Year Ender 2023: Key Transformational Moves By RBI For The Fintech Sector – News18

It’s never a dull day in the world of Fintech. In just two short decades, fintech—an amalgam of “finance” and “technology”—has exploded onto the scene, revolutionizing the financial services industry as we know it. This dynamic sector has been fueled by the various innovations that have shaped a generation, each one seemingly more game-changing than the last.

In terms of Fintech, the RBI has made may important announcements in the calender year 2023 which made into the top headlines of the year. Let’s have a quick recap into some of the key decision made by the apex bank.

Digital Lending

In this direction, the recent introduction of FLDG guidelines by the Central Bank is definitely set to enhance digital lending by managing credit risks, reducing chances of borrower defaults and encouraging lender participation by providing transparency and boosting investor confidence. The clear and effective First Loss Default Guarantee (FLDG).

Digital lending carries immense potential and importance in promoting financial inclusion, providing easy access to credit, enhancing efficiency, empowering the underserved or underbanked population, and boosting digital economy in India. Underlining its significance and role, the Reserve Bank of India in its efforts to ensure the digital lending ecosystem is credible, responsible and transparent with high regulatory standards, had approved First Loss Default Guarantee (FLDG) as a safety net among regulated entities and online lending service providers against potential losses resulting from borrower defaults.

Enabling UPI for cross-border transactions

NPCI International Payments Limited (NPIL) has entered into partnerships with corresponding payment systems outside India to enable acceptance of UPI payments in Singapore, UAE, Mauritius, Nepal and Bhutan to facilitate digital payments for Indian users while visiting such countries. Cross-border UPI transactions have the potential to significantly reduce the costs associated with international money transfers.

Central Bank Digital Currency

RBI has launched the e-Rupee (the virtual currency issued by the RBI) – In the evolving landscape of digital payments, some pivotal moments redefine the way we transact. One such moment occurred on April 11, 2016, when the National Payments Corporation of India (NPCI), under the guidance of the Reserve Bank of India (RBI), introduced the Unified Payments Interface (UPI). This innovation promised to revolutionise digital payments in India.

Fast forward to December 1, 2022 — the RBI introduced the initial pilot phase for the retail digital Rupee, or e-Rupee, a central bank digital currency (CBDC).

Earlier this year, T Rabi Sankar, the Deputy Governor of the RBI, unveiled an exciting development — the central bank’s active endeavour to enable CBDC transactions through the UPI channel. This interoperability is set to be facilitated through UPI QR codes, mirroring the familiar process of conventional payment methods.

The result? Empowering merchants that currently accept bank-to-bank or credit-to-bank UPI payments by scanning the UPI QR code to seamlessly accept digital rupee (e₹) payments through customer’s CBDC wallets. The marriage of CBDC and UPI is poised to redefine the way merchants and customers transact.

Cross Border Payment guidelines for Fintechs

The Reserve Bank of India had issued rules for payment aggregator cross-border (PA-CB) licences that would be mandatory for entities providing cross-border payment services. Applicants could choose to facilitate payments for imports, exports, or both. A key condition is that all non-bank PA-CBs should register themselves with the Financial Intelligence Unit-India (FIU-IND) as a prerequisite before applying for authorisation. Also, the applicant must have a minimum net worth of Rs 15 crore, and raise it to Rs 25 crore by 31 March, 2026.

As per the regulations, all Payment Aggregators (PAs) which facilitate the processing of domestic transactions in online mode are covered within the scope of the circulars.

Fintech regulatory framework 

The RBI will create a fintech repository that will be operational by April 2024 or earlier. It will be run by the RBI’s Innovation Hub. The rationale behind this framework is to better understand developments in the fintech ecosystem as financial entities such as banks and non-banking financial companies (NBFCs) are increasingly partnering with them. “Fintechs are encouraged to provide information voluntarily to this repository,” RBI Governor Shaktikanta Das said.