Addressing an international research conference on fintechs on Friday, co-organised by IIM-Ahmedabad, RBI deputy governor MK Jain said that a self-regulatory approach could also help protect the customer’s interest and promote a high level of governance standard in fintech entities. “Role of such an SRO (self-regulatory organisation) can include setting the standards for conduct and acting as a bridge between the sector and regulators,” Jain said.
Fintech companies have evolved in the recent years, with some growing by facilitating payments for consumers and merchants, while others have risen from being bank service providers to independent players in the sector. Jain said that a hands-off approach might promote innovation but risks failing to protect the financial system from adverse outcomes. At the same time, maintaining the status quo would mean that there is no relaxation to cater to the new development, which risks losing the benefits of innovation.
“RBI has endeavoured to find a middle ground, trying to balance between the innovation brought by fintech while addressing the unique risks they introduce,” Jain said.
According to Jain, thanks to fintechs, consumers have benefited from better customer experience and convenience. “One of the key value propositions fintechs offered was providing the same financial services as regulated entities but at a lower cost. Fintech disruption in the Indian brokerage industry is a shining example of this,” said Jain.
At the other end, big tech companies like Alphabet, Meta and Amazon have also expanded into financial services. “These companies leverage the data from their large existing user base coupled with network effects to provide contextualised or embedded financial products and nonfinancial products. In addition to payment systems in many jurisdictions, Big Techs have successfully expanded into credit scoring and lending,” said Jain.