Reserve Bank of India Governor Shaktikanta Das, on Tuesday, flagged concentration risks and potential spillovers arising from the enormous amount of consumer data being generated and leveraged by a few entities (the so-called BigTechs) by virtue of their huge customer base.

Das noted that a wave of changes brought in by fintechs 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 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,” said the Governor in his address at the Global Fintech Festival.

Digital lending apps

Flagging certain material concerns regarding the unbridled mushrooming of digital lending apps, Das emphasised that the need of the hour is to ensure 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, he added.

“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, regulatory guidance was provided to our Regulated Entities,” said Das. The Governor noted that while innovations are very much welcome, they must be responsible and enhance the efficiency and resiliency of the financial system while benefitting the consumers.

Transparent governance

He observed 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 fintech entities themselves.

Das underscored that 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. The Governor said as the RBI continues 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, he added.

“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,” said Das.

The Governor noted that the RBI’s focus has always been on encouraging innovation by providing an enabling environment. Simultaneously, as the guardian of financial stability, the RBI also remains watchful of any undue risk build up and responds to them.

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