Efficiency in cross-border payments will require going beyond existing infra: RBI deputy governor

Mumbai: To have the same level of efficiency as domestic payments, cross-border transactions will require going beyond the existing infrastructure, technology, process and categories of ecosystem participants, according to Reserve Bank of India deputy governor T. Rabi Sankar.

“One of the key issues we globally discuss now is how to achieve the efficiency we have seen in domestic payment systems, in cross-border systems. It is fairly clear from global discussions that are taking place that the solution has to involve, eventually, systems that go beyond the existing infrastructure,” Sankar said at the Global Fintech Fest (GFF) on Thursday.

“This indicates that we need to have participants other than banks, technologies other than those that exist today, and processes that are different from the typical correspondent banking system that exists--if we have to achieve these efficiencies.”

Role of SRO

Many of these inefficiencies exist because the correct technology does not exist and thus the onus of removing these inefficiencies falls on fintechs, Sankar said, adding that self-regulatory organisation (SRO) can play an important role in guiding the sector towards identifying and removing such inefficiencies.

RBI, on Wednesday, approved the application of Fintech Association for Consumer Empowerment (FACE), recognising it as the first SRO for the fintech sector.

“An SRO should work consciously and consistently to create conditions that are favourable to competition. Competition is essential to make markets effective and efficient,” Sankar said, adding that price efficiency or cheaper cost is an important indicator of market integrity and one of the two major assets of the fintech industry, the other being faster delivery.

“But this cost efficiency should be driven by technology, not by an ability to withstand losses. New technology understandably has business strategies that are radically different from traditional businesses. Therefore, the SRO has to drive the industry to ensure that such strategies do not keep out competition, which eventually stifles innovation,” he said.

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Another area where the SRO should focus on is delivering value to consumers—which is one of the main reasons why fintechs have been a “positive disruptive force”. At the same time, the SRO needs to identify, sensitise and ensure that the industry moves away from several emerging unfavourable practices such as dark patterns.

“It is for an SRO to urge the fintech sector not to lose sight of the fact that earning trust would necessarily involve treating the customers fairly, which includes not just fair pricing but also pre-sales and post-sales interactions. Of particular importance is the need to provide products that meet genuine and socially productive needs of customers,” said Sankar, citing the need of truthful advertising and pre-sales communication as an example.

Fintechs also need to be alert of social and macroeconomic interests and priorities and not subsume them to business interests. It is only an SRO that can inculcate such a culture. The mantra should be to take advantage of the technology, do business honestly and with integrity and ensure that the customer is not shortchanged in the process, he added.

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While regulatory changes may lead to some friction with industry members, the industry has to adjust and this adjustment can be smoother and quicker if the industry is sensitised towards measures for improving the integrity of the system, protection of the customer, and reducing the risk in the system.

“The fintech industry is in young days, it has a lot of growing up to do, I think the SRO has to start preparing the industry, for the sector to face the reality that as you mature, it has to show in the way you behave.”

Digital currency

The deputy governor also touched upon the growth in Central Bank Digital Currency (CBDC) and the role of fintechs in growing the segment.

“What programmability does in CBDC establishes a use case where only a token/CBDC can be used. The possibilities are endless, what we are seeing here is just the beginning of some simple programmes. As the ecosystem develops, more and more programmes are added, you can virtually programme it for any specific use and when that happens no other instrument can do it. That will probably place CBDC almost at par with any other payments system that we have,” said Sankar on the sidelines of the event.

“I'm sure with the clear use cases that are going to be established by programmable tokens/CBDCs, this segment of the market can become as liquid or as heavy as any other segment,” he said, adding that the growth potential in payments remains very large despite the growth seen so far.

An RBI survey in 2022 had showed that only a little above 40% of people surveyed had ever used a digital transaction. Further, only 23% of the respondents said they use digital transactions regularly. This growth potential, combined with the public objective of financial inclusion, thus carries a business case for the fintech sector, he said.

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