Is Fintech a Force Multiplier?

1.1 What is this all about?

Recently, the third edition of the 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 rapidly 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 innovation and better alignment between industry stakeholders, the 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 and nurturing the culture of innovative product development which goes a long way towards “Ease of Living” not just for Bhartiya but for the world as a whole. After all, the ethos of Bhartiyata is on Vasudev Kutumbakam which means “One World Family”.

 It is 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 are sharing of CoWin Application (which helps administer Covid 19 Vaccination) to many countries and the UPI (Unified Payment Interface) towards a smooth and precision-based payments platform. UPI can now be accepted in many countries including that France, Doha, etc.

 After the 2008 economic crisis, the world has seen a lack of confidence in the global financial ecosystem. 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 decentralized approach that could be an alternative to the existing set mechanism of dealing in the financial world?

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

 Q4 – Does 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 a much more important argument.

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

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 1.2 Bharat so far in the financial world.

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

 Let us delve into this further.

There has been an 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 smoothly 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 appear to be transitory and long term seems to be booming leaps and bounds.

 In the financial world, in recent times, Bharat has seen an 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 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 24×7 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, of the Reserve Bank of India on September 20, 2022, mentioned this phrase – “Fintech as a Force Multiplier”.

 His address not only covered the steps, and initiatives that regulators, Government, have taken to incubate new ideas, foster innovation and accelerate growth but also touched upon the way forward for all the stakeholders in the financial ecosystem.

1.3 Fintech – the way forward & the road ahead.

 The recent efforts of fintech players in the lending space have been much appreciated in credit delivery in partnership with traditional lenders, especially in rural and semi-urban areas. Timely availability of credit at a 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 the objectives of Financial Inclusion by enhancing efficiency in terms of service delivery and in bringing down costs. By way of customized 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 enforcement 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, and 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 were not followed.

 With this, we also need to 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 but 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, the 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, and the environment to foster and propel the growth trajectory of fintech, fintech innovations are slated. This runway or the platform to achieve greater heights comes with caution of governance, ethics, compliance, and conduct.

 As the industry charter towards new milestones and new achievements which will make Bharat proud, 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

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Disclaimers:

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

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