By Srinath Sridharan
Digital India has generated a trend where there are more keypad-literate citizens than formally literate. It has allowed for the acceleration of citizens joining the digital financial ecosystem, including those previously excluded from the physical distribution of financial services.
Data, in the digital era, is akin to currency. Each of us generates so much of data daily, and knowingly or unknowingly, leaves digital bytes for others to capture. These troves of personal information collected by digital-trawling, be it by regulated financial entities or those off-the-book, hold immense value. Safeguarding this data isn’t merely a matter of privacy, but a matter of averting potential misuse, fraud, and identity theft. In a landscape where financial decisions are increasingly influenced by algorithms and artificial intelligence, transparency and fairness are vital.
Perhaps most crucial of all is the preservation of human dignity. Financial inclusion is not just about people accessing financial services; it’s about enabling them to lead a life of dignity and respect. Predatory loan apps, finfluencers, dabba-trading, unregistered financial advisors—all of them prey on the desperate and vulnerable, often leading to financial ruin, mental distress, and even tragic consequences. The challenge of predatory loan apps, sometimes embedded within gaming apps, underscores the urgent need for stringent regulations to curb acquisition of unrestricted access to anyone’s personal information, including the content of their phones, as well as a grim indicator of the complexities of the digital finance landscape where such information is openly available.
For those entrenched in the regulated and licensed financial services sector, this is a worrisome reminder of the critical importance of consumer protection. It highlights the pressing need for the digital lending industry to collaborate actively with regulatory bodies, such as the Reserve Bank of India (RBI), and engage with the ministry of electronics and information technology (Meity) and the ministry of home affairs (MHA) to ensure responsible finance and lending practices. The larger challenge of who singly is in charge of the ultimate supervisory function, makes it complicated. The authorities must exercise discernment and fairness and refrain from generalising all digital lenders as predatory based on the actions of a few bad actors or their inability to rein in these agents.
Ultimately, it would be worthy if we accept that money or finance today is digital and data. Hence, anything about movement of money in India can be supervised by the RBI. This would allow the central bank to offer regulatory-parentage to their regulated entities, without which genuine businesses, at times, could be hurt in the regulatory tug of war amidst multiple jurisdictional owners.
In the rapidly evolving landscape of digital finance, RBI finds itself compelled to transition from the current entity-based supervision model to a real-time, activity-based approach. The traditional hierarchy based on importance and size of a company is no longer effective in overseeing the intricacies of modern financial systems, which have more digital pipelines through which millions of financial transactions cross every second. Real-time activity-based supervision enables continuous monitoring, quick risk assessment, and the prompt resolution of emerging issues.
As India continues to march forward as a digital-first nation, the imperative to safeguard the trinity of data, digital practices, and human dignity in financial services is not just a regulatory necessity; it’s a moral and ethical obligation. The RBI’s proposition of self-regulatory organisations (SROs) for the digital lending sector is an idea whose time has come. It must evolve rapidly, placing human dignity at its core and ensuring swift, time-bound consumer grievance redressals. In the modern financial landscape, virtually every lending entity engages in digital lending, encompassing the entire spectrum from digital customer sourcing and loan processing to fund disbursement and collections. Physical interactions with consumers have become increasingly rare in many segments, underscoring the urgency for the RBI to meticulously define the concept of digital lending for SROs. This becomes especially critical when considering collaborative efforts, including co-lending initiatives, between traditional banks, non-banking financial companies (NBFCs), and fintech platforms blur the lines between their roles in the digital lending ecosystem.
Tech-giant stakeholders within the digital ecosystem such as Google Play Store and Apple Store are not exempt from responsibility. As emerging technologies continue to reshape consumer needs and desires, regulators must exhibit agility and a commitment to frequently upgrading rules and regulations, including around these tech giants. But the larger consumer worry would be the regulatory strength and supervisory doggedness to efficiently hold tech giants within regulatory boundaries and not be vulnerable to their ploys. So far, the reality check is far from this. Regulators, globally as well, struggle with their ability to keep tech giants and fintech entities under their check.
The modern age is digital, and so should be the means to reimagine consumer-rights literacy. By harnessing the power of mobile and digital technology, the RBI should make it easier for consumers to complain about its regulated entities. Current awareness about complaints process is weak. It is true that this might initially lead to an influx of complaints, including nuisance and fake ones. However, if we genuinely aspire for a market where the consumer is queen or king, this transformation is indispensable. Only when consumers believe that their grievances will be addressed within a stipulated time frame will they begin to trust the system. Consumer trust is no longer an empty promise but a requirement, and penalties for regulated entities that violate data, digital, and dignity standards need to be substantially increased to deter wrongdoing.
The financial services industry must be held to a higher ethical standard, and consumers must be assured that their data, digital lives, and dignity will be protected. Consumer rights in financial services aren’t a luxury; they’re the bedrock upon which the digital economy stands.
The writer is Corporate advisor and policy researcher
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