Dear RBI Governor,
The RBI has been a great champion for fintech startups. The support of the RBI in terms of guidance and on a policy level has allowed fintech companies to flourish in an otherwise regulated and monitored financial environment in India.
A few massive reforms undertaken by the RBI began the revolution in payment systems in India. The RBI played a key role as the catalyst in the landmark work done by the National Payments Corporation of India (NPCI). This included setting in motion various payment systems and newer technologies like Immediate Payment System (IMPS), Bharat Bill Payment System (BBPS), Aadhaar-based E-KYC, RuPay cards and the Unified Payment Interface (UPI).
Of all the policies and steps undertaken, UPI has earned the most applause and recognition as it seeks to unify the nation’s financial backbone with a single, integrated and easy-to-use digital payments system on a scale unprecedented. The RBI Payment System Vision Document (2012-15) says that UPI envisages a payments architecture that is directly linked to achieving the goals of universal electronic payments, a less-cash society and financial inclusion, using the latest technology trends. This would essentially bring to fruition the true meaning of mobile banking. Given the rate at which smartphone penetration is taking place in India, the notion that your device will be the only bank branch you will ever need to visit does not sound ludicrous anymore.
The fintech sector should be seen as a legitimate partner of the current banking and financial ecosystem rather than as an adversary.
As a result of favourable RBI guidelines one has seen increased competition in the financial sector. For example, the market that earlier comprised a few leading wallet companies such as MobiKwik and PayTM has quickly mushroomed into every bank and financial institution offering a mobile wallet solution to consumers. Banks have also been sprucing up their digital assets in order to compete with private entities that have managed to disrupt the way banking traditional happens in India and in the process have seen a surge in popularity with the users. The RBI set up a committee in June to take stock of activities and also monitor any risks it could pose on the existing financial system in India.
Nandan Nilekani, former UIDAI (Unique Identification Authority of India) chairman and former Infosys co-founder had addressed the change in the banking and financial regulatory policies as the “WhatsApp moment” comparing it with the ubiquity of the messaging app that lives on almost every Indian smartphone.
According to a report by Nasscom there are close to 400 companies in India focused on areas such as lending, payments, personal finance, insurance, cryptocurrency, etc. The fintech space stands obliged by the tremendous actions of the RBI, and we only hope that this trend will continue in favour of startups working to make the system more inclusive and efficient.
I would, however, like to address a few concerns regarding changes needed in this ecosystem.
1. Financial inclusion
Financial inclusion will happen if investment products — credit, insurance, pension schemes, PPF etc — can be sold through m-wallets. This would entail studying feasibility and framing rules for creating a payments history for all digital payments. This would ensure that customers/ merchants can leverage credit history to access instant, low-cost micro credit, insurance etc. This also would require creating linkages between payments transaction history and credit information. Wallets should be part of Direct Benefit Transfer (DBT) schemes.
New and disruptive models of business employed by fintech startups have led to increased regulatory and compliance issues.
Additionally, India is just one of a handful of countries that is implementing financially-linked government-to-person (G2P) payments at scale. Welfare schemes are leveraging emerging branchless banking models to disburse these payments, moving from the former branch- and cash-based distribution model to the distribution of funds into no-frills bank accounts, serviced by business correspondents outside of branches. With its emphasis on digitization, the government should think of private sector non-banks like m-wallet companies etc. to be part of this initiative and provide a level playing field.
2. Support industry innovations
The fintech sector should be seen as a legitimate partner of the current banking and financial ecosystem rather than as an adversary. New and disruptive models of business employed by fintech startups have led to increased regulatory and compliance issues. This is preventing these startups from operating at their full potential. Oversight by the RBI is definitely welcome in the space, but it must accelerate the process of finalizing regulations so that all can compete on a level playing field.
3. Payment bank licence on tap — including credit in order to make them viable and profitable.
This will boost the mission of financial inclusion of our country by including low-income households into the mainstream economy.
4. Democratizing the use of UPI so as to create a perception of fair market
Carrying over from my earlier point is our request that a free market for startups should be available to compete with traditional and established systems. For instance, why are mobile wallets kept away from UPI? So that the banks have time to catch up? How is this fair? The digital revolution brought about by private entities is being overrun by legacy entities since they did not see the disruption coming.
Why are mobile wallets kept away from UPI? So that the banks have time to catch up? How is this fair?
In the case of UPI, it is unclear how the final app would work for users. Who would design it, tying into existing bank interfaces, apps, and other digital properties? Will it be effective and secure? Without delivering a great user-experience, consumer adoption of UPI is unlikely. Most existing financial and governmental digital schemes are woefully designed and don’t even have a mobile-responsive website, let alone a mobile app. Even the apps that exist are in need of a massive rejig in terms of design and user interface, something that private tech/ startup firms excel in. Most users will discontinue transacting on a platform if their first few experiences turn out to be less than satisfying, leave alone problematic. This would additionally undermine years of work that has been done by private sector in this sphere.
In this regard, necessary guidelines should be developed for merchant payment standards and interoperability between various issuers and acceptance networks, including Payment Protection Insurance (PPI) to ensure merchant payments are interoperable across broad spectrum of payments and settlement system.
Our sincere appeal to the central bank of India is that startups and technology companies should be treated as legitimate stakeholders in the financial ecosystem. This will help our nation realize its dream of being a cashless and a digital economy and a centre of indigenous innovation.