Context:
In a recent report presented to Parliament, the Standing Committee on Communications and Information Technology raised concerns regarding the dominance of foreign-owned fintech apps in India’s digital payments ecosystem. Fintech is the use of digital platforms to provide financial services.
Relevance:
GS III: Indian Economy
Dimensions of the Article:
- Key Report Highlights on Digital Payments Regulation
- Understanding Fintech in India
- Fintech Landscape in India
Key Report Highlights on Digital Payments Regulation:
Regulation Emphasis:
- The committee underscores the need for effective regulation of digital payment apps due to the growing usage of digital platforms in India.
- Suggests that regulatory bodies like RBI and NPCI are better suited to control local apps than foreign ones operating across multiple jurisdictions.
Market Dominance of Foreign Fintech:
- Foreign-owned fintech companies, including PhonePe and Google Pay, hold substantial market shares in India.
- Market distribution: PhonePe (46.91%) > Google Pay (36.39%) > BHIM UPI (0.22%) (as of Oct-Nov 2023).
NPCI’s 30% Volume Cap:
- Aligns with NPCI’s 30% volume cap on UPI transactions for third-party apps like PhonePe and Amazon Pay.
- Cap implemented in November 2020 with a phased compliance period until December 2024.
- Aims to manage risks and maintain UPI ecosystem stability during expansion.
- Emphasizes the importance of consumer outreach by banks and non-banks for UPI growth.
Money Laundering Concerns:
- Expresses worries about fintech platforms being exploited for money laundering, citing instances like the Pyppl app administered by Chinese investment scammers.
- Despite increased transaction volumes, the fraud-to-sales (F2S) ratio remains around 0.0015% over the last five years.
- UPI fraud impact on users stands at 0.0189%.
- F2S ratio measures the percentage of fraudulent transactions compared to the monthly sales volume for a business.
Understanding Fintech in India:
Definition:
- Fintech, or financial technology, involves leveraging digital platforms, software, and services to offer or facilitate financial services like payments, lending, insurance, and wealth management.
Importance in India:
- Financial Inclusion: Fintech plays a crucial role in extending financial services to India’s vast unbanked and underbanked populations, particularly in rural areas.
- Efficiency Boost: Enhances the efficiency and convenience of financial transactions by reducing costs, time, and complexities associated with traditional methods.
- Economic Growth: Drives innovation and fosters economic growth by creating opportunities for entrepreneurs, startups, and consumers.
Segments and Trends:
- Major Segments: Payments, Digital Lending, InsurTech, WealthTech.
- Digital Payments: Facilitates online or mobile money transfers through platforms like UPI, wallets, cards, and QR codes.
- Digital Lending: Provides online loans or credit to individuals and businesses using alternative data and algorithms.
- Insurtech: Applies technology to enhance the distribution, delivery, and management of insurance products and services.
- Wealthtech: Offers online platforms for investment, wealth management, and financial advisory services.
Fintech Landscape in India:
- Market Size: India is one of the world’s fastest-growing fintech markets, with over 7,000 fintech startups.
- Market Growth: The Indian fintech industry was valued at USD 50 billion in 2021 and is projected to reach approximately USD 150 billion by 2025.
Regulatory Oversight:
- Reserve Bank of India (RBI):
- Regulates banks, NBFCs, PSPs, and credit bureaus.
- Responsible for overseeing India’s money market and foreign exchange market.
- Regulates fintech sectors like Digital Payments, Digital Lending, and Digital or neo-banks.
- Securities and Exchange Board of India (SEBI):
- Regulates securities markets and intermediaries such as stockbrokers and investment advisors.
- Jurisdiction includes services like stockbroking and investment advisory.
- Insurance Regulatory and Development Authority of India (IRDAI):
- Regulates insurers, corporate agents, web aggregators for insurance, and third-party agents for insurance.
- Ensures compliance and integrity in the insurance sector.
-Source: The Hindu
