I am delighted to be here today in the third edition of the Global
Fintech Festival (GFF). I would like to congratulate the organisers - the
National Payments Corporation of India (NPCI), the Fintech
Convergence Council (FCC) and the Payment Council of India (PCI) for
organising this event. The theme of the event - Creating a sustainable
financial world - is very relevant in current times.
2. In recent years, India has witnessed rapid progress in the financial
services sector. Technology, innovation and fintech are working in
tandem and contributing to the dynamism of this sector. In our journey
towards higher levels of sustainable development and financial
inclusion, these forces have morphed into force multipliers. We have
leveraged a lot on these forces; we need to leverage even more.
3. Let me now get down to the specifics. There has been exponential
growth of technological enablers in India. Telecom penetration,
availability of internet services, adoption of technology in facilitating
access to credit, more efficient payment systems and deepening of
financial inclusion have made significant progress and are continuing
to progress further.
4. The total number of broadband internet users in India stood at
80.7 crore at the end of July 20221. With more than 46.5 crore Jan Dhan
accounts, 134 crore Aadhaar enrolments and 120 crore Mobile
connections, new opportunities are opening up for implementing
innovative ways of integrating and delivering services. This can be
gauged from the emergence of 100 unicorns in the country with record
44 unicorns established last year2.
5. For any society aspiring to grow faster, its financial institutions
must be robust, efficient and accessible. The next decade of finance
will be more focussed on two central themes: (i) sustainable
development and (ii) technology led innovations transforming the lives
of common people. Therefore, sustainable development and ensuring
a resilient financial system form the fulcrum for our policy architecture.
6. As we have all witnessed, technology has been central to the
resilience in the face of the COVID-19 pandemic, particularly during the
lockdowns imposed around the world. It has also been central to our
response to the crisis and in supporting the recovery. Technology
coupled with finance safeguarded the economies by ensuring seamless
disbursal of loans, robust 24x7 payment systems, access to financial
markets, insurance, MSME credit, pension services and direct benefit
transfers.
7. As per the World Bank, at least 58 governments in developing
countries have used digital payments to deliver COVID-19 relief3. The
scale of operations in India in this regard was of course much larger
4
compared to other countries. The Global Findex Database 2021
reported a significant increase in financial inclusion around the world.
In developing countries, 71 per cent of people have bank accounts, up
from 42 per cent a decade ago. Approximately 40 per cent of people
who made a digital payment from their account (to a merchant or for a
utility service) did so for the very first time since the start of the
pandemic.
8. In India, the pandemic accelerated the push towards
digitalisation, especially in the rural areas. The period from March 2020
to August 2022 has seen a massive growth of 427 per cent in UPI
transactions, which reached a new high of 657 crore transactions in
August 20225 alone. The number of UPI QR code enabled payment
acceptance points6 increased by about 9 crore (86% YoY) to reach 20
crore as at end of July 2022, reflecting the growing acceptance and
preference for contactless payments.
Innovations in our Financial Sector
9.
The financial services industry in India has seen enormous
transformation. Products like internet and mobile banking, electronic
funds transfer, UPI, Aadhaar e-KYC, Bharat Bill Payment System
(BBPS), QR Scan & Pay, digital pre-paid instruments and similar other
initiatives have transformed the traditional banking operations. Banking
hours have been transcended. We now have digital-mobile-anywhere-
anytime banking. While several initiatives originated from the industry,
the government and the regulators have created an enabling
ecosystem to promote the FinTech sector. Initiatives like Startup India,
Digital India, India Stack, Account Aggregators, Peer to Peer (P2P)
lending platforms and 24x7 digital payment systems have proved to be
key enablers. The Fintech ecosystem in India has indeed evolved and
is poised for a giant leap.
10. Let me now touch upon some of the other initiatives taken by the
RBI in this area. The Regulatory Sandbox framework was released in
August 2019 with a view to foster innovation. With this, the Reserve
Bank entered the select group countries that have their very own
regulatory sandbox ecosystem. After four theme-based cohorts on
retail payments, cross-border payments, MSME lending and prevention
of financial frauds, a theme neutral fifth cohort was announced earlier
this month. It reflects our keen desire to increase the footprint of
innovation in the FinTech space. The success stories emanating from
our Regulatory Sandbox initiative include, among others, the
'Framework for facilitating Small Value Digital Payments in Offline
Mode' and the recently launched UPI123Pay which was aimed at
enhancing digital financial inclusion by enabling over 40 crore feature
phone users to access the benefits of UPI in a safe and secure manner.
