The banking and market regulators must be complimented for their somewhat coordinated approaches on issues like innovation sandboxes for market development, ESG-climate risk consultation papers and establishing online dispute resolution mechanism under respective jurisdictions. Yet, inter-sector collaboration across the regulatory divide requires a concerted push.

The intent of centralised know-your-customer (KYC) powered by E-KYC, a key pillar of India Stack, is to enable easy digital identity verification of individual customers across the asset management industry, banks, insurers, stock brokers and pension funds. Still, some banks demand physical KYC documents routinely that defeats the purpose of such tech-enabled multi-entity coopetition.

Insurers and banks teaming up under the bancassurance model has worked well though it is crucial that cost savings ensue to consumers too. Health insurance premiums, for instance, continue to remain elevated although premia can be lowered via innovative policies with partners utilising predictive data analytics. What stops insurers from mass designing low-premium, feature-rich medi-claim insurance for individuals part of large groups, like account-holders of banks or income-tax payers, who satisfy a predetermined data criterion.

UPI interface

Bank-fintech association achieved phenomenal success through real time transaction settlement solutions enabled by unified payments interface (UPI) and now UPI credit allows people to use pre-approved bank lines. Few fintechs have begun figuring out creditworthiness of unbanked clientele though non-traditional data besides using rapidly evolving artificial intelligence technologies to predict lower default delinquencies. Two scalable digital collaboration areas nonetheless beckon.

First, if banks collaborate with digital micro lenders on farm client sourcing, it can better meet the lumpy but seasonal agri-loan rural demand and advance financial inclusion efforts aimed vide RBI’s public tech platform for frictionless credit. Similarly, by leveraging customer digital footprint via account aggregator framework, fintechs can help banks trace numerous cashflow positive, new-to-credit micro enterprises handicapped by insufficient GST payment data and facilitate shorter term unsecured funding under the open credit enablement network.

Two, scaling up investment partnership and building sustainable fee-sharing models for the many Software-as-a-Service(SaaS) offerings by Indian fintechs hold immense value for the BFSI industry globally over the next decade. To nurture future SaaS champions, regulators can help change the current competitor mindset of regulated entities to a more collaborative attitude.

Banking houses too compete earnestly for deposits with each other given that significant monies switched from banks to better yielding equity markets and mutual funds post the pandemic. No super digital investing technologies triggered this subtle shift but disruptive potential of technology is not afar. Retail participation in fixed income products through digital mediums is gradually inching up and India’s inclusion in global bond indices augurs well too, though we are nowhere near advanced economy benchmarks where bond market’s depth dwarfs the size of share bazaar.

Regulators could play a more proactive role for fostering cooperation amongst different financial entities, by prodding their constituents to embrace inter-sectoral digital collaboration besides introducing transformative risk-based granular regulations.

The writer is a certified treasury manager and veteran corporate banker

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