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India’s central bank has identified Big Tech’s push in financial services as a challenge for banks in the South Asian market, saying the growing presence of these companies has raised concerns about creating a playing field unequal.
In a report released Thursday, the Reserve Bank of India (RBI) said Big Tech offers a wide range of digital services that promise to support financial inclusion, generate lasting efficiencies and make banks more competitive. , but their expansion into the financial services sector has given rise to “important policy questions.”
“Specifically, concerns have grown about a level playing field with banks, operational risk, issues too big to fail, challenges for antitrust rules, cybersecurity and data privacy,” he said. writes the Indian central bank.
Large tech companies “straddle many different (non-financial) industries with sometimes opaque global governance structures” and have the potential to become “the dominant players” in financial services, wrote the central bank, which also regulates the financial market in India. “Third, great technology [companies] are generally able to overcome scale limitations in the provision of financial services by exploiting network effects.
“For central banks and financial regulators, financial stability objectives can be best pursued by combining activity and prudential regulation based on Big Tech entities. [companies] (an activity-based approach is already applied in areas such as anti-money laundering / anti-terrorist financing; an activity-based approach is the provision of cloud services, where minimizing the risk operational and in particular cyber risk is essential). “
“In addition, as the digital economy expands beyond borders, international coordination of rules and standards becomes more urgent.”
The warning comes at a time when the RBI, which over the past decade has opened up mobile payments through an infrastructure backed by retail banks called UPI over the past decade, is now opening up the entire network of national payment of the country.
A number of players, including tech giants Facebook, Google and Amazon and plastic card processors Visa and Mastercard, have applied for licenses to operate retail payment and settlement systems in the country. (RBI is expected to license some of these companies later this year.)
“Nowhere else in the world are the largest companies, banks [and] telecom operators in India and the world’s biggest tech players would come together to create national payment networks. Bernstein analysts said of the NUE.
An industry executive questioned the concerns raised by RBI, saying no existing rules prevent the big banks in India – ICICI and HDFC – which already amass a plethora of data on their customers from investing in their digital expansion.
State Bank of India “represents more than half of Indian banks. And Yono [State Bank of India’s digital bank platform] claims a market valuation of $ 40 billion. Why is their reach not a problem? “
The executive, who spoke on condition of anonymity, said the big tech companies were following regulations set by the RBI. They use rails built by banks and are only required to operate in space through partnerships with banks. “The RBI is free to make more regulations – and it is already doing so with KYC wallet restrictions and imposing market share caps for those making payments on UPI infrastructure. “
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