India’s Fintech Revolution: Balancing Innovation And Governance

Over the last few years, Indian fintech businesses have emerged as the pioneers of change. The industry has redefined the way financial transactions are conducted, investments are managed, and products are accessed. 

We are in the throes of a transformation due to the introduction of cutting-edge technologies like artificial intelligence, blockchain, and data analytics. As per the estimates, India’s fintech industry could be valued at $1 Tn, with revenues of over $200 Bn by 2030.

Alongside this story of innovation comes the need for good governance. According to the 2023 Global Innovation Report by FIS, 84% of Indian organisations are preparing for major impacts from Environmental, Social, and Governance (ESG) trends in their operations. 

Banks are making conscious efforts to achieve net-zero emissions and expand ESG-linked loans. Fintech businesses have begun riding this trend too. Fintech businesses that influence customer behaviour towards sustainable choices deserve a mention for their notable innovations. They are actively assisting in lowering carbon footprints by supporting eco-friendly brands, businesses, and practices. 

For instance, Doconomy developed the DO Black credit card, which records the carbon emissions of each purchase made with the card and establishes a cap on the overall carbon footprint. The card expires once the cap is reached and is no longer usable unless the user reduces their carbon footprint. 

Using Innovation To Drive Integrity

The RBI has been proactively working to address issues around data concerns through regulatory guidance. At the Global Fintech Festival 2022 in Mumbai, the Governor of the Reserve Bank of India Shaktikanta Das emphasised that “the sustainability of any fintech activity or business is about enhanced customer protection, better cyber security and resilience, managing financial integrity, and strong data protection”.

This becomes all the more important as Indian fintechs aim for a stunning client base of 1.4 Bn people. This development comes with an increased level of risk, which affects both enterprises and the customers they service. 

The good part is that fintech entities are actively leveraging analytics supported by machine learning, using methods ranging from network graph analysis for fraud detection to device spoofing prevention and image verification. To find hidden patterns of fraud and money laundering in real-time, financial institutions are increasingly using graph databases and analytics, according to research by Accenture. 

According to research by the Association of Certified Fraud Examiners (ACFE), businesses using sophisticated analytics, such as graph analysis, can spot fraud 40% faster than those that don’t.

The speed at which users are swarming to digital platforms increases the seriousness of regulatory problems. Therefore, every fintech company must fearlessly take on the task of navigating the complex maze of financial rules, which includes abiding by important industry requirements, such as know-your-customer (KYC) and Anti-Money Laundering (AML) regulations. The rules for payment platforms have become the North Star, providing fintechs with a well-defined direction to follow. 

RBI And Government’s Role On Data Protection

A double whammy of ethical problems and cybersecurity dangers arise when technology and money intertwine. A strong demand for ethical data practices has been made by the Reserve Bank of India (RBI). 

Steps For instance, the right to store Card-on-File data is exclusively granted to card issuers and networks. And more recently, the Personal and Data Protection Bill, 2023, passed by the Rajya Sabha, will help address the processing of digital personal data. 

The goal here will be to find a middle ground between safeguarding individuals’ data rights and the lawful requirement to utilise this information for legitimate purposes. Businesses will be required to respect the rights of individuals to access, modify, delete their data, and so on. 

The legislation suggests a penalty of INR 250 Cr for organisations that breach the established standards, along with a mandatory fine of at least INR 50 Cr. Additionally, entities are obliged to remove user data if it no longer serves its intended function.

Moving Toward A More Responsible Ecosystem

The RBI’s Payments Vision 2025, which is an implementation plan for India’s payment, delves into the blossoming of payment systems. According to the report, the total digital payments have increased by 216% and 10% in terms of volume and value, respectively, for March 2022 when compared to March 2019. 

On the other hand, usage of paper instruments has come down significantly during the same period, with its share in total retail payments registering a decline from 3.83% to 0.88% in terms of volume and from 19.62% to 11.47% in terms of value. 

Given these developments, the pivotal role of good governance cannot be overstated. It acts as a compass, steering companies through the currents of challenges and opportunities, enabling them to realise their objectives. By upholding values of integrity and accountability, governance not only safeguards the operations of fintech enterprises but also empowers them to navigate risks adeptly.