Why RBI is wary of big tech companies entering the financial sector

How big is BigTech in financial services?

In India, fintech has entered ventures that go beyond the scope of a single regulator. The most popular are in the payment space through the National Unified Payments System. Others deal with stock markets, mutual funds and insurance. At first, fintechs were seen as a competitor to the banking industry, but later evolved as a partner to several traditional banks and non-bank lenders. We are now in a phase where banks are increasing their investments in technology and some of the big lenders think they will leave behind the more nimble fintechs in the race for customers.

Have RBI and these companies locked horns?

RBI is reportedly looking into a deal between Google Pay and Equitas Small Finance Bank, announced last September. It was intended to allow customers to use Google Pay to open fixed deposits with Equitas. RBI’s concerns could have stemmed from the involvement of a major tech company in collecting deposits from customers, but Google’s payment app is believed to be for product distribution only. RBI Deputy Governor Mr. Rajeshwar Rao had said last October that the entry of BigTechs into the financial sector was a global phenomenon, attracting the attention of central banks around the world.

What is RBI’s position on data storage by foreign companies?

In April 2018, RBI had mandated all payment companies to store data exclusively in India. A delay in compliance by WhatsApp led to a restricted rollout of its payment functionality. Diners Club, American Express and Mastercard have been told to stop issuing cards in 2021 after failing to store data exclusively in India. RBI then authorized Diners Club to issue cards.

What has RBI done so far to verify BigTech?

The regulator is taking small steps toward regulating the presence of big tech companies in financial services. In June 2018, she created a fintech unit within the regulatory department as a central point of contact for fintech-related activities. In January, this was separated as a separate department. RBI believes that regulations are needed to mitigate risk. He believes that the size of large technology companies in the financial sector poses systemic and concentration risk to the economy; they also enjoy an unfair competitive advantage over regulated entities.

How do regulations affect consumers?

Regulation of the fintech industry and big tech companies in finance should protect consumer rights. The issue of privacy and data security is equally critical, given that India does not yet have strong data protection legislation. Last November, the RBI committee pointed out that large technology companies typically enter financial services by sharing the data they have collected with existing financial services companies and gradually providing financial services in partnership or directly to their clients.

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