In this article, Rajeev Kumar pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses regulation of Financial Technologies in India.

Financial Technology

Financial technology is a disruptive technology, which made the banking and financial service more accessible, faster, efficient, time effective and easily perform and compete with the growing demand.

Financial Technology has made the revolution in 21^st century in banking and financial sector in the global market and totally wiping out the traditional system; it is new era of banking institution.

Credit Card, Debit card B2B payment, NEFT etc are example of financial technology. It not only made the peoples life easy but also saves the time and transaction of money from one country to another country takes a few of second is the example of implication of Financial Technology. ATM and credit card really change the concept of traditional banking services and quickly overtake the manual old banking service system.

Mobile Banking in India

Due to rapid growth of mobile users and wide coverage of mobile network in India, mobile has extended the user-friendly service in mobile banking as recognized by RBI. As per the press release of RBI, RBI issued the first circular in 8th Oct 2008 for Mobile banking transactions in India – Operative Guidelines for Banks. Time to time RBI further issued the circulars containing guidelines to enhance the modality of transaction of money through mobile banking. Statutory Guidelines issued by Reserve Bank of India is under section 18 of Payment & Settlement Systems Act, 2007, (ACT 51 of 2007).

RBI has issued the regulatory and supervisory issue in mobile banking as mentioned below:-

• Banks which are physically present in India and having the valid license and core banking solutions are allowed to provide the mobile banking services.
• Services are restricted to domestic in Indian Rupee and customer who is holding the banks/debit/credit cards issued as per the extant Reserve Bank of India guidelines and such services are prohibited to cross country transfer inward and outward.
• Banks may also use the services of Business Correspondent appointed in compliance with RBI guidelines, for extending this facility to their customers.
• The guidelines issued by the Reserve Bank on ‘Risks and Controls in Computers and Telecommunications’ vide circular DBS.CO.ITC.BC.10/31.09.001/97-98 dated 4th February 1998 will apply mutatis mutandis to Mobile Banking.
• The guidelines issued by Reserve Bank on “Know Your Customer (KYC)”, “Anti Money Laundering (AML)” and “Combating the Financing of Terrorism (CFT)” from time to time would be applicable to mobile based banking services also.
• Banks shall file Suspicious Transaction Report (STR) to Financial Intelligence Unit – India (FIU-IND) for mobile banking transactions as in the case of normal banking transactions.

RBI further regulate the wallet system, which are categories in three category Closed wallets, Semi-closed wallets and open wallets.

• Under the closed wallet system, which is issued by a company, a customer can do purchasing of goods from the company. Jabong, Flipkart, Amazaon etc are the examples of the closed wallet system. They don’t require any type of permission from RBI.
• Under the Semi-closed wallets, itcan be used to purchase goods and services at clearly identified merchant locations which have a specific contract with the issuer to accept the payment instrument. NBFCs can issue semi-closed wallets which need to be authorized by the RBI. Paytm and Mobikwik are the example of this.
• Under the Open wallets, a customer can do purchasing of goods and services, including financial services at any card accepting merchant terminal points. It can be also used for withdrawal of cash money at ATM. Prior approval is to be taken by Banks for issuing the open wallets.

The RBI has made slab system of pre-paid payment instruments into three categories

1. A customer can transact the amount up to Rs. 10,000 by providing the minimum details. Total outstanding transaction amount at any time and total reloads value per month should not exceed Rs 10,000. These instruments can only be issued in electronic form
2. From Rs. 10,001 to Rs. 50,000 – Official valid documents is required as per the rules 2(d) of the PML Rules, 2005. However It is non-reloadable in nature and
3. From Rs. 50,000 to Rs. 1,00,000-Full KYC is needed and It is reloadable in nature. Total cumulative amount should not exceed Rs. 1,00,000 at any time.

Online Payments in India

The National Payments Corporation of India (NPCI) was set up in April 2009 with the guidance of Reserve Bank of India and Indian Bank Association and it was incorporated as a section 25 company act 1956(now section 8 of company act 2013) and is objective to operate for the benefits of all the members of banks and their customers. It brought the all retails payments in a platform across the India.  Board for regulations of and supervision of payments and settlement systems (BPSS), which set up by RBI had given in principle approval to issue authorization to NPCI for operating various retails payments system in the country and granted certificate of authorization for national financial switch (NFS). ATM network is the boon of National Payments Corporation of India which started plays role from October 18, 2009. National Payments Corporation of India acting as an umbrella organization for all

ATM network is the boon of National Payments Corporation of India which started plays role from October 18, 2009. National Payments Corporation of India acting as an umbrella organization for all retails payments. As per the report of NPCI, during the last five years, organization has grown multi times from 2 million a day to 20 million transactions now. From as single service of switching of inter bank ATM TRANSACTIONS, the range of services has grown in cheque clearing, immediate payments service(24x7x365), automated clearing house electronic benefits and domestic card Ru pay to provide an alternative to international card scheme. Today NPCI not only brought the transparency but also create the satisfaction and easy mode of transaction of money to the customer.

