Srinath Sridharan
From the Indian consumer’s perspective, financial services had largely been a ‘status-quoist’ space until the digital stack started disrupting it. It had been dominated by the sheer strength of physical brand presence and has borne the burden of being a product seller rather than a solution provider. With enhanced digital capabilities, the smarter incumbents started combining data sciences and capabilities to address consumer convenience to offer better solutions. It won’t be amiss to hypothesise that the fintech companies (lending, insurance, asset and wealth management included) have put the traditional players to the test in terms of consumer engagement and solution delivery.
With the convergence of emerging technology and finance, the onus is on the segment-regulators to build their supervisory moats to maintain fiscal resilience. This would need the regulators to build their own tech capabilities, including real-time market surveillance and entity-supervision competence.
There would be many instances, in the short term, where the regulators and policymakers would have to make ontological decisions in the face of perceived risks and uncertainties. What would constitute the variables that could give a strong base to their decisions? Would only greater legal empowerment be the sole influence? Here is where the construct of stakeholder-trust comes in to enable even a contingent decision with available data.
Both in the physical distribution of financial services as well as in those mediated digitally, there has been significant misselling of financial products across the three regulatory verticals. As with any other industry, the fintech space has been seeing miscreants masquerading as genuine. No unlicensed participant should be allowed to participate, as this poses a great risk to the industry and hurts all stakeholders. There should be zero tolerance for any nuisance mongers—including those that erode the financial sector’s reputation or those who prey on consumers. The ability to take them down quickly and to allow only for the regulated entities to function is the effective trust that our regulators and policymakers must build within the consumer.
Within the regulated entities, any shortfall in the expected behaviour and any lowering of standards in dealing with other stakeholders should be dealt with by the segment-regulator, because they have detailed information about that particular entity and the issues at hand and, most importantly, they have the subject-matter expertise. Policymakers must innovate to expand the ability of regulated entities to tokenise their validity and regulatory authenticity without being penalised, inadvertently or otherwise, by any part of the executive. This can avoid a scenario in which regulated entities become collateral damage in the case of data with the non-regulator executive abeing deficient.
Any action that crosses into potential overreach, and overtakes the usual regulatory privileges, could cause damage to the larger consumer and investor sentiments. For regulated entities, protecting their reputation is prime, as the business of finance can simply be ruined by a crisis of confidence. This is where the application of Section 69(A) of the Information Technology Act 2000 to issues of business compliance in financial regulation would also need to evolve with more experience, as we recently saw. Here, we also need to scale the Ease of Doing Business by offering regulatory parenting for the regulated entities.
The concept of financial transactions using the digital medium has been made possible only due to the low-cost, high-impact Indian digital framework that encourages innovation and entrepreneurship. Given more keypad-literate Indians than literate ones, and the availability of low-cost mobile and data services, digital finance is at the fingertips of many susceptible to mis-selling. This is where the challenges of low financial literacy have to be tackled, at a war footing, by the regulators and the industry participants. For a nation of digital adopters, financial literacy has to go directly to individual consumers’ keypads and screens, and in a language and even medium (text, audio, video, cartoons) that they find accessible and appealing—and not just official-sounding, old-school print ads and posters in rundown corners of branches of the financial institutions. This is where the National Centre for Financial Education should adopt proactive consumer-outreach initiatives.
As we encourage more consumers to go digital, we also need to strengthen their belief in grievance redressal. The finance consumers can be reminded of this by having a regulator-mandated barcode in every communication they receive from the fintech, which could take them directly to the landing page of the complaints page, auto-populate necessary procedural data, and enable the customer to only fill the actual grievance details.
It is for the overall market stability, consumer safety, and security imperative that the finance sector is licensed, regulated and supervised. Global investors’ confidence in the larger Indian startup and BFSI story is built not just with corporate governance and market stability but also by meeting expectations of a consistent regulatory and strong supervisory framework, along with a development-focussed policy regime. India is a pioneer in the digital ecosystem and has the responsibility of pivoting it carefully to address financial inclusion and democratising financial access. Trust between all stakeholders is non-negotiable and has to be based on consensus, not vote or veto. Trust, after all, will be influenced by the performance of every stakeholder with every action or inaction.
(Policy researcher & corporate advisor, Views are personal)