it has created hold regular competitive events like the hackathon to provide a channel for the fintech and start - up sector to showcase innovations. non - disruptive innovation 7. no regulator has the luxury of letting innovation disrupt the financial system in the hope that market might reach its own equilibrium eventually. for instance, we cannot afford to let loose defi technologies on the financial institutions with virtually no understanding of how a bank - less system would operate. apart from the unacceptable financial stability risks, this would amount to a regulator working towards its own irrelevance. it is necessary that a regulator controls the manner and pace of absorption of new technology. allowing disruptive technology without clarity on whether the alternative is even feasible, let alone desirable, would be an unacceptable gamble. a key element for smooth absorption of new technology is to ensure a level playing field. if offering credit cards requires a banking ( or similar ) licence, allowing a non - licensed entity to offer them would amount to undermining the banking system, as it would be placed at a competitive disadvantage. similarly, digital payments are essentially a banking service in the sense that they involve movement of funds from one deposit account to another. deposit accounts are a necessity, technology merely a tool ; deposit accounts can be used to make payments even without technology, but not the other way round. facilitating a non - bank to use its technology to move bank deposits would amount to creating a competitive edge for the non - bank. it may be argued that nonbanks could avoid use of bank deposits by maintaining deposit like funds, say, wallets. then non - banks would be deposit taking entities, that is, they would be effectively banks which would require a banking licence. a less disruptive and more efficient mechanism is to facilitate banks to collaborate ( or acquire ) the new technology. banks could also outsource or internalise the new technology. would it disincentivise innovation? not likely, if the non - bank technology is appropriately priced. 8. this brings us to the key issue of regulatory arbitrage. if we want to avoid the inefficiencies caused by differential regulations for similar activities, a non - bank undertaking banking functions, needs to be licensed and regulated like a bank. without the license, it should not be allowed to undertake banking activities. this for example, is what rbi did recently when it clarified that ppis ( prepaid payment instruments ) cannot be funded out of credit lines, because it enabled an

concerns, comprehensive directions were issued in september, 2022. these regulations specified the entities that were permitted to lend, transparent loan and pricing norms and fairness in treating customers. 13. in this context, an unexpected regulatory challenge has been what one might characterize as compliance - aversion. financial entities traditionally subject to regulation understand that regulation serves the larger objective of systemic stability and development. entities outside the financial space are still learning to adapt to a regulated environment. consequently, their initial reaction to a regulation is objection. ironically enough, the narrative created to justify such objection is usually customer inconvenience, even by industry bodies. the norms prescribed for recurring payments were criticised as inconvenient to customers until a survey 2 revealed that more than 80 % of customers welcomed the move. although to a lesser extent, similar friction is occasionally exhibited even by regulated entities as can be seen in banks'shunning of the fx retail 3 platform which would significantly improve the price for retail buyers / sellers of forex. rbi's approach to regulatory aversion is to patiently ease in regulations, giving the eco - system adequate time to adjust. global coordination 14. a unique challenge for regulating fintechs is the need for global coordination. since these services are on - line, and as in case of cryptocurrencies they span across national boundaries, effective regulation would require global coordination. since technology by its very nature evolves faster than regulations, regulators would usually be lagging behind. a global common understanding of the risks involved and about the nature of regulation is necessary for it to be effective. the issue is further complicated by 4 / 6 bis - central bankers'speeches differential impact of such technology for different countries. for instance, stablecoin would not pose as much of a threat to the country whose currency is used as a peg, as it would to other countries. evolving common understanding on the risks posed by fast mutating technology is likely to remain a major challenge. internationalisation of innovations 15. rbi's developmental role has prodded it to not only take many technology initiatives itself, it has also started the process of extending the global reach of india's premiere innovations. internationalisation of indian payment systems is a policy objective of rbi. after successful enablement of qr code based payments through upi at merchant locations in singapore, uae and bhutan, rbi is collaborating with monetary authority of singapore to enable cross - border person to person remittances in an instant and