Message from the CEO
Welcome to another edition of FinWrap where we celebrate the power of innovation to build an inclusive and prosperous economy. Innovation has been the driving force behind the fintech industry’s growth in recent years and will continue to be so in the foreseeable future.
As this industry evolves, fintechs must address three crucial questions: Who is our customer? What problem are we solving? And how will our solution create value through a compelling business model? While innovation fuels our growth, we must remember that customer-centricity is the key to our success. By understanding our customers’ needs and desires, we can create experiences that exceed expectations and build lasting relationships.
Let’s continue nurturing our passion for innovation, collaborating within our community, and exploring new frontiers together. With our collective brilliance, we will shape the future of finance and make a positive impact on society. Let’s unlock new opportunities and create a brighter future.
Regards,
Rajesh Bansal
Message from the CEO
Welcome to another edition of FinWrap where we celebrate the power of innovation to build an inclusive and prosperous economy. Innovation has been the driving force behind the fintech industry’s growth in recent years and will continue to be so in the foreseeable future.
As this industry evolves, fintechs must address three crucial questions: Who is our customer? What problem are we solving? And how will our solution create value through a compelling business model? While innovation fuels our growth, we must remember that customer-centricity is the key to our success. By understanding our customers’ needs and desires, we can create experiences that exceed expectations and build lasting relationships.
Let’s continue nurturing our passion for innovation, collaborating within our community, and exploring new frontiers together. With our collective brilliance, we will shape the future of finance and make a positive impact on society. Let’s unlock new opportunities and create a brighter future.
Regards,
Rajesh Bansal
India Fintech News
The Dawn of India’s Age
Speaking at the Indira Gandhi Institute of Development Research (IGIDR) Alumni Conference in Mumbai, Mr Michael Patra – Deputy Governor, Reserve Bank of India (RBI), brought forth the idea of ‘the dawn of India’s age’. He spoke at length about how India is poised to reach its full potential in securing its aspirational goals for the future of its citizens, and in its role in global affairs on account of an amalgam of favourable demographics, committed diaspora, sectoral diversification, digital revolution, skilled diplomacy, dynamic federalism and decarbonisation.
Elaborating on the digital revolution, he highlighted the progress the Indian digital payment ecosystem has made over the past decades through UPI, India Stack, Aadhaar enabled e-KYC and the Digilocker platform. The recent foray of UPI into cross border payments holds particular significance as it allows for cost-effective cross-border peer-to-peer (P2P) transfers using mobile apps, which will deepen trade, travel, and remittance flows between trusted international partners. He went on to emphasise that dedicated payment rails for instantaneous transfers will characterise the future of cross-border payments, while ensuring digital and financial inclusion, and greater harmony in payment regulations across borders.
RBI Annual Report – Fintech Highlights
The RBI released its Annual Report for 2022-23 earlier this month. This year’s publication took stock of and laid out the way forward to translate the regulator’s fintech vision. Some of the key highlights are:
1. The plan for phased introduction of the Central Bank Digital Currency (CBDC) in wholesale and retail segments has been initiated with pilot projects for both the segments. The wholesale CBDC use case is for ‘Settlement of Secondary Market Transactions in Government Securities (G-secs)’. CBDCs are expected to make the inter-bank market more efficient. By enabling settlement in central bank money, transaction costs can be reduced as there would be no need for additional settlement guarantee infrastructure or collateral to mitigate settlement risk. On the other hand, the retail CBDC pilot focuses on facilitating peer-to-peer payments. It offers the benefits of physical cash, such as trust, safety, and settlement finality, in a digital form. Similar to physical currency notes, it can be held or utilised for conducting transactions. The outcomes of both pilot programs have been satisfactory and aligned with expectations.
2. For the implementation of the roadmap laid down by ‘Vision and Strategy Document on FinTech and Policy Framework for FinTechs and BigTechs’, a working group (WG) has been constituted under the Chairmanship of Executive Director, to formulate a framework for the sustainable development of FinTech sector including BigTechs.The WG has been engaging with various stakeholders of the ecosystem, and is in the process of finalising its recommendations.
