Issue: 018

MARCH 2024

Issue: 018

MARCH 2024

Message from the CEO

Dear readers,

Innovation is the lifeblood that drives growth in fintech and financial services. But responsible innovation is what makes that growth sustainable. Apart from enabling the leaps in digital payments that have fueled India’s fintech story, the Reserve Bank of India has consistently provided timely guidance to ensure healthy growth of the sector.

The eighteenth edition of FinWrap brings you crucial updates from the RBI and global regulators that are aimed at facilitating further growth in digital payments while leading the industry towards a sustainable path.

We, at the Reserve Bank Innovation Hub, are committed to the mission of enabling responsible innovation. Our incubation programmes, startup engagements, and accelerator initiatives, that are detailed in this edition, stand as pillars of this commitment.

Warm regards,

Rajesh Bansal
Chief Executive Officer
Reserve Bank Innovation Hub

Message from the CEO

Dear readers,

Innovation is the lifeblood that drives growth in fintech and financial services. But responsible innovation is what makes that growth sustainable. Apart from enabling the leaps in digital payments that have fueled India’s fintech story, the Reserve Bank of India has consistently provided timely guidance to ensure healthy growth of the sector.

The eighteenth edition of FinWrap brings you crucial updates from the RBI and global regulators that are aimed at facilitating further growth in digital payments while leading the industry towards a sustainable path.

We, at the Reserve Bank Innovation Hub, are committed to the mission of enabling responsible innovation. Our incubation programmes, startup engagements, and accelerator initiatives, that are detailed in this edition, stand as pillars of this commitment.

Warm regards,

Rajesh Bansal
Chief Executive Officer
Reserve Bank Innovation Hub

India Fintech News

A. Expanding the global presence of UPI payment services

Prime Minister Narendra Modi announced the launch of India’s Unified Payment Interface (UPI) services in Mauritius and Sri Lanka and RuPay Card services in the former on February 12. He described this initiative as a way to link historic ties with modern digital technology.

The digital payments connectivity with Sri Lanka and Mauritius will enable Indian travellers to make QR code-based payments at merchant locations in these two countries using their UPI apps. Similarly, a Mauritian traveller will be able to do the same in India using the Instant Payment System (IPS) app of Mauritius.

The following are the advantages of this launch:

Boost cross-border transactions and connections

Local economies will witness a positive transformation

Tourism in these countries will be promoted and

The need to buy hard currency will decline as well

Further expanding UPI’s global presence, on February 15, 2024, the RBI and Nepal Rastra Bank exchanged Terms of Reference for integrating UPI and NPI (Nepal) payment systems.

Similarly, NPCI International Payments Limited (NIPL) in partnership with French fintech Lyra, announced the acceptance of a UPI payment mechanism in France.The integration will start with the iconic Eiffel Tower where the Indian citizens can purchase tickets using UPI.

This integration aims at instant, low-cost cross-border fund transfers between the countries, enhancing financial connectivity, and strengthening the historical, cultural, and economic ties between the two countries.

B. RBI Amended the Master Direction on Prepaid Payment Instruments (PPIs)

The RBI recently introduced an amendment that allows both bank and non-bank issuers of PPIs, who are authorised by the RBI, to issue PPIs specifically for payments in public transport systems.

PPIs are e-wallets that can be loaded with money from bank accounts to make digital transactions.

For the vast number of commuters that use public transport on a daily basis, this move aims to enhance:

Convenience

Speed

Affordability

Safety of digital payments

C. RBI restrained payments from an unauthorised system

The RBI identified a card network’s arrangement that enables intermediaries to process card payments to non-card accepting entities via IMPS, RTGS, or NEFT.

Issues that were identified:

The arrangement constituted a payment system needing authorization under Section 4 of the Payment and Settlement Systems Act , 2007 (PSS Act), which was not obtained, making the activity unauthorised.

The intermediaries pooled large amounts of funds into an account that was not designated under the PSS Act.

As per the RBI’s Master Direction on KYC, the transactions did not meet the requirements for originator and beneficiary information.

This matter is under detailed investigation, and the RBI has instructed the involved card network to suspend such arrangements.

Fintech News

EBA Proposes Guidelines for ESG Risk Management in Banking

The European Union (EU) Council adopted a regulation that will make instant payments fully available in euros to consumers and businesses in the EU and in the European Economic Area (EEA) countries. This initiative marks a major step towards a more integrated financial market within the EU.

The new rules will improve the strategic autonomy of the European economic and financial sector as they will help reduce any excessive reliance on third-country financial institutions and infrastructure.

The following are the advantages of this launch:

Faster Payments: Money transfers will occur within ten seconds, even outside business hours, across all EU and EEA countries.

Greater Security: Measures are included to reduce fraud and ensure accurate transactions.

Innovation Potential: The regulation opens doors for the development of new financial services.

Cost: The charges that apply (if any) will not be higher than the charges that apply for standard credit transfers.

