Realising india’s fintech potential regulation and tech must evolve

Realising india’s fintech potential regulation and tech must evolve

The inaugural ET Startup Awards Dialogues was on fintech, with practitioners from the field sharing their opinions on the potential, the threats and what needs to be done. What stood out in the deliberations by representatives of Paytm, PhonePe, ZestMoney and RBL Bank was a view of fintech complementing, rather than competing with, mainline banking. It is not clear that this is how fintech would, or even should, evolve over time. Indian banking notoriously underserves the poor and the rural. While the Jan Dhan scheme has forced banks to open accounts for the rural poor, these remain, except for occasional benefit transfers from the government, sadly underutilised. Fintech is capable of providing payment and credit services to the geographically dispersed masses with small-ticket needs far more effectively than banks.

The scrapping of the merchant discount rate (MDR) rids payment service operators of a vital source of revenue, and slams the door shut on new entrants — the dialogue participants were unanimous in asserting this. The government and RBI would do well to rethink this myopic restriction. The inadequate capacity of the banks’ technological infrastructure to cope with the explosive growth in volumes makes headlines but is relatively easy to fix. But guarding against cybercriminals is far more complex, calling for, as it does, both technological safeguards of ever-rising sophistication but also educating and training customers to guard against practices that harm them. More challenging still would be making available the data that fintech can mine to assess credit requirements and viability while regulation makes sure that such data access does not harm the data subjects. Ant Group’s lending arm reportedly processes 3,000 data points while taking a credit decision. Indian fintech is far removed from such capability.

The discussion centred on credit and payments. However, fintech has the potential to transform other financial services: insurance, investment, remittances. Regulation must help, not hinder.