3. The establishment of 75 Digital Banking Units (DBUs), as proposed in the 2022 Union Budget, has been successfully completed. These DBUs provide customers with cost-effective and convenient access to a wide range of products and services, delivering an enhanced digital experience within an efficient, paperless, and secure environment. The functionality of these DBUs is available both in self-service mode and with assistance. Currently, there are 84 operational DBUs spread across the country.
4. The annual report highlights two significant projects undertaken by the Reserve Bank Innovation Hub (RBIH). The first – a pilot project for the end-to-end digitalisation of Kisan Credit Card (KCC) lending, developed in collaboration with the RBI – aims to streamline and digitise the lending process for KCC, benefiting farmers. The second project called Swanari encourages partners within the financial services ecosystem to create innovative and sustainable solutions for underserved women and women-owned enterprises belonging to low- and middle-income groups (LMI). Both projects have been recognised for their potential to make a substantial impact at a larger scale.
RBI TechSprints
The RBI and the BIS Innovation Hub (BISIH) of the Bank for International Settlements have jointly launched the fourth edition of the G20 TechSprint, a global technology competition to promote innovative solutions aimed at improving cross-border payments. This is under the aegis of India’s G20 Presidency and is open to developers from around the world. The TechSprint focusses on three problem statements on cross-border payments formulated by RBI and the BISIH:
AML / CFT / Sanctions technology solutions to reduce illicit finance risk
FX and liquidity technology solutions to enable settlement in emerging market and developing economy (EMDE) currencies
Technology solutions for multilateral cross-border CBDC platforms.
The TechSprint is slated to conclude around August/September 2023.
The RBI will also be among the 13 international regulators to participate in the Global Financial Innovation Network’s (GFIN) first-ever Greenwashing TechSprint. Claims that are exaggerated, misleading, or lacking evidence regarding Environmental, Social, and Governance (ESG) credentials can harm investor confidence in authentic products that genuinely support sustainable investments and positive environmental initiatives. To address this issue, the GFIN TechSprint initiative is focussed on developing a tool or solution that can assist regulators and the market in effectively combating the risks associated with greenwashing in the realm of financial services. By promoting transparency and accountability, this endeavour aims to ensure that ESG-related claims are accurate and substantiated, thereby fostering trust and confidence among investors.
Fintech News
European Union (EU) adopts Crypto-asset Regulation
The EU Council has adopted MiCA, a framework for regulating crypto-assets, issuers, and service providers at the EU level. The regulation aims to bring these entities under a comprehensive regulatory framework to protect investors and promote transparency. MiCA covers utility tokens, asset referenced tokens, and stablecoins, as well as trading venues and crypto-asset wallets. It improves upon existing national legislations within the EU and seeks to achieve investor protection, financial stability, and innovation in the crypto-asset sector.
Tech in Focus
UPI for Cross Border Payments
The past couple of months have seen traction on the widening scope of UPI for cross-border payments. This is in line with RBI’s Payment and Settlement Systems in India: Vision – 2019-2021. In February 2023, a significant development took place as Singapore’s PayNow payment system was integrated with the Indian UPI system. This integration allows users of both fast payment systems in either country to conveniently and securely perform cross-border funds transfers using their respective mobile apps. The technology behind such an integration involves multiple layers and leverages open banking Application Programming Interfaces (APIs) to ensure compliance with regulatory guidelines, flexibility in settlement arrangements, and reduction in transaction times. A brief summary of the process is outlined below:
Payee Validation: The payer provides either the UPI identification number or the mobile phone number of the payee. Subsequently, a customer validation API verifies the authenticity of the payee
Compliance Check: Based on the end user’s consent, additional user information is captured and exchanged by the compliance-screening API. This enables real-time screening, enhanced speed and a reduction in cost of transaction.
