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Bengaluru: Financial services is the most heavily regulated industry, technology is anything but. So, when finance and technology are joined, where is the centre point of regulation? How do regulators try and understand whether they should facilitate the development of the industry, and when they should regulate?

Lowell Campbell, principal global specialist digital financial services, alternate delivery channels, The International Finance Corporation-World Bank Group, and Monish Shah, senior director at Deloitte, comment on the issues in an interview.

What’s new in fintech? What’s happening globally?

Campbell: Globally, what we’re seeing is, more people are trying ‘to problem a solution’ rather than actually ‘solution a problem’. Everybody believes that cash is the problem, but to the people using cash, it is not a problem. We’ve been approaching it quite incorrectly. Is the ultimate goal to get to a cashless society? Absolutely. But we’ve got to do it in a systemic way. We’re sending consumers to transact digitally, but the process is not as smooth. How do we get merchants to accept cashless or digital with the idea to unlock the data to make more responsible lending decisions, to use consumption data? The key focus right now, globally, is to see how we can reorder the retailer, the merchant side of the business. Make that profitable, make that more accepting to this infrastructure and it will then drive towards cashless.

Where do the regulators stand on this?

Campbell: Regulators are doing a fantastic job. I think where the challenge comes is that there are incredibly intelligent minds but we have regulators who don’t get the exposure. We have regulators who don’t know what they don’t know so they tend to over-regulate and over-compensate for the lack of knowledge.

In marketplace lending—p2p lending—there are two strands of thoughts, one that says leave them alone, and one that says they should be as regulated as banks. India has taken a middle of the line approach. Is this the right path?

Shah: I would think that while regulation will evolve, the basic principle of making customer interest paramount will remain strong. As far as p2p goes, it is in the right direction. RBI (Reserve Bank of India) should play the role of an enabler and leave the rest to the marketplaces to figure out. In P2P lending, the credit risk is between two parties per se. It is about finding your own balance both from a risk taking perspective and risk giving perspective. It will be extremely difficult to monitor.

In the payments segment, what is your take on the RBI vision document?

Shah: On the payments side, we will see a lot of changes happening. The payment banks themselves are going to make a huge amount of difference. By creating this huge push from a supply side, that’s going to create its own demand and this kind of payments bank which we will see now is going to be a very different animal than the way we have seen traditional banks approaching customers, pricing. The technology itself will change the way transactions are being done and we will see a new class of specialist payment providers in this.

Campbell: I didn’t think there was anything radically new in the document. I like the fact that there’s an emphasis on acquiring infrastructure and how you drive people in that direction, I thought that was really good. I also thought that the emphasis on what it feels to me what the regulator’s trying to do now is interoperability is critically important.

What should the regulatory approach be? A principle-based approach or a rule-based approach? The US, the UK have had to evolve to a consumer protection mindset, right?

Campbell: In developed economies, people just do it and then somebody comes up with a class action suit and then things change, etc.

We need to figure out a way where the regulators say, let’s put trust back in the market. We’re expecting customers who’ve seen people on TV, Bollywood stars, etc, with a gold card, platinum card, we’re telling them forget all that stuff, just go to a mobile phone. I think that’s one step too far. We have to take people through a natural journey, it doesn’t have to be 10-100 years it could be six months, two months, but we need to keep that flow going and that’s where the regulator could help us.

How do you see this fintech ecosytem evolving?

Shah: We will see larger ecosystems evolve. From a customer perspective maybe its akin to the way we have 3-4 large credit issuers. The same way we will see 4-5 payment ecosystems emerging and the customer will be part of one.

Who’ll be a part of the ecosystem? Could be a universal bank, it could be a wallet player, it could still be a payments bank, it could be an NBFC, it could also have a retail company or petroleum company part of the ecosystem. We will see collaboration happening between existing players and start-ups to make more meaning customer value propositions.

Campbell: I think India is doing really, really well. In China, you get to see everything deployed. But I always wonder what’s the underlying business model to make it commercially viable? In India, people are probably thinking more around “What is the business model to make it viable?" and I think that’s a significant contrast.

I think for the next year or two, we need to double down on what we already have. We need to execute. We need to get down to the nuts and bolts of it, make more people use these systems, because more people using these creates a bigger network effect, greater utilisation, rather than these disparate approaches.

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