11.
The Reserve Bank, for the first time, organised a Global
hackathon titled HaRBInger 2021 - with a view to make retail
payments more innovative. This witnessed enthusiastic response. We
received 363 proposals including 22 from abroad from countries like the
USA and the UK. This exercise gave us a glimpse of the creative talent
pool that India possesses and reinforced our belief that India is well
positioned to provide leadership in the FinTech space. I understand that
the winners of HaRBInger 2021 are also participating in this Global
Fintech Festival to further showcase their creativity and talent.
12.
More recently, the RBI has set up the Reserve Bank Innovation
Hub (RBIH) as a subsidiary in Bengaluru. The Hub has an eminent
Board of Directors drawn from the private sector and domain experts.
The RBIH is currently undertaking several important projects. I am
confident that going forward, the RBIH will benchmark itself as a centre
of excellence.
13. We have also created a new FinTech Department in the RBI
from January 2022 to give focused attention to this evolving and
dynamic sector. The objective of this department is not only to promote
innovation, but also identify the associated challenges and
opportunities and address them in a timely manner. All matters relating
to facilitation of constructive innovations and incubations in the FinTech
space, with wider implications for the financial sector and markets, are
being dealt with by this department, in addition to inter-regulatory issues
and international cooperation.
14. Further, as you would be aware, the RBI is now actively working
towards a phased implementation of Central Bank Digital Currency
(CBDC) in both wholesale and retail segments. This is expected to give
further fillip to the digital ecosystem.
FinTech; the road ahead
15. It is well known that FinTechs contribute to enhance efficiency in
terms of service delivery and in bringing down costs. Through their
customised products and customer interfaces, they provide an
enriching and seamless consumer experience. They also have the
potential to improve market access and a range of product offerings,
apart from improving access to credit and financial inclusion in the
traditionally unserved or underserved segments.
16. In India, one of the most transformative roles that can be played
by FinTech is in the area of credit delivery in partnership with traditional
lenders, especially in rural and semi urban areas. Timely availability of
credit at reasonable cost, especially for agriculture and allied activities
and MSMEs, is very crucial for our economic growth.
17. One of the key challenges currently associated with availment of
such credit is that it is a largely paper based process with high Turn
Around Time (TAT). Sometimes it requires multiple visits to bank
branches and cumbersome documentation. It entails high operational
costs for lenders and opportunity cost for borrowers. Considering these
challenges and taking forward RBI's FinTech initiatives, digitalisation of
Agri Finance in India was ideated between the Reserve Bank and the
Reserve Bank Innovation Hub. The idea was to enable frictionless
delivery of Kisan Credit Card (KCC) loans in a paperless and hassle-
free manner and also reduce the turnaround time and avoid multiple
visits to bank branches. I am happy to state that the Reserve Bank
Innovation Hub has designed an end-to-end digital process for
seamless and quick access to rural credit. A pilot project based on this
innovation has been launched in Madhya Pradesh and Tamil Nadu in
partnership with the Union Bank of India and the Federal Bank
respectively, for both new KCC loans and renewal of such loans up to
a threshold (₹1.60 lakh) per borrower. Going forward, based on the
learnings from the pilot, the digitalisation of KCC loans is proposed to
be expanded to all districts of these two states as also to other states.
Eventually, our desire is to develop and operationalise an integrated
and standardised technological platform to facilitate frictionless credit
to all segments of society for the whole country, with special emphasis
on rural and agricultural credit. And if we can do this in the next one
year, it would be a major milestone in India's growth story and journey
towards India@2047.
18. Another example of tech-enabled regulatory innovation by the
RBI is the Account Aggregator (AA) framework. This is an important
step towards realising the potential of empowering millions of
underserved customers to digitally access and share their financial data
across institutions in a secure and efficient manner. The framework has
been expanded to include institutions regulated by SEBI, IRDAI and
PFRDA. This is a progressive step to help customers gain control over
their financial data and use it for accessing a variety of products
including credit, insurance, investments for their own benefit.
