fintech sector: No sure way to regulate fintech sector, burden on operators: RBI CEO

Reserve Bank Executive Director Ajay Choudhary said on Thursday that there is no “safe way” to regulate fintech players and made it clear that it is such entities that have the responsibility to operate in a balanced manner. He said entities in the sector should have the right intention while coming out with offers and robust governance for an orderly growth of the sector.

“There is no sure way to regulate fintechs in a way that maximizes their positive impact while protecting the financial system and customers from the risks,” Choudhary said while speaking at the Global Fintech Fest here.

“If the goal is to protect and promote the interests of customers and the orderly development of the financial system, the actor for the major balancing act must be the fintech sector itself,” he said.

“I believe that in life or in business, balance comes from focusing on the right things. In my opinion, it cannot only come from regulation. Regulation can only be a supporting component while fintech itself has to drive the great balancing act,” he added.

Choudhary said he would prescribe the fintech players to focus on customer centricity and governance, and not see the latter as mere compliance.

The comments come at a time when the RBI has increased its focus on the fintech sector and the recently released guidelines for digital lending apps have led to a wave with some entities expressing concern.

Earlier, Choudhary said the key role of regulators is to strike a balance and added that sustainability is about balancing the needs of the future with the wants of today.

Acknowledging that there is a technology-based transformation around the world at the moment and that fintech’s contribution is phenomenal and satisfying, Choudhary said, “we also need to be aware of the risks and protect the financial system”.

“We are working to develop an appropriate framework to develop the fintech ecosystem to ensure innovation balanced with the stability of the financial system,” he said.

He said the fintech players must avoid losses to customers, refrain from imprudent lending, avoid discrimination or biased outcomes, minimize negative outcomes, financial integrity and manage the customer experience.

An entity must strive to be transparent, and creating and sharing key factual statements with clients will be a key aspect for clients going forward, he added.

He said a further regulatory goal of competition has arisen due to the participation of technology entities in the financial sector both as providers of technology services and financial services.

Choudhary also said that a pilot project to reduce the time taken for a Kisan Credit Card (KCC) loan taken by farmers to a few minutes from the current 3-4 weeks is thanks to the automation tools.

The pilot is being conducted in Tamil Nadu and Madhya Pradesh through automation and integration of data providers, he said.

“The credit disbursement from loan application to disbursement in KCC up to Rs 1.6 lakh can be done in a few minutes” compared to the 3-4 week processing time earlier, Choudhary said.

“We integrated quite simply and so we tried to connect it to all the data that was provided so that seamless movement of credit can be there,” he said.

Choudhary said that if successful, the pilot will reduce costs, turn back the times and improve the customer experience. All that is needed for such a project to work is the integration of “small pieces” in the bank, but he feared that the same has not happened for “many years”.

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