RBI To Set Up Department That Would Focus On Fintech: Exclusive
The rise of payments banks and pure-digital banks was among the reasons for the setting up the department, RBI Governor Das says.
The Reserve Bank of India would soon set up a department of fintech at a time when digital payments and the adoption of technology in the banking space has grown rapidly in the past few years.
“The RBI has decided to set up an exclusive department of fintech to focus on digital transactions and adoption of technology across all aspects of banking and non-banking services,” Governor Shaktikanta Das told BloombergQuint in an interview.
Over the last few years, RBI has created policies to encourage new forms of lending and payment institutions, such as mobile wallets, peer-to-peer lending and payment banks.
It has also been making regulatory changes to encourage digitisation of banking, credit and payment services, including revisions to fees for modes of digital payments, encouraging digital know-your-customer processes and create an ombudsman for digital transactions.
It also released the framework for a regulatory sandbox last year, encouraging startups and companies in the lending and payments industry innovate on new products and services.
On The Payments Industry
Asked about the intensifying competition in the payments industry, Das said: “We’re keeping track on what’s happening, so far as India is concerned it’s a new area so we will watch it and if required intervene at the appropriate time.”
From Jan. 1, the merchant discount rate—or the fee paid by merchants to banks—for transactions on Rupay debit cards and the Unified Payments Interface was slashed to zero by the Central government for companies with minimum turnover of Rs 50 crore.
The National Payments Corporation of India revised the MDR on all debit card transactions on point-of-sale devices, e-commerce platforms and through BharatQR, in September last year.
Impacted by this decision, the payments industry has appealed to the government to reverse its decision on the MDR but to no avail.
Asked about the viability of payment companies that have resorted to deep discounts and cashbacks to grab market share, Das said investors in payment companies and lenders that finance these entities should examine the viability of the business model.
“Something new is happening, we shouldn’t kill it from day one,” Das said. “We don’t want to come out (with) restrictions before the business has even taken off.”
Last month, the central bank published a draft framework to encourage an umbrella entity for retail payment systems prompting many to wonder if it wants to create a competitor to National Payments Corporation of India.
“There should not be a concentration risk in this area and also there should be competition. But again we should not have too many players that the business model becomes unviable. Basically, we want to generate competition which will bring in greater efficiency,” Das said.
Recently monetary authorities in Singapore and other countries have provided licenses to pure-digital banks, to which he said that this is precisely why the RBI is setting up an exclusive department of fintech to oversee these emerging areas in finance.
“Even now it can happen. It’s a question of the bank doing the KYC [processes] and doing the lending on the whole digitally. There is no bar from the RBI side if banks receive the applications online and give loans,” he said citing the example of the PSBLoansIn59Minutes platform.
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Das said the RBI is studying the Supreme Court’s order that set aside its April 2018 circular that barred banks from providing services to virtual currency exchanges and other platforms in India.
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“The Supreme Court has very clearly upheld the regulatory powers of the RBI, and it has struck the circular down on the grounds of proportionality. After we examine the order thoroughly we will decide on the way forward,” Das said.