Trust as car protection for fintech
Srinath Sridharan
From the Indian consumer’s perspective, financial services had largely been a ‘status-quoist’ space until the digital stack started disrupting it. It had been dominated by the sheer force of physical brand presence and has borne the burden of being a product seller rather than a solution provider. With enhanced digital capabilities, the smarter incumbents began to combine data science and capabilities to address consumer convenience to offer better solutions. It would not be wrong to assume that the fintech companies (lending, insurance, capital and wealth management included) have put the traditional players to the test in terms of consumer engagement and solution delivery.
With the convergence of emerging technology and finance, the onus is on the segment regulators to build their supervisory moats to maintain fiscal resilience. This will require the regulators to build up their own technological capabilities, including real-time market surveillance and entity oversight expertise.
There will be many cases in the short term where regulators and decision makers have to make ontological decisions in the face of perceived risks and uncertainty factors. What would constitute the variables that could provide a strong basis for their decisions? Would greater legal authority be the only influence? This is where the construct of stakeholder trust comes in to enable even a contingent decision with available data.
Both in the physical distribution of financial services as well as in those that are mediated digitally, there has been significant mis-selling of financial products across the three regulatory verticals. As with any other industry, the fintech space has seen nefarious ones masquerading as genuine. No unlicensed participants should be allowed to participate, as this poses a major risk to the industry and harms all stakeholders. There should be zero tolerance for all bullies – including those who prey on the reputation of the financial sector or those who prey on consumers. The ability to remove them quickly and allow only the regulated devices to function is the effective trust our regulators and policy makers need to build with the consumer.
Within the regulated entities, any shortfall in expected behavior and any lowering of standards vis-à-vis other stakeholders should be dealt with by the segment regulator, because they have detailed information about the entity in question and the issues at hand, and most importantly, they have the subject matter expertise. Policymakers must innovate to expand the ability of regulated entities to prove their validity and regulatory authenticity without being penalized, inadvertently or otherwise, by any part of the executive branch. This can avoid a scenario where regulated entities become collateral damage in the event of data where the non-regulatory practitioner is deficient.
Any action that veers into potential overreach, usurping the usual regulatory prerogatives, could cause damage to the larger consumer and investor sentiments. For regulated entities, it is important to protect their reputation, as the financial business can easily be destroyed by a crisis of confidence. This is where the application of section 69(A) of the Information Technology Act 2000 to business compliance issues in financial regulation also needs to be developed with more experience, as we recently saw. Here we also need to scale the ease of doing business by providing regulatory parenting for the regulated entities.
The concept of financial transactions using the digital medium has been made possible only because of the affordable, high impact Indian digital framework that encourages innovation and entrepreneurship. Given more keyboard-savvy than literate Indians, and the availability of affordable mobile and data services, digital finance is available to many who are vulnerable to mis-selling. This is where the challenges of low financial literacy must be dealt with, on a war footing, by the regulators and industry participants. For a nation of digital users, financial literacy must go directly to individual consumers’ keyboards and screens, and in a language and even medium (text, audio, video, comics) that they find accessible and appealing—and not just official-sounding. old-fashioned printed advertisements and posters in run-down corners of branches of financial institutions. This is where the National Center for Financial Education should adopt proactive consumer outreach initiatives.
As we encourage more consumers to go digital, we must also strengthen their faith in complaint handling. Financial consumers can be reminded of this by having a regulator-mandated barcode in every communication they receive from the fintech, which can take them directly to the complaint landing page, automatically populate the necessary procedural data and enable the customer to simply fill in the actual complaint details .
It is crucial for general market stability, consumer safety and security that the financial sector is licensed, regulated and monitored. Global investors’ confidence in the larger Indian startup and BFSI story is built not only with corporate governance and market stability, but also by meeting expectations of a consistent regulatory and strong supervisory framework, along with a development-focused policy regime. India is a pioneer in the digital ecosystem and has the responsibility to spin it carefully to address financial inclusion and democratize financial access. Trust between all stakeholders is non-negotiable and must be based on consensus, not vote or veto. After all, trust will be affected by the performance of each stakeholder with each action or inaction.
(Political scientist and business consultant, views are personal)
