FINTECH, FINANCIAL LITERACY AND

CONSUMER PROTECTION -
EXPERIENCE OF INDIA

N S Vishwanathan
Deputy Governor
Reserve Bank of India

The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the
Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments
they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any
consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.
Financial Inclusion - An imperative
Huge diversity
A 136 crore
Low level literacy
population
Low penetration of financial services

Increase per-capita An $5 trillion

income economy
Need for a faster and aspiration by
inclusive growth 2025

Urban-Rural divide
Income inequalities
Bridging Regional Disparities
divides
Gender Disparities
Bridging the last mile

High mobile penetration

Connectivity and cheap data
Digitally active millennials Use the
opportunities
Demand for formal financial products and services
Enabling technologies – Aadhaar, India stack, etc.
Note: 1 crore = 10 million
The trinity…..

■ Inclusive growth is an essential prerequisite for any kind of stability, including financial stability
■ Inclusive growth is largely driven by financial inclusion and an inclusive financial system
■ Financial system provides access to financial products and services, but financial literacy
creates the demand
Financial Inclusion – The story so far…
■ Aadhaar – a biometric based unique identification system

■ Pradhan Mantri Jan Dhan Yojana (PMJDY)

▪ Linking of Jan-Dhan account with mobile and Aadhaar (The JAM trinity)

▪ Forms the Digital Backbone for Direct Benefit Transfer & Credit flows, social security/pension
schemes and digital payments

▪ Has an Overdraft facility of Rs. 10000 and Life Insurance cover (Rs. 30000)

▪ 53% of the account holders are women, up from 27% in 2014

▪ 59% of them in rural and semi-urban areas

▪ About 28 crore(280 million) RuPay cards issued

Sources: RBI Annual Report 2018-19
The story continues……
■ PMJDY in numbers

■ 79.88% of population of age of 15+ has a bank account (2017)

■ Total savings till March 2019 due to DBT and Aadhaar linked targeting of subsidies –
Rs. 14,168 crores
■ Use of camp mode to open accounts. Biometric based unique identifier (Aadhar) played a
crucial role.
Sources: RBI Annual Report 2018-19 and website of GoI - Direct Benefit Transfer

(Note: 1 crore = 10 million)

The Digital Infrastructure
•124 crore Aadhaar cards generated

Aadhaar (2011) •337 crore authentications done

•35 crore Jan Dhan accounts opened
•Used for Aadhaar Payments Bridge & Aadhar Enabled Payments System transfer of Government benefits and subsidies

•Allows businesses to perform KYC verification process digitally using Biometric or Mobile OTP
eKYC •Online authentication allowed for customer if he/she voluntarily by banking companies only . Other Regulated entities can
undertake digital on boarding through offline verification of Aadhaar
IndiaStack

e-sign (2015) •An open API to facilitate an Aadhaar holder to digitally sign a document launched by Comptroller of Certifying Authorities

Digilocker (2015) •A platform for issuance and verification of documents & certificates in a digital way launched by Ministry of Electronics and
Information Technology

Unified Payments •70 - 80 crore transactions per month during months from March to May 2019

Interface (2016) •Hosts 140 bank and 40 non-bank third party applications

•1,16 crore wireless telephone subscribers

Mobile penetration •59 crore wireless broad band subscribers

•Increasing data connectivity
•Low cost of data

Note: 1 crore = 10 million

UPI – An unique payment system

• Instant online payments on 24x7x365 basis

•Multiple bank accounts can be linked to a single mobile app Volumes speak for
System design •Offered by non-bank third-party app providers like Google, Apple, Amazon,
etc.
themselves…..
•Allows use of multiple identifiers [Aadhaar, Virtual Address, Account No. &
IFSC, Mobile No. & Mobile Money Identifier, etc.]

• Facilitates Push (Payment) and Pull (Receipt) transactions

Payment options • Payment can be requested on one interface and authorised on a different
interface
• Payment by scanning merchant QR code using mobile app

Consumer • Two factor authentication enabled - Device Fingerprint & PIN / Biometrics
•No need to expose bank account details

Protection •Has “Check Transaction Status” and Complaint / dispute lodging

functionality
The FinTech Market
Peer (P2P)
lending
Digital platforms
lending Digital
(digital wallets
NBFCs)

Insurance RegTech/
products SupTech

FinTech
Crowd Digital
funding KYC/AML

E-
aggregators
(AA,
Big Data
Insurance
Aggregators,
etc.)