The aims of innovation and technology of RBI is to deliver the products and services to customer though the available channel partners at low cost, secure and faster way.

Banking and Financial sector are one of sector of business where heavy transaction and operation taking place. Fin Tech application not only makes greater and efficient transaction over the traditional system but also make the convenient to the customer. Even a large volume can be transferred by small one. A customer can make number of small transaction in big volumes in lieu of single large transaction. It is self-learning technology and no training is required; a customer can themselves analyze the risk of transaction.

Globally Financial Technology has increased drastically and given the fruitful result.

As per last year study report of consulting company Accenture – In the first quarter of 2016, Global investment in financial technology (fintech) ventures was reached $5.3 billion that is a 67 percent growth over the same period last year.

Comparing with global markets, India is still far behind the developed country like Canada, USA etc in implementing the financial technology, however, it is seen that in Jan-March 2017 quarter, pay tm became the 3^rd largest online transaction.

No guidelines and regulations have been set up the government of India. However, RBI has issued some circulars time to time in this regards.  As per the press release of RBI dated 14^th July 2016, RBI sets up Inter-regulatory Working Group on Fin Tech and Digital Banking to review and appropriately reorient the regulatory framework and respond to the dynamics of the rapidly evolving Fin Tech scenario.

The terms of reference of the Working Group will be:

1. To undertake a scoping exercise to gain a general understanding of the major Fin Tech innovations / developments, counterparties / entities, technology platforms involved and how markets and the financial sector in particular, are adopting new delivery channels, products and technologies.
2. To assess opportunities and risks arising for the financial system from digitisation and use of financial technology, and how these can be utilised for optimising financial product innovation and delivery to the benefit of users / customers and other stakeholders.
3. To assess the implications and challenges for the various financial sector functions such as intermediation, clearing, payments being taken up by non-financial entities.
4. To examine cross country practices in the matter, to study models of successful regulatory responses to disruption across the globe.
5. To chalk out appropriate regulatory response with a view to re-aligning / re-orienting regulatory guidelines and statutory provisions for enhancing Fin Tech / digital banking associated opportunities while simultaneously managing the evolving challenges and risk dimensions.
6. Any other matter relevant to the above issues.

As per KPMG Pulse of Fintech Report, In India, payments and lending remained priorities with an increased interest in Artificial Intelligence (AI). The country witnessed a spike in Venture Capital invested in the first quarter in 2017, with Paytm attracting Asia’s largest funding round of $200 million.

Neha Punater, Head of Fintech, KPMG in India said “While payments and lending continue to drive most fintech investment in India, other areas are quickly gaining momentum. Artificial Intelligence (AI) and blockchain are receiving a lot of attention, while insurtech is poised to come into its own over the next few quarters. The government expected to release regulations for fintech, particularly related to peer-to-peer lending, which could lead to additional activity.”

Financial Technology in India in one way, will provide the opportunity and another way will face challenges while regulating it. Indian government is required to take concrete steps while framing the regulations. Hence while architecting the regulations India need to involve stake holders, Financial Institution, regulatory body of developed country etc apart from the RBI.

Some of the regulatory challenges are needed to be review while framing the regulations of fin tech in India

• Peer to Peer loans-lending (P2P) – It is the new of method of debt financing money, which allows to people to borrow and lend money without the financial institution. It will be boon for MSME and individuals who find difficult to access the finance, dependent on friend and relative. Country like India where getting loan is one of the difficult tasks from bank only a few percentages of people is having the institutional credit.P2P lending connects borrowers to investors faster. However, country like India where Indian regulations allow to intervene judiciary where Under Section 3 of the act, courts are empowered to intervene in cases where they find the interest of a loan to be excessive or the terms of the loan to be unfair.
• Apart from the above some of the major challenges are data and consumer protection issues, value based cost reduction, risk of exacerbating financial volatility and cybercrime.