By Vijeth Shivappa
The Reserve Bank of India, in its 25th Financial Stability Report (FSR) released on June 30, 2022, said that the entry of Big Tech giants into FinTech has exposed the banking system to new risks. Emerging risks go beyond prudential issues and often intersect with other public policy objectives related to data privacy protection, cybersecurity, consumer protection, competition and anti-policy compliance. against money laundering.
“The complex intertwined operational ties between BigTech companies and financial institutions could lead to concentration and contagion risks and issues related to potential anti-competitive behavior,” as the report released Thursday, June 30, 2022 states. that financial technology (FinTech) has experienced phenomenal growth in recent years. The global fintech market size was valued at $111 billion in 2020 and is projected to reach $698 billion by 2030, growing at a CAGR of 20.3%.
The report further states that the adoption of FinTech can promote financial inclusion, expand the supply of financial products and services, increase the efficiency of financial service delivery and lead to greater accessibility, at an affordable price. and an improved customer experience.
RBI in its report highlighted that FinTech innovations are ubiquitous, especially in retail and wholesale payments, financial market infrastructures, investment management, insurance, credit origination and equity capital raising. and can lead to significant changes in the financial landscape.
Global fallout: rise in US rates and threat of recession; Ukrainian crisis; Rise in the price of oil.
Fintech Risks: The report warned that the advent of Fintech has exposed the banking system to new risks such as data privacy protection, cybersecurity, consumer protection, competition and policy compliance AML (anti-money laundering).
India’s FinTech industry, which is among the fastest growing in the world, was valued at USD 50-60 billion in 2020 and is expected to reach USD 150 billion by 2025. India has the rate of Highest FinTech adoption in the world (87%). financing of USD 8.53 billion (in 278 transactions) in 2021-22.
Risk related to BigTechs (large technology companies): they can grow rapidly and pose a risk to financial stability, which can result from increased disintermediation of incumbent institutions.
Additionally, the complex intertwined operational linkages between BigTech companies and financial institutions could lead to concentration and contagion risks and issues related to potential anti-competitive behavior.
Cryptos are a ‘clear danger’: The RBI Governor has called cryptocurrencies a ‘clear danger’ and anything that derives its value from a pretense, without any underlying, is just “speculation under a fancy name”.
Call to action
This requires increased commitment from regulators, the FinTech industry and academia to work towards common principles for managing FinTech activities, including business and revenue models, governance, conduct and risk management, a- he declared.
We need entity-based and outcome-based regulation.
Globally coordinated regulatory approach and cross-regulatory coordination: This will enable a comprehensive assessment of these activities, activities and risk mitigation.
Take advantage of technology
Using Artificial Intelligence and Machine Learning to Determine a Borrower’s Creditworthiness
The methodology of the algorithms that underpin digital financial services must be “clear, transparent, explainable and free from exclusionary bias”.
The Reserve Bank of India (RBI) has released a “Payments Vision 2025” document. As part of its Vision 2025, the RBI will attempt to regulate big tech and fintech in the payments space. This will explore guidelines on payments involving BNPL (buy now, pay later) services. She will be working on the introduction of the CBDC (digital central bank currency). Also included Rupee in Continuous Linked Settlement (CLS) (CLS provides protection for cross-currency settlement in 18 currencies).
The RBI will soon publish guidelines to make digital lending ecosystems “safe and healthy while enhancing customer protection and encouraging innovation”. In the age of technological change, banks should not just operate like banking businesses, but like technology businesses. Authorities and regulators have to find the right balance between promoting innovation and preventing systemic risks.
– All opinions expressed are personal