The financial or banking sector faces emerging risks from its reliance on 2-3 large companies for technology services, according to Axis Bank MD and CEO Amitabh Chaudhry.

“Companies which are providing software, platforms and cloud systems to the banking or financial system are trickling down to a few,” Chaudhry said at an event by Excellence Enablers on Thursday.

“The Indian banking system relies on software of 2-3 companies. So there is an emerging risk if those companies stop investing in the software and ensuring that those platforms are adaptable to this new world,” he said.

“Now the pressure is coming on the banking system to continue to invest in technology to take care of the macro requirements, and we have to bear all the cost,” he added.

Last month, an RBI paper highlighted that large non-financial technology firms, referred to as ‘bigtechs’, pose challenges to financial stability owing to their technological advantages, large user base, widespread use by financial institutions, and network effects.

RBI view

The RBI paper said that owing to their size and clientele, ‘big techs’ pose serious barriers in creating a level playing field to promote innovation in financial technology and have the financial muscle to withstand competition.

Further, due to their adoption as third-party service providers, they have become the underlying platform on which a host of services are offered.

“This uniquely positions the bigtechs to easily acquire cross-functional databases which can be exploited for generating innovative product offerings, making them dominant players in the market,” the paper had said, adding that going forward, regulations will need to be mindful of the new inter-linkages that bigtechs might create with the existing financial institutions.

In June, RBI had also issued a draft paper specifying norms pertaining to the usage of cloud computing services and outsourcing of the Security Operations Center (SOC). It had then proposed that entities be required to set up a risk management framework for the outsourcing of IT and IT-enabled services, and the risks associated with it.

Innovation to outpace regulations

Given that fintechs are here to stay, innovation will invariably be ahead of regulations, Chaudhry said, adding that due to this regulations will continue to increase hereon to push more oversight over newer types of businesses.

With regulations and supervision expected to rise many-fold from a technology perspective, the onus on entities will also increase and they will need to invest more in technology to protect against issues such as cyber security, which is already being seen.

Highlighting the crucial role of fintech in promoting innovation and customer-centric solutions, he said that India is a unique case because the government and regulators are promoting and supporting technological and fintech innovation.

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