The new regulations will be implemented following a transition period that will be shorter in the euro area and more extended in the non-euro area, allowing for necessary adjustments.

FinCEN’s latest proposal to tighten AML regulations for SEC-registered advisers

The Financial Crimes Enforcement Network, a bureau of the US Department of the Treasury has proposed rules to address illicit finance risks among investment advisers who currently lack specific Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) obligations.

Investment advisers oversee trillions of dollars in investments without legally binding AML/CFT requirements, creating vulnerabilities in the U.S. financial system.

The proposed regulations aim to close this gap by including investment advisers under the definition of ‘financial institutions’ and requiring them to implement AML/CFT programs, file Suspicious Activity Reports (SARs), and comply with other Bank Secrecy Act obligations.

Tech in Focus

Decentralized Identity Management

Our information is scattered across different websites, and these big companies holding our data are vulnerable to hackers. Decentralized Identity (DID) is a new approach that uses blockchain technology, the system behind cryptocurrencies, to decentralize information.

Blockchain is like a public record book everyone can see, but no one can change. Data is immutably stored in chronological blocks, each with a unique cryptographic fingerprint. Any attempt to tamper with a single block requires altering the entire chain, making DID highly resistant to fraud and data breaches.

Apart from DID it can also be used in Smart Contracts.

These are digital agreements that are signed and stored on a blockchain network, and executes automatically when the contract’s terms and conditions (T&C) are met through, for example imagine a seamless online purchase – your DID verifies your identity with the vendor, and the transaction executes automatically. No passwords, no intermediaries – just efficient and secure interactions.

While DID offers a compelling vision for the future, there are technical hurdles to overcome before widespread adoption. For example, DID verification processes may not be suitable for real-time applications requiring immediate authorization. Ongoing research and development efforts are focused on optimising these processes to meet the demands of high-speed transactions.

The initial coding of smart contracts, the self-executing agreements on the blockchain, carries a potential risk of errors. Stringent testing methodologies and robust development practices are crucial to minimise these risks and ensure the integrity of smart contracts.

The immutability of blockchain means that once data is entered, it cannot be altered. This is a double-edged sword. While it ensures security and trust in the data’s integrity, it also means that errors, once recorded, cannot be corrected. This poses a challenge for managing and updating personal information or correcting mistakes.

Example of Decentralized Identity Process

RBIH Updates

FinXcelerator- Investor Demo Day

RBIH in collaboration with PIEDS (Pilani Innovation & Entrepreneurship Development Society, BITS Pilani) and ICICI Bank hosted the Investor Demo Day with insightful masterclasses and one-to-one sessions.

FinXcelerator was a 45-day accelerator for fintechs in the sphere of emerging technologies, where 50+ investors interacted and showcased their ideas.

Rajesh Bansal, CEO of RBIH delivered a speech on ‘Emerging Technologies for Inclusive Finance’ with a special address by Rakesh Jha, Executive Director of ICICI Bank, on ‘Accelerating the Fintech Ecosystem’.

The aim of this program was to accelerate fintech startups, promote innovation, and offer comprehensive support in the form of mentoring, personalised assistance, networking, and opportunities for pilot projects with ICICI Bank and other corporations.

The Growth Summit – fostering innovation and leveraging India’s digital infrastructure

The Growth Summit by RBIH is an initiative in collaboration with YES Bank and CNBC-TV18, and in association with Max Life Insurance Company Limited.

Rajesh Bansal, CEO of RBI Innovation HUB, talked about India’s digital infrastructure for inclusive growth, encouraging innovation, and strengthening grassroot initiatives.

The highlight of the summit was the convergence of India’s corporate leaders, experts, finance professionals, and entrepreneurs in a unified effort to drive the nation towards achieving a $10 trillion economy.

I-Innovate Innovation Challenge – AMA session

I-Innovate, a joint initiative of the Reserve Bank Innovation Hub (RBIH) & HDFC Bank in partnership with the AssisTech Foundation (ATF) conducted an Ask Me Anything (AMA) session, with Chahat Dubey (Head of Partnerships & Programs, ATF) and Aakarsh Naidu (Head of Incubation, Startups & VC Engagement, RBIH).

This challenge aims to empower and support Indian entrepreneurs who are committed to leveraging innovative technologies to remove barriers, improve accessibility, and promote inclusion in the financial ecosystem for people with disabilities.

Fintech Futurepreneurs Bootcamp

RBIH in collaboration with Indian Institute of Management, Lucknow, announced the first edition of the Fintech Futureprenuers Bootcamp which is set to be held in six cities across Uttar Pradesh, showcasing a commitment to nurturing fintech talent and promoting financial innovation.

RBIH will engage with the student community through these bootcamps by offering courses specifically focused on “Design Thinking and Fintech 101”.

The Bootcamp is designed to provide a platform to develop fintech innovation, create awareness about the fintech space, and provide an opportunity to learn about various funding opportunities.