government, regulators, the environment to foster and propel the growth trajectory of fintech, fintech innovations is slated. This runway or the platform to achieve greater heights comes with a caution of governance, ethics, compliance, and conduct.

?As the industry charter towards the new milestones and new achievements which will make Bharat pride, fintech of course is a force to recon with. Yes, it is rightly said – “Fintech is a Force Multiplier”.

?Thank you,

Jai Hind!

Abhishek R Sharma

Regulatory Compliance Professional

Bengaluru, Bharat (India)

[email protected]

?Dated: Oct 4, 2022

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Disclaimers:

Views are personal. Views doesn’t represent the views of current or past employers.

Infographics Sources – Internet, Self-researched or Research firms.