Why CCI matters for protecting customers from digital players

Unfortunately, the very same feature that results in great externalities (not always positive, unfortunately) due to economies of scale, also lends itself to the creation of monopolies, enabling powerful players, riding on network effects, to potentially take advantage of gullible consumers. Add to that the fact that in the digital world, it is much easier and quicker to dupe customers, and hence the need for greater vigil on the part of both authorities and the public, including, as Sinha points out in an interview to the Mint, the need for competition law to evolve in sync to deal with issues that arise thanks to the dramatic increase in digital transactions.

The EU Digital Markets Act and Digital Services Act and similar legislations being considered by other countries offer a possible template as we navigate our way in a relatively new and rapidly changing world.

But what is increasingly becoming clear, especially when it comes to the financial sector, is that the Competition Commission of India (CCI), the guardian of consumer interest against anti-competitive behaviour, must join forces with other financial sector regulators—the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), the Pension Fund Regulatory and Development Authority (PFRDA), the Insurance Regulatory and Development Authority (IRDA) and the Investor Education and Protection Authority (IEPF) under the aegis of the Ministry of Corporate Affairs (MCA)—to ensure customers, whether savers, investors or borrowers, are not taken for a ride in the digital world, where all it takes is the click of a mouse to lose hard-earned money.

The RBI’s decision to draw up a list of eligible loan apps that can be hosted on app stores, as part of a multi-pronged government strategy to rein in illegal digital lending outside regular banking channels, is of a piece with this. As is the MCA’s attempt to identify and deregister shell companies to prevent misuse.

However, it is important to remember that the RBI’s remit runs only to regulated entities, not to unregulated ones. Likewise, SEBI’s jurisdiction is over listed companies, not unlisted ones. It is possible for many unscrupulous elements to slip through the cracks. This is where law enforcement agencies come in.

True customer protection is much more than ensuring savers and investors get their money back. It includes providing them with more choices, greater transparency and market integrity, in other words, guarding against firms’ non-competitive practices. As also ensuring easy and quick access to redressal in case of fraud. That includes sprucing up the investigation and judicial systems to work in sync with the pace of the digital world. And last, but not least, it also entails ensuring that the humungous amount of data collected by these entities while putting through financial transactions is not misused.

The government's Digital India programme aims to transform India into a digitally empowered society and knowledge economy. The aim is to move to a ‘faceless, paperless, cashless’ society. While this is a great ideal and promises huge efficiencies even as it empowers the bottom of the pyramid, as with anything else in life, comes with both opportunities and challenges. One of the biggest challenges is to ensure that misuse and frauds are minimised, even if they can never be eliminated.

True, financial literacy is the best safeguard for ensuring the promise of the world of digital finance is realised in full measure. But authorities must be ever watchful to plug the loopholes even as they walk the fine line between regulation and innovation.

The Unified Payments Interface (UPI), which powers multiple bank accounts into a single mobile application (of any participating bank) and merges several banking features under one platform, has democratised the payments system as never before. But it is also an area prone to fraud.

Likewise, digital lending platforms have made access to finance easier for the small borrower. But apart from risks to the financial system where funds are sourced from banks and non-bank financial companies, as recent media reports have shown, retail borrowers are often harassed by recovery agents; not to mention the risk of sensitive data and funds being siphoned off to other countries, notably China.

In the non-digital world, financial sector regulators have resisted any move to include the CCI in their cosy club. But given the inherently anti-competitive nature of digital players, meaningful customer protection must involve not just the traditional financial sector regulators—SEBI, RBI, IRDA and PFRDA—but also the CCI and at some future date, once the Data Protection Bill becomes a reality, a new data regulator, if the Bill envisages the need for such a regulator.