India’s apex bank and regulator Reserve Bank of India (RBI), in its biannual Financial Stability Report, warned of the potential challenges India could face with the entry of big tech in the country’s banking system. It showed concerns regarding cybersecurity, data privacy, and the potential monopolistic business practices that might arise with big tech getting into financial services.
The term big tech refers to the five dominant global tech companies—Google, Apple, Facebook, Amazon, and Microsoft. Of these, Google, Amazon, and Facebook, via its messaging platform WhatsApp, have been making strides to position themselves among the top players in India’s fintech market.
While RBI acknowledged the importance of the big tech firms and their role in expanding the financial inclusion, it said, “Specifically, concerns have intensified around a level playing field with banks, operational risk, too-big-to-fail issues, challenges for antitrust rules, cybersecurity, and data privacy,” RBI noted in its report.
The regulator pointed out several challenges India’s financial sector would face with large fintech companies entering the space. “First, they straddle many different (non-financial) lines of business with sometimes opaque overarching governance structures. Second, they have the potential to become dominant players in financial services.”
As technology companies in India grow bigger in their respective sectors, they eventually make their way into the fintech sector with the hope that controlling recurring digital payments will lead them into the banking sector. In 2018, two years after floating its digital payment arm, Amazon Pay, the e-commerce giant started lending to merchants and now also provides a “buy now, pay later” shopping feature to customers. Similarly, last year Google Pay said it would soon start lending short-term working capital that would be available to the over 3 million merchants that it has amassed.
RBI’s note comes at a time when the National Payments Council of India (NPCI) recently allowed Facebook-owned WhatsApp Pay to onboard more users to accept and pay digitally via Unified Payments Interface, or UPI—India’s real-time payments network. NPCI had earlier capped the maximum users WhatsApp Pay can allow to transact over its platform at 20 million.