July 27, 2024

The Reserve Bank of India has set up a inter-regulatory Working Group (WG) to study the spectrum of regulatory issues relating to Financial Technology and Digital Banking in India.

The future of banking and financial services is linked to advances in Digital Banking. However, most people have a misconception that digital marketing is mobile, online or even omnichannel banking. It is true that all of these require digital applications but it is a narrow view. In ideal sense Digital Banking involves application of technology to ensure new age processing of banking transactions and also to improve customer relationships through digitalization. This shall also benefit the banks and other entities providing financial services with lower operation costs and enhanced services.

Aditya Puri, MD, HDFC Bank, wrote in an article in the Business Standard that “the analogy of the market change is akin to a "simple-pendulum" - where the movements are predictable to a "dual-pendulum" - where patterns are erratic. Whilst both follow laws of gravity, the "dual" one has the force of "each other" as well.” He identified four broad areas of disruption through digital technology in banking - faster loans; convenient payments on e-commerce; mobile-to-mobile payments substituting cash and remote advisory using analytics. Worldwide, bankers and financial entities are embracing technology to create services that improve banking and other financial services experience for the customer while creating synergies in operation for the system, starting with, but not limited to, individual banks and entities.

On 14th July, 2016 RBI set up this WG with the hope that it will keep a check on the growing significance of Financial Technology innovations and its interactions with the financial sector entities.The 13 member working group is headed by Sudarshan Sen, the executive director of RBI. The group has been asked to submit its report within six months from the date of its first meeting.Earlier this year on 26th April, 2016, the Financial Stability and Development Council - Sub Committee (FSDC - SC) at one of its meetings had decided to set up such a WG to report on the various aspects of the Financial Technology and to appropriately reorient the regulatory frameworks in tune with the rapidly growing Financial Technology scenario.

The main areas the Working Group has been asked to look at are:

• To chalk out appropriate regulatory response with re-orientation of regulatory guidelines for enhancing Digital Banking while at the same time managing the evolving challenges and the risk dimension.
• It has been also set up to examine cross country practices. It has to study models of successful regulatory response at the same time responses to disruption across the globe.
• To figure out the major Financial Technology innovations and the entities that are involved in adopting new delivery channels, products and technologies.
• It’s another duty is to assess opportunities and risks that might arise due to financial system digitalization and how they can be optimized so that the customers or other stakeholders are fully benefitted.
• The Working Group is empowered to co-opt entities in the payment and can invite views from the representatives from any area within its domain.

However RBI is skeptical about technology. Recently, in one of the financial stability reports, RBI has raised the question whether technology is ‘agathokakological’, that it is composed of both good and evil components. It has raised this question due to increased level of hacking threats which causes severe disruptions in the service of Financial Technology ventures. But that is a separate issue that needs to be addressed in a befitting manner. Not embracing emerging technology over concerns of hacking will be akin to throwing the baby out with the bath water. India cannot be seen to be a laggard in embracing technology and the WG would do well to address regulatory as well as hacking issues.

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