FinTech and the Changing Financial Landscape
Keynote Address by Shri Shaktikanta Das, Governor, RBI
at the Global Fintech Festival, Mumbai, September 6, 2023
It gives me great pleasure to be here at the 4th edition of the Global
FinTech Festival (GFF). I compliment the organisers for bringing all
stakeholders of the FinTech ecosystem together for this three-day
event with the aim of achieving a common goal of inclusive, resilient,
and sustainable financial system. It would be obvious to state that
innovation is the bedrock of the FinTech industry. Events such as these
festivals enable sharing of knowledge and experience with peers, both
domestic and global, which facilitate more innovation. By bringing
regulators and FinTechs on the same forum, the festival also facilitates
an understanding of regulatory expectations by the industry on the one
hand, and appreciation of industry developments and expectations by
the regulators, on the other. Such thematic events provide the right kind
of platform for nurturing a more vibrant FinTech ecosystem.
2. In my address today, I propose to touch upon changes in the financial
landscape with the advent of FinTechs, with particular emphasis on the
role of Digital Public Infrastructure and role of the Reserve Bank in
fostering innovation.
3. The landscape of traditional financial services has undergone a
profound shift with the advent of FinTechs. This transformation has
significantly impacted delivery of financial services by making them
faster, cheaper, efficient and more accessible. The global FinTech
sector which currently generates $245 billion annual revenue - a mere
2% share of global financial services revenue - is estimated to reach
$1.5 trillion annual revenue by 20301. The Indian FinTech industry is
projected to generate around $200 billion in revenue by the year 20302.
This projection indicates that by 2030, India's FinTech sector could
potentially contribute to approximately 13% of the global FinTech
industry's total revenue. These projections underscore the increasing
significance of the Indian Fintech sector.
4. Technological innovations by FinTechs are the result of interplay
between the underlying (i) digital public infrastructure; (ii) institutional
arrangements; and (iii) policy initiatives. These key elements help foster
a conducive environment for nurturing creative ideas and promoting
transformative technologies, which lead to beneficial and impactful
changes in the financial industry. Let me elaborate on these three
aspects.
A. Digital Public Infrastructure
5. Digital Public Infrastructure (DPI) is commonly recognized as a
technology system that promotes interoperability, openness, and
inclusion to deliver vital public and private services. The defining feature
of the Indian 'model' of digitisation is the lead taken by the Government
and the Public Sector in building an infrastructure, on top of which
innovative products are created by private sector FinTech firms and
start-ups. In fact, India has pioneered a layered approach to DPI, with
the concept of the India Stack. In this respect, the impact of JAM trinity,
i.e., Jan Dhan Yojana, Aadhar and Mobile in terms of financial
inclusion, digitisation of financial services, and emergence of FinTech
ecosystem has been significant.
(i) Jan Dhan Yojana/Bank accounts
6. As per the World Bank's Global Findex Database 2021, 76% of adults
worldwide had access to an account in a bank or a regulated financial
institution as compared to 51% in 2011. In comparison, the percentage
of adults in India who had access to bank account increased from 35%
in 2011 to 78% in 2021. As you would be aware, the Jan Dhan scheme
launched by the government in 2014 for universalisation of bank
account has played a significant role in achieving this remarkable
progress. So far, over 500 million Jan Dhan bank accounts have been
opened in India.3
(ii) Aadhar- Digital identity
7. Aadhaar, India's biometric identity system, provides a single and
portable proof of identity. As on 30th November 2022, Unique
Identification Authority of India had issued 1.35 billion Aadhaar
identities4. The unique Aadhar identification number allows individuals
to verify their identity through authentication, regardless of their
location, thereby ensuring convenient access to financial services,
targeted financial subsidies, benefits, and other services nationwide.
This has also enabled FinTechs to offer paperless and contactless
financial services. Aadhaar has enhanced customer convenience,
strengthened the security of financial transactions and substantially
mitigated the risk of identity fraud. It is a good example of how digital
public infrastructure can be leveraged for achieving public policy
objectives.
(iii) Mobile Connectivity
8. The spread of mobile connectivity has also played a major role in the
digitization of financial services in India. The number of internet users
through mobile phone in India has grown from about 70 million in 20145
to about 800 million in 20226. During the same period, the number of
digital transactions in India grew from about 1.2 billion in 20147 to about
91 billion in 20228. Increasing affordability of mobile phones, cheap
access to data and the expansion of mobile network coverage have
spurred the growth in adoption of mobile wallets, UPI, and other digital
payment methods.
