RBI warning the entree in financial services
The growing presence of the giant tech firm in financial services in rising markets like India could possibly retain the nation’s economic stability, RBI cautioned.
“Big Techs offer a wide range of digital financial services of several advanced and emerging market economies,” RBI said in its biannual Financial Stability Report. “While this holds the promise of supporting financial inclusion and generating lasting efficiency gain concerns have intensified around a level-playing field with banks, operational risk, too-big-to-fail issues, challenges for antitrust rules, cybersecurity and data privacy,” it said.
The big tech term is used to represent the five giant multi trillionaire companies collectively. Them being Google, Amazon, Apple, Facebook and Microsoft. However, the timing of the release in the statement is conflicted as India is in a tussle with the social blogging app Twitter on its recent issues on Intermediary Guidelines and Digital Media Rules.
RBI further issued three categorized challenges that are likely to arise from the Tech giants’.”First, they straddle many different (non-financial) lines of business with sometimes opaque overarching governance structures. Second, they have the potential to become dominant players in financial services. Third, Big Techs are generally able to overcome limits to scale in financial services provision by exploiting network effects.” the Central Bank said.
The banking regulator emphasised that introducing international standards based on coordination of rules is the best way to supervise multinational companies. It also recommended an “entry based prudential regulation approach” to scrutinise the companies individually against a set of standards.
“For central banks and financial regulators, financial stability objectives may be best pursued by blending activity and entity-based prudential regulation of Big Techs. Furthermore, as the digital economy expands across borders, international coordination of rules and standards becomes more pressing.” The bank said.
The National Payments Corporation of India(NPCI), a subsidiary of RBI, introduced a market share capping rule for third-party apps on Unified Payments Interface(UPI) where no individual company could have an exposure of volume above 30% from 2022. Under the Umbrella Entity Framework Network(NUE), Amazon, Google, and Facebook have applied to launch their own payment networks in India.