In the rapidly changing world of monetary rules, the RBI is like a solid rock, keeping things steady, looking out for us consumers, and at the same time fighting financial criminals. However, people have recently argued whether the RBI’s approach was too harsh and whether it should be criticized. Recently, on 26 February 2024, the Finance Minister asked RBI to hold monthly meetings with startup and fintech companies to address their concerns. This step shows the government’s intention to create an open forum for the fintech industry and help them be one of the main contributors to the vision of ‘Viksit Bharat’. The recent conversation about regulators centers on whether they are viewed as burdensome bureaucracies. or as truly useful beings. Some believe that regulatory processes stifle innovation and economic prosperity, while others argue that they are essential to maintain transparency, responsible innovation and digital trust between industries. This raises a fundamental question: are regulators holding back progress, or are they essential protectors of customer interest and the financial health of our economic world?
I believe that those who do not learn from history are destined to repeat it. We have witnessed major financial collapses as a result of insufficient regulations and compliance failures “where too big to fail institutions” have failed, causing investors and customers to suffer enormous financial losses.
The crises faced by banks in foreign countries are mainly due to inadequate compliance frameworks. The collapse of even a single banking entity can lead to mistrust among customers and uncertainty among the investing community. The role of regulators then becomes much clearer, as we can see where regulators were active in monitoring the financial ecosystem compared to those who were simply reacting to situations. The regulator of India assumed the role of Bloodhound, because no major collapse occurred in India due to the initiative of the regulator, unlike in most countries where such financial collapses occur, and the approach is more similar to that of a watchdog. Active regulation is. a large part of blocking large-scale fraud, as can be seen in the difference between countries with strict authentication requirements and places with less strict standards. In 2022, the US Federal Trade Commission reported that consumers lost $8.8 billion due to fraud. Credit cards were the main payment method used in 2.3 million cases. One significant problem is the absence of a two-factor authentication mechanism in the United States, which makes it easy for fraudsters to execute the fraud through identity theft and fraud to occur. The RBI’s emphasis on two-factor authentication has increased security measures and reduced chances of digital frauds while improving user convenience. The Indian regulator has set strict rules to prevent fraud and build digital trust in the financial system.
The regulators’ continuous support to innovate has led to solutions that will help India’s banking ecosystem thrive and improve financial inclusion. Case in point is the growing popularity of branchless banking, which has seen unprecedented growth among users due to the implementation of Video KYC. The Video KYC seamlessly integrates into digital banking platforms and provides a foolproof customer experience while being cost effective as companies spent Rs. 100 on physical KYC as compared to video KYC which only costs around Rs. 15-30. One of the largest banking institutes indicated in media coverage that approximately 65% of new accounts are now opened through digital platforms. Moreover, the platform facilitates more than 500,000 remittance transactions, underscoring its popularity and efficiency in enabling financial transactions.
The technology adoption and innovation mentioned above shows the importance of having a careful regulator to keep the business environment stable. By preventing financial institutions from collapsing, regulators protect consumers and investors, making them feel confident in the financial ecosystem. This confidence allows consumers to deposit money without worry, knowing that their investments are safe and strengthens entrepreneurs’ confidence in responsible innovation.
Regulators must keep up with new technologies to adapt quickly to changing markets. Using innovations like Video KYC helps reduce costs and improve user experience, benefiting both consumers and financial institutions. Embracing new technologies, like the all India stack, boosts efficiency and usability, making the financial system more competitive.
This shows that a good regulator supports and protects the financial sector instead of hindering it. So why is the headline about the RBI right and wrong?
Recent events have highlighted the importance of better communication between fintech companies and regulators. Media coverage of certain incidents has not accurately portrayed past regulatory actions, leading to misunderstandings. In addition, the full context of the companies involved was not clear, causing unnecessary concerns among investors.
Fintech investors are feeling uncertain due to these recent events. However, it is positive that regulators are acknowledging this communication gap and are taking steps to fix it. Publishing FAQs, documents and guidelines demonstrates their commitment to transparency, benefiting consumers and business owners alike.
In short, the regulatory authority must help businesses quickly fix compliance issues to restore trust and set a standard for future interactions. By encouraging people to work together, the Indian regulatory body will be able to lead the way in new ideas in the fintech sector. The RBI’s efforts to adapt and improve show that it is both a guardian of financial stability and an enabler of innovation, although it has had certain challenges recently.
Ultimately, finding the right balance between being cautious and being progressive is important for effective regulation!
This article is written by Ankit Ratan, CEO & Co-Founder, Signzy. All opinions expressed are personal.
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