Key Takeaways from the Steering Committee Report on India’s Fintech Related Issues

India’s Ministry of Finance recently published the findings of the Steering Committee on Fintech Related Issues, established in 2018 to take stock of developments in the financial technology (fintech) space globally and in India, study the existing regulatory climate, identify areas to leverage fintech in governance and financial services, and suggest institutional regulatory upgrades to enable innovations. The Committee’s report, released September 2nd, outlines the current landscape for fintech in India and internationally, identifies key industry development issues and potential for growth, and provides recommendations for actions the government and industry can take.

One key focus of the report’s recommendations was to identify ways to improve the regulatory environment of fintech in India. To this end, the Committee recommends creating a legal framework for consumer data protection, and internal advisory councils within each financial sector regulator to focus on fintech-related issues. The Committee also recommends removing regulatory barriers to ensure non-bank financial firms have access to the same payment infrastructure as banks. Other recommendations include establishing a Ministry of Finance taskforce on data protection for the financial services sector, utilizing the FSDC Sub-Committee’s Inter-Regulatory Technical Group as a forum for inter-regulatory coordination on key fintech issues, and leveraging cooperation with leading nations.

Another key focus of the report was to identify how fintech can be leveraged for financial inclusion, particularly for the agricultural sector and MSMEs. In particular, the Committee sees the potential for fintech firms to participate in ‘agri-credit’ and ‘agri-insurance’ and recommends regulatory support to facilitate fintech firms’ participation in these sectors, as well as for NABARD to create a credit registry for farmers. Digitizing land records would also help facilitate bank credit for the agricultural sector. For MSMEs, the Committee suggests that fintech could be used to facilitate flow-based lending through TReDS-GSTN integration. The Committee also identifies potential applications of fintech for micro-insurance, employee insurance, micro-pensions EPFO, MUDRA and PSB education loans, and recommends creating a singular fintech platform for all small savings schemes.

Open APIs can be utilized for both the agricultural sector and MSMEs, for example to consolidate information used to evaluate creditworthiness of potential borrowers. Another recommendation to improve accessibility of financial services would be to reduce costs associated with customer on-boarding, by making data uploads to the Central KYC (CKYC) Registry a free, mandatory, and completely digital process. Fintech’s focus on non-traditional data sources can also be valuable in improving access to credit for people without a prior credit history.

Another area of recommendations identified potential public-sector actions to promote fintech growth. For public-sector banks, the Committee recommends establishing innovation teams to develop strategies for service delivery and utilizing new financial technology, and working with the Department of Financial Services to experiment with Artificial Intelligence as a strategy to reduce fraud and compliance risks. For regulators, the Committee recommends establishing ‘regulatory sandboxes’ to enable innovations in India’s financial sector, and pursue strategies for open data access as a way to make the financial services industry more competitive. For the government, the Committee recommends establishing ministry-level and inter-ministry working groups to identify how fintech can be leveraged for financial inclusion and improved efficiency of government processes.