RBI’s biannual report on monetary stability, launched final week, flagged the potential massive impression of massive know-how corporations getting into the monetary sector in an enormous method. Know-how corporations, whose aggressive benefit comes from creating platforms for e-commerce or serps, have been part of the monetary ecosystem primarily by means of assist providers comparable to fee processors. Nonetheless, it’s the following stage when they may have an even bigger footprint in lending that poses challenges for incumbents like banks, and for regulators too.
A defining function of massive tech corporations is the economies of scope constructed into their enterprise fashions. As know-how platforms acquire customers, their ever-increasing knowledge path will increase the scope of the merchandise that platforms provide. Tech corporations are uniquely positioned in monetary providers. A financial institution has restricted info on a buyer. That influences not simply the merchandise that may be supplied but in addition the notion of dangers in providing loans. In distinction, know-how platforms have massive knowledge on customers, offering a bonus over conventional lenders. As RBI factors out this could additional the reason for monetary inclusion by lowering the data asymmetry between lenders and small debtors. China and different components of Asia, together with South Korea and Singapore, have seen vital penetration of know-how corporations in all elements of the monetary ecosystem.
However these potential advantages include regulatory challenges. Monetising knowledge presents distinctive privateness challenges. It’s subsequently important that massive tech corporations operate inside an information safety legislation. India wants one quickly. The overarching attribute of the monetary sector is its interconnectedness. When monetary exercise occurs in a regulatory gray zone, systemic dangers are hid. Most monetary crises originate from concealment of dangers. Given this context, RBI must be cautious concerning the situations beneath which know-how corporations broaden within the monetary ecosystem. The first requirement is that monetary intermediaries, bodily or digital, conform to a uniform regulatory commonplace. There are examples from East Asia the place digital banks are allowed to simply accept deposits however inside boundaries set by the regulator. To securely harness know-how’s advantages, a sensible regulatory framework is required.
This piece appeared as an editorial opinion within the print version of The Occasions of India.
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