Reserve Bank of India (RBI) Governor Shaktikanta Das said on Wednesday that financial technology (fintech) companies should create an “effective self-regulatory structure” themselves, emphasising the need to adopt “industry best practices”. The Indian fintech industry is projected to generate around $200 billion in revenue by 2030, Das said.
“They (fintech firms) need to evolve industry best practices and privacy and data protection norms in sync with the laws of the land, set standards to avoid mis-selling, and promote ethical business practices,” he said while speaking at the Global Fintech Fest in Mumbai.
“I would like to use this opportunity to urge and encourage fintechs to establish a self-regulatory organisation (SRO) themselves,” he said, adding that he expected that such an organisation would be set up by the next edition of the event.
He asked fintech firms not to get carried away by the revenue and valuation considerations. “In the dynamic and ever-evolving world of business, it is easy to get caught up in the pursuit of revenue and bottom lines, and the relentless drive for valuations,” he said, stressing that the fintech ecosystem needed to be stable and future-ready.
“Sometimes, it is forgotten that the success of any enterprise is intricately tied to the satisfaction and trust of its customers. This is the first critical issue I wish to highlight,” he said.
He said the mushrooming of illegal loan apps, many of which had their origin in foreign jurisdictions, had led to serious concerns about the breach of data privacy, unethical business conduct, levying of exorbitant interest rates, and harsh recovery practices.
“This highlights the urgent need to ensure that innovations are accompanied by prudential safeguards and responsible conduct. It is also imperative that regulated entities operate within the perimeter set by the licensing conditions and only undertake activities which are permitted under the regulations,” he added.
Another critical aspect for fintech was governance, he said. According to Das, by providing clear governance structures, fintechs can demonstrate their commitment to transparency, accountability, and responsible decision-making.
“Regulators play a critical role in addressing arbitrage, ensuring compliance with existing laws, and adapting regulations to technological advancements. Industry associations can facilitate development of best practices. The most critical role, however, has to be played by fintechs themselves. They must proactively adopt high standards of governance,” he said.
He further said regulation should not be seen as impediments by the finetechs.
On the issue of central bank digital currency (CBDC), Das, while reiterating the RBI’s target of 1 million CBDC transactions per day by December 2023, said around 1.46 million users and 0.31 million merchants were currently part of the pilot as on August 31.
Last month, the RBI announced the launch of a digital public tech platform to enable frictionless credit, conceptualised and developed in association with the Reserve Bank Innovation Hub.
Das said the platform would be hived off to a private company on the lines of National Payments Corporation of India. “Broadly the idea is eventually how to make it an open architecture. It’ll be (an) open platform. We will gradually withdraw and hand it over to a private company like the RBI did in the case of NPCI. And it’ll be an open architecture on which any bank or NBFC can onboard and take part and continue with their lending activities,” he said.