Forex (FX) Rate Fetch: This is automated by the FX Rate API, making the process efficient and error-free.
Payment Execution: After payee validation and compliance check, the payer enters the amount to transfer. Real-time conversion facilitates display of the equivalent transfer amount in the foreign currency. Upon authorisation by the payer, the payment gateway executes the transaction and transfers funds to the payee’s account.
Payment confirmation: After crediting the payee’s account the payer receives a confirmation and the transaction is completed.
Payee Validation: The payer provides either the UPI identification number or the mobile phone number of the payee. Subsequently, a customer validation API verifies the authenticity of the payee
Compliance Check: Based on the end user’s consent, additional user information is captured and exchanged by the compliance-screening API. This enables real-time screening, enhanced speed and a reduction in cost of transaction.
Forex (FX) Rate Fetch: This is automated by the FX Rate API, making the process efficient and error-free.
Payment Execution: After payee validation and compliance check, the payer enters the amount to transfer. Real-time conversion facilitates display of the equivalent transfer amount in the foreign currency. Upon authorisation by the payer, the payment gateway executes the transaction and transfers funds to the payee’s account.
Payment confirmation: After crediting the payee’s account the payer receives a confirmation and the transaction is completed.
This is known as the Bilateral Link Model as two payment systems can also be directly connected to each other. In this model, participants from one system can directly access all the direct participants in the other (foreign) payment system, rather than being limited to a single entity as observed in traditional legacy systems. Leveraging the appropriate set of APIs, these systems are relatively simpler to establish and operate, offering enhanced efficiency and accessibility.
Source: BIS Report
RBIH Updates
Whitepaper on Interoperable DLT Platform
At RBIH, emerging technology is a key focus area, and in this context, the applications of Distributed Ledger Technology (DLT) for solving problems at scale was an area of keen interest for the team. We conducted research and carried out extensive stakeholder interviews to identify areas of improvement for several banking processes, under the larger vision of introducing a DLT platform that meets the needs of the Indian financial sector. These discussions culminated in a closed-door virtual Roundtable attended by leading public sector and private sector banks where we proposed a proof-of-concept (POC) exercise to demonstrate and test the capabilities of an Interoperable DLT platform. Participating banks chose Inland Letter of Credit as a use case for the POC exercise. Recently, we published a whitepaper outlining our findings from the same, and elaborating on the way forward for the initiative.
Inaugural Swanari Dialogue
A roundtable discussion was convened at the RBIH Headquarters in Bangalore, focusing on the importance of collecting, analysing, and disseminating nuanced data and insights to advance women’s financial inclusion in India. In our first-ever “Swanari Dialogues”, representatives from various organisations were brought together to exchange ideas, share insights, and evaluate the significance of establishing a facility that would centralise, store, and distribute data from primary sources to address specific issues. The objective of the discussion was to gain a comprehensive understanding of the potential “RBIH Swanari Data Observatory” and its benefits, challenges, and opportunities in building a gender-disaggregated data facility for the financial services sector. The participating organisations encompassed a diverse range of expertise and perspectives, including research, multilateral organisations, foundations, management consulting firms, behavioural science experts, development-focused consulting firms, and academia, among others.
Vaulter Voice Hackathon
The Vaulter Voice hackathon, held in collaboration with IIT Madras Research Park (IITMRP) in Chennai, successfully concluded with a grand finale. The event garnered 114 registrations from students and working professionals representing over 35 institutes and colleges nationwide. IITMRP shortlisted nine finalist teams, who participated in a 6-hour hackathon to develop and test their voice-enabled banking solutions. During the hackathon, the teams presented their apps and demonstrated additional commands/tasks to an expert panel. The event served as a platform for participants to showcase their expertise in creating innovative solutions for voice-enabled banking in vernacular languages and foster collaboration with industry players to drive advancements in this exciting field. The winning teams of the hackathon were Thoughtworks (Voice Vanguards), Kaizen Secure Voice Pvt Ltd, IIT Madras (Leftroad), and SSN institution.
