The New Reserve Bank Of India (RBI) Fintech Department
Interested in knowing about the new fintech department created by RBI? Check this article to get full information on RBI's fintech department & know why it was created!
Way back in 2018, the Reserve Bank of India (RBI) set up a financial technology unit due to the rapid change in the fintech landscape. Now, in 2022, a separate fintech department is being set up by the RBI for further rapid changes in this sector.
It looks to tackle two major challenges head-on:
- Framing cryptocurrency regulations
- Central Digital Bank Currency (CDBC)
“Accordingly, a new department has been created with effect from January 4, 2022, by subsuming the fintech division of DPSS, CO. The department will not only promote innovation in the sector, but also identify the challenges and opportunities associated with it and address them in a timely manner,” RBI said in an internal circular.
New additions and frameworks being worked on
The new fintech department will be identifying challenges and opportunities and also provide a framework for further research on the subject of policy formation and authorization of payment and settlement system operators in the country, among other things.
Further, matters related to the facilitation of “constructive innovations and incubations in the fintech sector” will be handled by this department.
Two types of CDBCs are being worked on by the RBI:
The new department will oversee their development.
Simultaneously, regulations on cryptocurrencies will be determined by the Parliament following the unsuccessful attempts by the RBI to “prohibit” banks from dealing with cryptocurrency exchanges in the past.
Why the new department was created
There have been many regulatory changes in the fintech sector as more and more startups enter. Some of these include:
- RBI extending the deadline for card tokenization from January 1, 2022, to June 30, 2022
- This was done after several companies said they needed more time to make the necessary changes
- Online merchants being barred from storing users’ card details on their platforms
- This was done to prevent online fraud but will also lengthen the process of online payment
- Customers having to reauthorize standing instructions for recurring payments or online subscriptions up to Rs 5,000
- The release of a framework for new umbrella entities to increase competition in online payments
These have all played their part in reshaping the fintech sector of India.
For a long time, experts had complained about how inadequately equipped India’s institutions are to handle the growing crypto-sphere. This department aims to mitigate those concerns and facilitate more growth in the Indian fintech sector.
New initiatives taken up by RBI’s new fintech department
The FinTech department, which will be under the direction of the RBI's centralised administration division, would handle all inter-regulatory and international coordination-related issues. A framework for conducting in-depth research on FinTech concerns that can be utilised to support policy actions will be created by the department as well.
The department will strive to create an open regulatory environment that will in turn support industry innovation.
In August 2019, the RBI became one of the few countries to have a regulatory sandbox ecosystem. They have also setup a Reserve bank Innovation Hub promote technological innovation in a sustainable way.
Besides these initiatives, the RBI also organised its first worldwide hackathon, HARBINGER 2021 with the topic "Smarter Digital Payments" in order to promote innovation in the payments sector.
How this department is going to help in fintech industry’s supervision
Tech related innovation is a welcome change in our developing economy, and fintechs are paving the way for that. This also means newer regulations need to be set up for proper supervision of digital financial service providers.
The current fintech industry is dominated by several players including Paytm, GooglePay, PhonePe that hold a majority of all UPI transactions. As more and more banks move ahead and partner with these fintech giants, it becomes increasingly obvious that lack of proper supervision might be dangerous for not just the fintech indsutry but the financial sector on the whole.
The RBI’s aim is to provide a definitive structure to the fintech industry while promoting innovation driven changes in the financial sector.
The rapid growth of the financial technology sector of India needs support and the creation of the fintech department in the RBI is the perfect embodiment of that support.
Though it will take time for India to reach the heights other more financially developed countries have reached, this is definitely a step in the right direction.
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