(iv) Unified Payments Interface (UPI)
9. The UPI has played a phenomenal role in the FinTech revolution in
India. Its success story has in fact become an international model. Its
ability to instantly transfer money between bank accounts through
mobile applications has transformed the way people make digital
transactions. The interoperability of UPI across banks has created a
unified payment ecosystem. Its user-friendly interface and QR
codebased payments have made it very popular. It has facilitated digital
payments for small businesses and street vendors, leading to greater
financial inclusion.
10. UPI has also spurred innovation in the FinTech space, leading to
the growth and development of other payment systems. For instance,
the volume of transactions through Bharat Bill Payment System(BBPS)
increased phenomenally after UPI-based platforms started providing
such facilities. Prepaid Payment Instruments/ mobile wallets have also
5
https://www.trai.gov.in/release-publication/reports/telecom-subscriptions-reports
6
https://www.trai.gov.in/release-publication/reports/telecom-subscriptions-reports
7
https://pib.gov.in/newsite/PrintRelease.aspx?relid=184668
8
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1897272
witnessed higher volumes when mobile wallets were made
interoperable through UPI. The success of UPI is reflected in the sheer
numbers, as it has scaled up in relatively a short period of time. More
than 10 billion transactions for over Rs.15 trillion value were carried out
in August 2023. This number is steadily rising9. India's technology stack
has accelerated digitalisation10 through mobile phones and internet;
identity system; data sharing rails (AA framework11); payment rails; and
universalisation of bank accounts.
B. Institutional arrangements
11. Institutional arrangements are also critical for the development of a
financial system. They undertake various functions such as research,
innovation, training, advancing technology solutions and developing
best practices in finance. They also promote stability, transparency, and
fair practices in the financial sector. The Reserve Bank's initiatives in
institution building for the FinTech sector include: (i) establishment of
the Institute for Development and Research in Banking Technology
(IDRBT)12 which has been playing a crucial role in shaping the digital
transformation of the Indian banking industry; (ii) creation of the
National Payment Corporation of India Ltd (NPCI)13 which has emerged
as a pivotal organization driving the transformation of retail digital
payments in India; (iii) setting up of the Indian Financial Technology &
Allied Service (IFTAS)14, an institution to design, deploy & provide
essential IT-related services, as required by the RBI, banks, and
financial institutions; (iv) setting up of the Reserve Bank Information
Technology Pvt. Ltd. (ReBIT)15 in 2016 to strengthen cyber resilience
of the Reserve Bank and that of the banking sector; (v) formation of the
9
https://www.npci.org.in/what-we-do/upi/product-statistics
10
BIS Papers No 106, The design of digital financial infrastructure: lessons from India, December 2019
11
The Account Aggregator (AA) framework enables secure and consent-based sharing of data by users, across
financial institutions.
12
IDRBT, established in 1996, develops secure and efficient banking technologies, cybersecurity solutions, and
policy frameworks. It also created the National Financial Switch, SFMS, and INFINET.
13
NPCI was set up at the initiative of RBI in 2008. NPCI's UPI, IMPS, RuPay Cards and other digital innovations
such as BBPS, NACH and AePS have transformed payments systems in India. Bharat Bill Payment System
(BBPS) enables users to pay various utility bills; National Automated Clearing House (NACH) facilitates bulk
and repetitive transactions; and Aadhaar-enabled Payment System (AePS) allows people to perform basic banking
transactions using Aadhaar authentication.
14
IFTAS operates the Indian Financial Network (INFINET) and Structured Financial Messaging System (SFMS)
services 24*7*365. These two services serve as the backbone for Indian Financial system. They also enable NEFT
and RTGS payment transactions. IFTAS also provides cloud-based solutions like Mobile Wallets and mobile
banking for several banks.
15
ReBIT also provides assistance in implementation of IT projects of RBI and cybersecurity assessment of entities
supervised by the RBI.
FinTech department in RBI in 2022; and (vi) establishment of the
Reserve Bank Innovation Hub (RBIH) to promote innovation in financial
services.
