Barriers to Adoption of Digital Financial Services
Channel: Sankalp Forum
Date: 2020-11-03

The digital financial services ecosystem is ever innovating and evolving. The push by the Government of India for its dual agenda of financial inclusion and digital development has been persistent. Over the last few years, India has made several efforts towards enabling access to finance and enabling the digital ecosystem. With more than 383 million new bank accounts opened, operationalization of the Jan-Dhan-Aadhaar-Mobile trinity etc., the thrust on transition to digital economy the country has leap frogged significantly. The policy makers have shifted their focus to digitizing the financial services particularly for the unbanked population and reducing dependence on the traditional brick and mortar systems. The infrastructure to build inclusive digital financial services has been upgraded with the roll-out of Unified Payments Interface (UPI), Aadhaar and India Stack. Among its efforts to catalyze favorable regulatory environment, the RBI’s introduction of the regulatory sandbox has been an important step. The sandbox aims to provide more pace to innovations by financial service providers and also benefit the consumers through an increase range of services at lower rates. 

While the efforts of the RBI are in the right direction, it is difficult to assess what the regulatory sandbox regime will mean for the Indian financial ecosystem. Digital financial services offer huge opportunities for overcoming financial inclusion challenges, they also pose new set of challenges like privacy and data security risks. Regulators are challenged with the providing an adequate data protection framework for financial data, while also keeping in mind compliance costs that may increase the eventual cost of services for the consumers. Risks of loss of personal data, cyber-crimes, risk-based customer due diligence etc. are common to all modern data-driven institutions and models. Due to onset of the pandemic and its implied social distancing norms, digital transactions have gained an unnatural impetus. 

While the Personal Data Protection bill still stands in front of a parliamentary committee, the total volume of digital payments had reached over 3 billion by March 2020 (RBI Data). In this context, there is accentuated need to deliberate on the legal and regulatory barriers that affect enhanced adoption of digital financial services. The proposed discussion will pivot around the regulatory challenges faced by digital financial services providers, entry barriers for suppliers and its impact on innovation, limited choice for consumers. 

The discussion will provide broad prescription on possible solutions to the regulatory challenges and make recommendations for the FSP’s and regulators to address the appropriate balance between protecting customers and allowing room for innovation. 

Session supported by Access Assist.