Centralised KYC (CKYC) and Video KYC are other enablers to facilitate
seamless onboarding of customers in a digital and cost effective
manner. We are giving greater focus on these initiatives.
19. The Reserve Bank is committed to take more such initiatives with
the support of all stakeholders. In this endeavour and in collaboration
with the stakeholders, three exciting new products are being launched
later today. Two of these pertain to enhancing the feature set of UPI by
facilitating small value transactions through 'UPI Lite' and linking credit
cards to UPI. The third initiative is the enablement of cross-border
inward bill payments using Bharat Bill Payment System (BBPS).
20.
The emergence of FinTech players and the growing popularity of
their innovative products have challenged the existing players in
financial services in maintaining their market share, margins and
customer base. The incumbent firms are responding to these
challenges by adopting various strategies, which include making
investments in FinTech companies and partnering with them. They are
also enhancing their in-house capabilities to adapt to the new realities.
21. A wave of changes brought in by FinTech have had a positive
impact in terms of enhancing inclusion and further penetration of
financial services. At the same time, these developments have also
ushered in an era where enormous amount of consumer data is being
generated and leveraged upon by a few entities (the so called
BigTechs) by virtue of their huge customer base. Such developments
raise concerns on concentration risk and potential spillovers as their
level of engagement with the financial system strengthens in the years
to come. Therefore, potential risks to public policy objectives of
maintaining competition, market and business conduct, operational
resilience, data privacy, cyber security and financial stability need
closer attention.
22. As we have seen, the way digital lending has taken off in the
recent past was phenomenal. While it has served the needs of various
segments, it has also raised several concerns which manifested itself
through spate of complaints regarding usurious interest rates, unethical
recovery practices and data privacy issues. The Reserve Bank has
endeavoured to address these issues proactively and, as early as in
June 2020, regulatory guidance was provided to our Regulated Entities.
This guidance, among other things, mandated that digital lending
platforms disclose the names of the banks/ NBFCs upfront on whose
behalf they were providing credit. The recently issued regulatory
guidelines on digital lending7 strike a well considered balance between
customer protection and business conduct on the one hand and
supporting innovation on the other. Let me emphasise that while
innovations are very much welcome, they must be responsible and
should enhance the efficiency and resiliency of the financial system
while benefitting the consumers. Robust internal product and service
assurance frameworks, together with fair and transparent governance,
will go a long way to safeguard the interest of customers and ensure
long-term sustainability of the FinTech entities themselves. The level of
due-diligence and oversight exercised by the regulated entities on their
outsourced activities needs to be strengthened further. This would help
in proactive mitigation of risks at the incipient stage itself.
23. I would also like to flag certain material concerns regarding the
unbridled mushrooming of digital lending apps. The need of the hour is
to ensure assurance of safety after following a process of green-lighting
(whitelisting) and due-diligence by the regulated entities. The RBI, in
association with other relevant agencies, is taking steps to address this
issue and take further steps as may be necessary.
Governance and Conduct
24. As we continue to support technological advancement and
innovation, it is equally important that adequate attention is also placed
on governance and conduct issues. At the end of the day, sustainability
of any FinTech activity or business is about enhanced customer
protection, better cyber security and resilience, managing financial
integrity and strong data protection.
25. I wish to assure the FinTech community that the RBI will continue
to encourage and support innovation. At the same time, we would
expect the ecosystem to pay attention to governance, business
conduct, regulatory compliance and risk mitigation frameworks. The
fintech road ahead will witness ever growing traffic in addition to the
large number of existing players who are already there. It is, therefore,
imperative that every player on this road follows the traffic rules for
his/her own safety and the safety of others.
Conclusion
26. A sustainable financial world is not just for us, it is also for the
future generations. It is up to us how we want to move forward in this
journey. The RBI's focus has always been on encouraging innovation
by providing an enabling environment. Simultaneously, as guardian of
financial stability, the RBI also remains watchful of any undue risk build
up and responds to them. The Fintech players, I am sure, will join us in
this endeavour.
27. With the amazing talent base that we have in India and the giant
leaps we have taken in the digital and FinTech space in recent years, I
am confident that India is well positioned to shape the future course in
this area. As we set sail for a brighter future, I wish you all a safe and
fulfilling journey ahead.
Thank you.