The Reserve Bank of India is doing a lot to promote FinTech in its country. Here’s how.
India’s FinTech industry has been booming over the last several years, with the highest adoption rate in the world, at 87% in 2020. During the same year, the Indian FinTech market was valued at INR 2.3 trillion (approximately US$30 billion), and estimates predict a 24.56% compound annual growth rate (CAGR) between 2021 and 2026.
Increased use of smartphones, greater access to the internet, relaxed taxation, copious funding by the government, demonetization and promotion of digital payments have all propelled India’s FinTech growth. As the rapid surge in online transactions and digital banking continues, the Reserve Bank of India (RBI), India’s central bank, has taken steps to ensure the safety of digital monetary systems while promoting FinTech innovation in the country.
India’s FinTech history
Most FinTech firms were founded as unregulated entities at the beginning of India’s FinTech revolution, without guidelines or directives that would ensure the safety of consumers. To better regulate the industry, the RBI set up a separate internal FinTech unit under the Department of Regulation in 2018, but it wasn’t very efficient.
So, in 2019, the RBI composed a framework to provide structure for regulators to better engage with the FinTech ecosystem and construct responsive regulation for FinTech firms. At this point, the RBI mainly aimed to increase innovation and competition in order to bring down the cost of financial services. They wanted to boost financial inclusion and equitability between socioeconomic classes.
The new FinTech department in RBI
In January 2022, an internal RBI circular announced the creation of a new FinTech department under the Department for Payment and Settlement Systems (DPPS). The new department is responsible for matters related to the FinTech industry’s inter-regulation and international coordination.
This means the department will cover FinTech issues related to other countries or sectors. Additionally, the agency is tasked with addressing matters related to innovative FinTech when they have greater implications for overall financial markets. Although it might not be the first item on its agenda, the department will also be overseeing cryptocurrency and other challenges surrounding crypto.
Recent changes by RBI to boost the economy with FinTech
Earlier in January, the RBI allowed offline digital payments up to INR200 (US$2.65) per transaction, which was a move attempted to boost such payments in semi-urban or rural areas. In this mode, payments can be carried out face-to-face using any channel or instrument, including cards, wallets and mobile devices, without requiring any authentication. Offline transactions are expected to drive digital transactions in areas with weak internet, which, as mentioned, correspond to rural/semi-urban areas.
Later again, on March 24, the RBI inaugurated a new innovation hub, aiming to boost innovation in the financial sector. The new Reserve Bank Innovation Hub (RBIH) is an RBI-owned subsidiary, and according to RBI governor Shaktikanta Das, the hub will mentor selected FinTech start-up firms in an attempt to speed up the innovative process.
What the future holds for FinTech in India
How critical a role the innovation hub will play in India’s FinTech industry can only be discerned with time. Yet, it is clear that the RBI aims to grow the industry for India to compete against other superpowers on a global scale. The relatively broad oversight that the RBI and RBIH have on the industry makes it more likely that Indian FinTech companies will grow tremendously in the next several decades. It is exciting to see what the future holds for one of the most rapidly growing emerging markets in the world, especially in such a novel industry.
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