Fintech

RBI establishes Fintech Department for development of Fintech Industry

The developments and innovations in the Fintech industry are taking place in leaps and bounds. In order to cope up with the innovations taking place in the fintech industry and the challenges associated, the Reserve Bank of India (RBI) took proactive steps back in 2018 by setting up a financial technology division. Taking into account the magnitude of the fintech industry, the RBI has gone one step further by establishing a separate dedicated fintech department.

This newly established fintech department shall be administratively attached to the existing Centralised Administrative Division (CAD), Human Resource Management Department (HRMD), RBI’s central office.

What is a Fintech company?

The word fintech is a blend of the words financial and technology. So a fintech company is one that is involved in delivering financial services through the use of superior technology and using automated solutions. These services make the operations seamless for anyone right from the banks, stock markets, business owners to the individuals. 

These companies use algorithms and specialized softwares that run on computers, smart phones and other electronic devices. 

What does DPSS stand for?

DPSS department stands for Department of Payment and Settlement Systems, which is mandated with the task of policy formation and authorisation of payment and settlement system operators and other tasks mandated by the government.

RBI’s Internal Circular establishing Fintech department

An internal circular of RBI^[1] states that a separate fintech department has been set up to focus on the existing fintech scenario and facilitate innovation in the fintech sphere. The circular further stated that the department will be set up from 4^th January, 2022 onwards and the division of fintech under the department of DPSS shall be subsumed in the newly created fintech department. The objective to create this division is not only to promote innovation in the fintech industry but also to lookout for the possible opportunities and identify the challenges so that the same can be dealt with in a timely manner.  

The circular also stated that the functioning of the department is not limited to just identifying opportunities and challenges in the fintech industry but it also provides a framework within which research in the fintech domain can be done which would then be used in the policy making decisions by the Reserve Bank of India (RBI).

The department will be involved in the innovations and incubation of ideas in the fintech domain which can have impact on the financial markets as a whole and fall under the domain of central bank.

This Fintech department shall also be responsible for inter-regulatory coordination with multiple regulatory departments concerning and overlapping with the fintech domain and shall also be undertaking international coordination in the domain of Fintech.  

Benefits of a separate fintech department

1. Promotes Innovations in the Fintech sector: A full-fledged department created by the RBI only for the Fintech sector means more resources, more investment and a dedicated manpower only entrusted with a task for development of the fintech sector. This will give impetus to innovations taking place in the fintech sector.
2. Identification of challenges and opportunities: Creating a separate department with the aim of development of fintech sector will help in identification of the challenges and opportunities that are pertinent to fintech sector only and nothing else.
3. Policy making in the fintech sector: An independent department given the task for framing policies in relation to the fintech sector means that the department will channelize all its resources in framing policies related to the fintech sector only and no more become a secondary duty.
4. Inter regulatory and international coordination for fintech: Tasked with the primary duty for the development of the fintechs, this department will be able to better coordinate with other regulatory bodies within and outside India to better prepare the Indian market in the development of the fintech sector in comparison to a division in a department whose main objective is not the development of the fintech industry.     

Regulatory changes for the Fintech sector

As nore and more fintech start-ups make their way in the Indian market, the fintech sector has undergone several changes in recent times. Recently, new card tokenisation rules have been introduced by the RBI wherein the customers’ card information will be converted in the form of a cryptic token and these fintech statups will not be able to store card information of the user. Recently, the deadline for the tokenisation rules has been extended to six months for the fintechs to make the necessary changes. This was done by the RBI to bring down chances of financial frauds.

There were other changes that were introduced with respect to card based recurrent payments wherein the customers were asked to make standing instructions every time the customers pay their subscription amount beyond the amount of Rupees 5000.

The RBI also came up with the framework for New Umbrella Entities for increasing competition in the digital payment networks. Complying with this framework, the digital payment giants like Reliance, TATA, Paytm and Ola had to become registered users.

Lately, the RBI has also allowed to make payments upto rupees 200 without the need to use internet connection. These payments can be done through offline channels.

Conclusion

Creation of a separate and dedicated fintech department by the RBI is an indication that the RBI has been proactive in adapting to the changing needs of digital financial services to make sure that the government is aware of the challenges and opportunities that are arising fintech industry. The aim is also to promote innovations in the fintech industry and become a department that is responsible for providing policy inputs related in the fintech sector and financial markets so that RBI can take proper actions and decisions in a timely manner.

Read our article:Measures introduced to boost Fintech Ecosystem in India