 "T Rabi Sankar")
T Rabi Sankar, deputy governor, Reserve Bank of India (RBI)
Fintech companies, unlike traditional financial institutions such as banks, non-banking financial companies (NBFCs), and mutual funds, have yet to establish the trust that stems from being licensed, regulated, and having a proven track record, said T Rabi Sankar, deputy governor of the Reserve Bank of India (RBI), on Thursday.
Speaking at the Global Fintech Fest 2024, Sankar noted that fintech firms are largely not licensed by a regulator, making it even more crucial for them to prove they can operate responsibly and earn public trust.
“Compared to normal (standard) financial sector entities, fintechs haven’t yet created a track record that enables an evaluation of their trustworthiness,” Sankar said. “This is something that is built over time, requiring continuous and consistent behaviour that evokes trust.”
He further said that self-regulatory organisations (SROs) within the industry must take the lead in evoking trust.
Earlier in the week, the RBI granted recognition to the Fintech Association for Consumer Empowerment (FACE) as an SRO within the fintech sector. The banking regulator received three applications for fintech SROs. While one application was returned with provisions for resubmission after specific requirements are met, the third remains under review.
Sankar highlighted that an SRO must work diligently and consistently to foster a competitive environment. Competition, he argued, is crucial for ensuring that markets operate efficiently and effectively. One key indicator of market integrity is price efficiency, and that the fintech industry has two significant advantages — lower costs and faster delivery, he said.
This cost efficiency should be driven by technology, not merely by an ability to withstand losses, the RBI deputy governor remarked. He acknowledged that new technology often brings business strategies that differ significantly from those of traditional enterprises.
Moreover, Sankar asked SROs to steer the industry towards strategies that promote competition rather than suppress it, as stifling competition ultimately hinders innovation. He noted that SROs could similarly help eliminate inefficiencies in existing financial markets through the use of technology.
SROs should also prioritise delivering value to consumers, Sankar said. “The basic reason for fintechs playing the role of a positive disruptive force has always been this: They deliver value to the customer. At the same time, many practices have emerged, for example dark patterns that the fintech industry has to consciously move away from. An SRO is best placed to identify such practices early and sensitise the industry.”
Sankar also highlighted the need for fintech firms to be mindful of social and macroeconomic priorities, not just business interests. “It is only an SRO that can instil such a culture,” he said, advocating a business approach rooted in technology, integrity, and customer fairness.
SROs, he added, should facilitate honest communication between regulators and the industry, with regulatory bodies relying on SRO assessments for effective feedback.
“We do this regularly in the financial sector,” Sankar said. “SROs in the fintech sector will need to take on this role. Sometimes, regulatory actions require fintech firms to adjust their processes, especially when regulations focus on customer (protection) or risk containment.”
First Published: Aug 29 2024 | 7:23 PM IST
