FinTechs To Have Greater Presence In Charting India’s Digital Path  

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In India, digital payments are on the rise, digital lending will make inroads and FinTechs will gain market share – and, per the central bank, it all bears watching, with an eye on data privacy and security. To that end, Reserve Bank of India (RBI) Governor Shaktikanta Das has signaled that FinTechs will have a growing presence within traditional and non-traditional sectors of the financial services markets within the country.

As reported by MoneyControl.com, Das said at the Times Network India Economic Conclave 2021 on Thursday (March 25) that “FinTech is expected to challenge the financial sector with innovations and its exponential growth. Harnessing FinTech for customer services will effectively control costs and expand the banking and nonbanking businesses.”

One key underpinning of that growth will be the increased embrace of digital payments and digital lending. “Digital players would increasingly emerge as critical pieces across all segments” of banking, noted Das, according to the site. Additionally, digital companies would “act as service providers directly to customers or through banks as their agents or associates.”

For the banks themselves – large national players and smaller regional firms – Das said that “IT systems need to be developed to handle the exponential surge in the number of transactions.”

Digital Payments Surge

As has been reported, in evidence of the digital payments surge, Paytm has reached a monthly pace of more than one billion transactions. Separately, the Unified Payments Interface (UPI) has reported a monthly tally of more than two billion transactions. Earlier this year, the Times of India reported that the government is exploring ways in which it might upgrade its QR code to include goods and services taxes.

The digital payments growth is firmly entrenched in the estimated $2.6 trillion economy more than four years after India instituted widespread demonetization policies – where, specifically, Prime Minister Narendra Modi announced an economic policy where 500 and 1,000 rupee notes would be demonetized. The stated goals were – and still are – to combat tax evasion.

Das noted in his remarks this week that the rise of FinTechs “throws up a host of new challenges in terms of concerns of data privacy, consent and security.” The RBI has a working group in place comprised of government officials and private firms to explore these issues, including digital lending and financial stability.

There are at least some corners of digital payments and activity that seem to be less enthusiastically received by India’s regulators and lawmakers. As reported in this space in recent weeks, India is considering new regulations that would ban cryptocurrency in the country. Should that ban materialize, it would result in regulators penalizing anyone who holds, buys or mines bitcoin and other digital currency. At the same time, India is mulling its own digital issuance of what would be “official” crypto.

As for keeping track of it all: Earlier this year, the RBI announced that it is rolling out its Digital Payments Index, aimed at tracking the growth in cashless transactions done domestically. The bank said in a Jan. 1 release that the index, weighted across five parameters, will “capture the extent of digitization of payments across the country” on a semi-annual basis.

As reported, the parameters include payment enablers (25 percent weighting), infrastructure (15 percent supply side, including bank branches, ATMs and QR codes), 10 percent focus on demand-side factors, such as debit and credit cards; and payment performance (45 percent of the weighting), with digital payments volume and cash withdrawals among the sub-parameters.

As of the most recent reported reading, March 2020 and 2019 measurements work out to a respective 207.8 and 153.4. As is common with such composite index measurements, readings above 100 indicate growth.

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