RBI Spins Off Separate Fintech Department To Facilitate Innovation Beyond ‘Payments’

The fintech sector has been at the top receiving funding from marquee investors. To facilitate the sector via innovations and offer an undivided focus, the Reserve Bank of India (RBI) has set up a fintech department now.

In 2018, a fintech division was first set up under the regulation department. Later, it was moved to the department of payments and settlements system (DPSS) in 2020 as most fintech activities, as well as entities, were in the area of ‘payments’. 

Since the landscape of fintech is highly-evolving, the new department, a spin-off from DPSS, will overlook regulations, identify opportunities and challenges, provide a research framework, and aid RBI with policy formation.

According to an internal circular, as seen by Inc42, Subrata Das, chief GM-in charge at RBI stated, “All matters related to the facilitation of constructive innovations and incubations in the fintech sector, which may have wider implications for the financial sector, markets and falling under the purview of the Bank, will be dealt with the fintech department. All matters related to inter-regulatory coordination and internal coordination on fintech shall also be dealt with by the Department.”

The fintech department came into effect on January 5, 2022, however, it is yet to be updated in the list of RBI’s 30+ departments’ directory.

Reportedly, the department is likely to be headed by one of the RBI’s executive directors Ajay Kumar Choudhary. Choudhary, whose experience in supervision, regulation, currency management, payments and settlements, among other areas at the RBI spans over three decades. He was recently promoted to the current role; he was previously the chief GM-in-charge with the department of supervision.

A Delhi University alum, Choudhary has previously been with NABARD and led the Bank of Mauritius for a small stint. 

The Need For A Fintech Department

The total funding in India’s fintech ecosystem in the country (the highest among all sectors), stood at $7.97 Bn across 280 deals, according to Inc42 data, a 2x year-on-year growth. From 2014 to 2021, 1050+ deals worth $20 Bn+ were recorded by fintech startups in the country. 

Apart from payments’ startups, lending and investment tech were the top sub-sectors. Yet, with only 30-40 Mn of the 795+ Mn internet users in India with access to quality fintech products, there lies a huge opportunity for the startups. 

Simultaneously, the $31 Bn worth fintech sector, from the total financial market worth $500 Bn in 2021, has showcased a vital need for regulations and policies.

Among other policies/activities taking centre stage at RBI, the prominent ones include:

• Regulating payment aggregators (PA) and ecommerce merchants, restricting them from storing card data, via tokenisation system
• Piloting a basic central bank digital currency (CBDC) before implementing a more complex form to regulate cryptocurrencies
• Introducing the UPI system for feature phone users
• Creating legislation and framework for digital lending to protect consumers from fraud 
• Setting up a nodal agency and a self-regulatory organisation for the verification and regulation of digital lending apps
• Making digital payments ecosystem a level playing field for Indian as well as foreign players via TPAP caps

The setting up of a separate fintech department came shortly after the RBI issued a framework to enable small value digital payments in offline mode. Users will now be able to make small transactions (within INR 200) offline (without the use of internet or telecom connectivity) using channels or instruments such as cards, wallets and mobile devices.