Fin services: RBI caution welcome

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In its Financial Stability Report, earlier this month Reserve Bank of India has rightfully flagged concerns about allowing big tech firms to enter the expanding digital financial services space. Giant MNCs such as Google, Amazon, Facebook, Apple, and Microsoft are known as big tech firms that might inject a large dose of efficiency gains for the market and the consumers, many of whom are often taken for granted in this country despite considerable advances in the customer-centric focus of the companies operating in India in the past few decades.

However, RBI’s concerns go beyond the realms of customer focus and efficiency gains. It has flagged issues of cybersecurity, data privacy, and challenges for anti-trust issues. It has also mentioned three challenges. One, that they are involved in non-financial businesses with governance structures that are sometimes opaque hinting at possible misuse of data. Two, they can become dominant players in the sector, and three, they could overcome limits to scale in financial services provision by exploiting network effects.

The RBI’s position comes against the backdrop of friction between the Union government and American tech MNCs on a variety of issues such as e-commerce and data privacy. Incidentally, Amazon and Google are involved in basic payment services in the country. Facebook, Amazon, and Google have applied for licences to launch retail payment and settlement systems in India.

Despite the apparent validity of RBI’s concerns, it does not mean, Indian customers can be taken for granted. The government should encourage Indian companies to step into this fast-expanding sector to improve efficiency levels. Digital payment systems have the potential to be the preferred mode for the future as the nation moves towards a digitally-enabled future. It would also take forward the cause of financial inclusion and empower the common man to transact digitally raising cleanliness in financial transactions. It would also have revenue implications for a fiscally stressed government.