C. Policy Initiatives
12. Timely and appropriate policy initiatives play a crucial role in
shaping the development of the FinTech sector. The focus of our policy
initiatives is to promote a conducive environment for innovation and
also ensure the security and stability of financial services. We have
taken many such policy initiatives in the recent times. They include
issuance of regulatory guidelines for emerging areas such as payments
banks (2014), account aggregators (AA) (2016), pre-paid instruments
(2017), peer-to-peer (P2P) lending (2017), invoice discounting (Trade
Receivable and Discounting System-TReDS) (2018), and Digital
Lending Guidelines (2022, 2023). Incidentally, the cumulative number
of consent-based information sharing through Account Aggregators
has reached 15.65 million in July 2023. With entities from Insurance,
Capital markets and Pension Funds joining the AA framework, it is
receiving a lot of traction.
13. The Regulatory Sandbox framework was announced in August
2019 with a view to foster responsible innovation and promote
efficiencies in financial services. The four cohorts on retail payments,
cross border payments, MSME lending and prevention of financial
frauds, together with the neutral fifth cohort, reflect our commitment to
promote innovation in the FinTech space. Drawing upon the learnings
from the first cohort of Regulatory Sandbox, RBI has put in place a
'Framework for facilitating Small Value Digital Payments in Offline
Mode' which should give a push to digital transactions in areas with
poor or weak internet or telecom connectivity.
14. Further, RBI is now conducting hackathons to promote innovation.
Our first hackathon, HaRBInger was conducted in 2021 under the broad
theme - 'Smarter Digital Payments'. The second edition of our global
hackathon - 'HARBINGER 2023'- has also been launched with the
theme 'Inclusive Digital Services'.
D. Current Initiatives
15. Let me now turn to some of the recent tech-based initiatives taken
by the RBI which promise to be transformational.
(i) Central Bank Digital Currency (CBDC)
16. CBDC provides unique opportunities as it represents the next
milestone in the evolution of the payment system. As you would be
aware, RBI has commenced pilot runs of India's CBDC (e-Rupee) for
specific use cases in both wholesale and retail segments. The
CBDCWholesale Pilot was launched on November 1, 2022, to settle
secondary market transactions in government securities. We are
planning to test some more use cases going forward.
17. The CBDC-Retail Pilot was launched on December 1, 2022 and
covers both Person to Person (P2P) and Person to Merchant (P2M)
transactions. The pilot is testing the robustness of the entire process of
digital rupee creation, distribution and retail usage in real time. The pilot
is currently being operated through 13 banks across 26 cities. Around
1.46 million users and 0.31 million merchants are currently part of the
pilot as on August 31, 2023.
18. Needless to say, as the next generation currency system, CBDC
needs to be introduced in a non-disruptive manner. Therefore, we are
following a strategy of calibrated and phased implementation.
Recently, we have enabled full inter-operability of CBDC with UPI QR
codes and are targeting one million CBDC transactions per day by
December 2023. This will give us enough data points to study various
design choices, use cases and also behavioural pattern.
(ii) Public Tech Platform for frictionless credit
19. In the last GFF in September 2022, I had mentioned about the
commencement of pilots on end-to-end digitalisation of small ticket
agricultural loans (known as Kisan Credit Card - KCC loans) in a few
states and our effort to develop a platform to provide frictionless credit
for all segments of loans.
20. The pilot on KCC digitalisation was launched in September 2022 in
select districts of Madhya Pradesh and Tamil Nadu. The pilot enabled
successful disbursal of agricultural loans up to ₹1.6 lakh (not requiring any
collateral) per borrower, within a few minutes to farmers by integrating with
the digitised state land records database, Credit Information Companies
(CICs), satellite data, Aadhar e-KYC, etc. Farmers can apply for new KCC
loans as well as KCC loan renewal, directly from their location or from
anywhere on smartphones/tablets directly or through assisted mode. The
KCC pilot has been subsequently extended to select districts of Uttar
Pradesh, Karnataka and Maharashtra. A total of seven banks are now part
of Digital KCC Pilot. The pilot has also been extended to dairy farmers
in Gujarat. The eligibility and scale of finance for such diary loans is
instantly decided based on milk pouring data available with the milk
cooperatives.