Robo- Smart
advisors contracts
What has RBI done about it
Payment Peer-to-peer FinTech Account Invoice based Payments
System (P2P) lending Credit Aggregators lending bank
To enable high
Authorisation for Trade Receivables volume-low value
Guidelines issued in Guidelines issued in
Launch of UPI FinTech based Discounting System transactions in
2017 2016
NBFCs (TReDS) deposits and
payments /
remittance services

An electronic
‘Digital consent
21 entities permitted License given to platform to facilitate
World class NEFT based architecture’
to function as P2P seven purely digital discounting of
and RTGS systems to safeguard Secured technology-
lending platform loan companies invoices / bills of
customers’ interest driven environment
MSMEs

Guidelines for
Only a Platform, One entity given AA Three entities
Prepaid instruments
license, six given in- allowed to operate
including mobile No loans Seven Payments
principle approval TReDS
wallets Banks licensed

Bharath QR code
861385 touch points
as on Sep 2019
Foster Responsible Innovation – Regulatory Sandbox
The Regulatory Sandbox
Eligibility Structured Statutory and Transparency and
Objectives Design
Criteria Approval Process Legal Issues Disclosure

• To foster •FinTech companies • Indicative positive • Preliminary •Any liability from •Communication of
responsible including start-ups, list Screening the sandbox testing the entire sandbox
innovation •Banks •Regulatory • Test Design to be borne by the process
•Promote efficiency •Financial Requirements/Rela • Application sandbox entity •Knowledge sharing
•Bring benefit to institutions xations for Assessment and collaboration
consumers •Any other company Applicant • Testing - No Central •Protection of IPR
partnering with or •Negative list Test bed concerns
supporting •Fit & Proper Criteria • Evaluation
financial services and other criteria
businesses •Extension / Exit
•Low capital •Boundary
requirements – 50 Conditions
lakh – encourage •Consumer
Start-ups Protection

1st cohort of RS announced with

‘Retail Payments’ as theme
Role of FinTech in Financial Inclusion and Literacy
■ Connect the last mile – to reach the underserved at their doorstep
■ Make banking a habit and reduce dependence on non-formal finance
■ Innovative products/services and their bundling
■ Create a ‘Market for one’ - customisation and sachetisation of products and services
■ Vast range of products and services
■ New processes for the financial system to cater to first timers
– Alternative credit management using Big data including social media inputs for:
– Risk management
– Credit monitoring
– Debt servicing
– Credit recovery
■ Integration with technologies like forecasting, cropping information and advice, land
registries, water management, etc. for benefit of rural population
Financial Education - The need
■ For meaningful Financial inclusion
– Awareness of availability of products and services, their features cost
– Understanding risks in financial products, especially FinTech products
– Know your rights, including grievance redressal mechanisms
■ A prerequisite for adoption of FinTech
– A digitally and financially literate nation in a digital era
– Increasing the trust in the financial system
Measures for financial literacy
Financial Literacy Centres (FLCs)

National Centre for Financial Education (NCFE)

Financial education as part of School Curriculum

Use of digital platforms like interactive kiosks and digital screens

RBI Kehta hai (RBI says) – a mass media campaign

‘Safe Digital Transactions’, the Theme of Financial Literacy Campaign -2017

Depositors Awareness and Education Fund (DEA Fund)

Financial Inclusion and Consumer Protection
Should Go Hand in Hand
■ Robust grievance redressal measures needed to
– To protect the interests of customers
– Foster confidence in financial system and its channels including digital banking

Complaint
Ombudsman
Scheme for NBFCs Management
System

Limited liability of
Ombudsman customers in
Scheme for Digital unauthorised
Transactions electronic banking
transactions

Fraud risk mitigation by

Banking
Ombudsman
Consumer 2FA, online alerts for
CNP transactions,
scheme Protection positive confirmation,
etc.
Lot done, yet more to do …
because -
■ 59.01% of the small and marginal farmers do not have access to credit channels of SCBs
■ Last year only 6.62% of the population above the age of 15 have borrowed from FIs
■ Low proportion of users of digital banking (28.69%)
■ Reasons for not having an account with FIs
– Insufficient funds (53.78%)
– lack of trust with FIs (20.23%)

And the way forward is

Sources: RBI Annual Report 2018-19 and Global Financial Inclusion Database, World Bank
And the way forward is……

■ More innovations – Regulatory Sandbox

■ Expand reach of financial services – On tap licensing of
Universal Banks, Small Finance Banks
■ Increase in the width and depth of Financial Literacy –
Centre for financial Learning
■ Increase ease and reduce cost of transactions – NEFT being
made available 24X7; No charges for such transactions
In Doing so be mindful of
■ Address attendant risks
– Financial stability
– Financial integrity
– Consumer protection
– Data security and privacy
■ Compliance requirements
– stronger information security requirements with
– Increased use of IT enabled processes and the consequential cyber security risks

Yet keep the services affordable

Thank you