There has been a multi-fold increase in digital payments over the last five years, according to Reserve Bank of India Governor Shaktikanta Das.

Speaking at the NITI Aayog’s FinTech Conclave 2019, Das said: “The Reserve Bank has, over the years, encouraged greater use of electronic payments so as to achieve a “less-cash” society...Retail electronic payments witnessed about nine-fold increase over the last five years.”

“The NEFT system handled 195-crore transactions valued at ₹172 lakh crore in 2017-2018, growing 4.9 times in terms of volume and 5.9 times in terms of value over the previous five years. Similarly, the number of transactions carried out through credit and debit cards in 2017-2018 was ₹141 crore and ₹ 334 crore, respectively. Prepaid payment instruments (PPIs) recorded a volume of about 346 crore transactions, valued at ₹1.4 lakh crore. Thus, the total card payments, in volume terms, stood at 52 per cent of the total retail payments during 2017-2018,” he added.

The central bank Governor also said that banks no longer have a monopoly over payment services.“Affordability, interoperability, customer awareness and protection have also been other focus areas. Banks have been the traditional gateway to payment services. However, with the fast pace of technological changes, this domain is no longer the monopoly of banks. Non-banking entities are cooperating as well as competing with banks, either as technology service providers to banks, or by directly providing retail electronic payment services.”

Data confidentiality

Commenting on the red flags for the fintech sector, Das said: “Systemic risks may arise from unsustainable credit growth, increased inter-connectedness, procyclicality, development of new activities beyond the supervisory framework, and financial risks manifested by lower profitability.

“Risks for fintech products may also arise from cross-border legal and regulatory issues. Data confidentiality and customer protection are major areas that also need to be addressed.”

Das said that the setting up of a regulatory sandbox (similar to a special economic zone) can help address associated risks, while keeping in mind the growth requirements of the sector.

“The Reserve Bank’s working group on fintech and digital banking suggested the introduction of a ‘regulatory sandbox/innovation hub’ within a well-defined space and duration to experiment with fintech solutions, where the consequences of failure can be contained and reasons for failure analysed.

“A ‘regulatory sandbox’ will benefit fintech companies by way of reduced time to launch innovative products at a lower cost. Going forward, the RBI will set up a regulatory sandbox, for which guidelines will be issued in the next two months,” said Das.