21. We are now moving beyond digital KCC loans. Let me elaborate.
Currently, data required for credit appraisal exists in separate systems
of different entities like Central and State Governments, technology and
FinTech companies, banks, service providers like Credit Information
Companies, digital identity authorities, etc. Accessing customer data
available with multiple data sources is a challenge for banks as it would
require multiple integrations with each information provider. It is a
challenge for the borrower also. To enable frictionless credit, in August
2023 RBI announced the launch of a digital Public Tech Platform,
conceptualised and developed in association with the RBIH. The
platform enables seamless flow of digital information from all the above
sources to lenders, obviating the need for multiple integrations.
22. The Pilot project on the Platform was launched on August 17, 2023.
To begin with, the platform will focus on products like MSME loans
(without collateral), personal loans and home loans. Based on the
learnings, the scope and coverage would be expanded to include more
products, information providers and lenders during the pilot.
E. Customer Centricity, Governance and Self-regulation
23. I would now like to touch upon certain key issues which are critical
for the FinTech ecosystem to be stable and future ready. In this context,
three critical issues, viz., customer centricity, governance, and
selfregulation merit attention. In the dynamic and ever-evolving world of
business, it is easy to get caught up in the pursuit of revenue, bottom
lines and the relentless drive for valuations. Sometimes, it is forgotten
that the success of any enterprise is intricately tied to the satisfaction
and trust of its customers. This is the first critical issue I wish to
highlight. We must remember what Steve Jobs once said, "you have
got to start with the customer experience and work backward to the
technology"16.
24. To focus on customers means embracing a customer-centric
approach to innovation by understanding the needs of customers,
making provisions that protect customer interests and earn their trust.
This calls for developing an organisational culture in which continuous
feedback mechanisms are embedded in the business strategy.
Designing solutions that safely and efficiently meet customer needs
would not only elicit trust of customers, it would also meet business
objectives in a sustainable manner. This can be achieved through
simplified user interfaces and quick customer grievance redress
mechanisms. Avoiding customer harassment is essential to achieving
long-term customer trust.
25. In this context, I would like to further add that digital innovations, at
times, have also led to cyber-risk and data security related issues.
Illustratively, mushrooming of illegal loan apps, many of which had their
origin in foreign jurisdictions, have led to serious concerns about breach
of data privacy, unethical business conduct, levying of exorbitant
interest rates, and harsh recovery practices. This highlights the urgent
need to ensure that innovations are accompanied by prudential
safeguards and responsible conduct. It is also imperative that regulated
entities operate within the perimeter set by the licensing conditions and
only undertake activities which are permitted under the regulations.
26. The second critical aspect is the important role of governance in
FinTechs. By providing clear governance structures, FinTechs can
demonstrate their commitment to transparency, accountability and
responsible decision-making. In fact, effective governance in FinTechs
require a collaborative effort involving regulators, industry associations
and the FinTech community itself. Regulators play a critical role in
addressing arbitrage, ensuring compliance with existing laws, and
adapting regulations to technological advancements. Industry
associations can facilitate development of best practices. The most
critical role, however, has to be played by FinTechs themselves. They
must proactively adopt high standards of governance. A robust
governance structure encompasses clear delineation of roles and
responsibilities, transparent decision-making processes, accountability
mechanisms, and stakeholder engagement. Good governance must
focus on ensuing effective oversight, ethical conduct and risk
management. Ultimately, it is good governance which would be key to
durable and long term success of FinTechs.
27. The third critical issue I would like to highlight is the need to
establish an effective self-regulatory structure by the FinTech players
themselves. They need to evolve industry best practices, privacy and
data protection norms in sync with the laws of the land, set standards
to avoid mis-selling, promote ethical business practices, transparency
of pricing, etc. I would like to use this opportunity to urge and encourage
the FinTechs to establish a Self-Regulatory Organization (SRO)
themselves.
Conclusion
28. Technological innovation has unprecedented potential to make
finance more inclusive, competitive and robust. It is crucial that
technological advancements in the world of FinTech evolve in a
responsible manner and are truly beneficial to the people at large. It is,
therefore, vital for these innovations to be scalable and interoperable.
FinTech players should themselves ensure responsible digital
innovations. The Reserve Bank, on its part, will continue to drive the
necessary regulatory and other policy measures to promote a vibrant
and responsive FinTech ecosystem.
29. The Indian economy is growing rapidly and with it, the demand for
financial services. The coming years hold immense promise and
innovators across the world should explore these opportunities. I firmly
believe that the GFF will emerge as a key global platform to unlock the
full potential of India's FinTech ecosystem.
My best wishes to you all for the success of this Global Fintech Festival.
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