Big Tech’s Game in Financial Services May Lead to Systemic Issues Like Overindebtedness Das


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Mumbai, Jun 17 (PTI) Big Tech’s play in lending businesses using customer data and sophisticated algorithms can lead to “systemic concerns” like over-indebtedness and inadequate assessment of borrower quality, the Governor of the Reserve Bank, Shaktikanta Das.
The entry of companies like Google, Amazon and Meta, called Big Tech, also raises issues related to competition, data sharing, data protection and operational resilience of critical services, Das said during the ‘Modern BFSI Summit 2022’ hosted by The Financial Express here.
This isn’t the first time the banking regulator has expressed concern about Big Tech’s foray into financial services. In last year’s Financial Stability Report, he raised some general concerns, including about the products of these companies taking deposits for certain regulated entities in the financial sector.
Das said Big Tech players are in the banking industry either on their own or through ties to banks or non-bank lenders.
Citing the case of loans, he said they offer sophisticated services that use data from a variety of sources to grant loans to users, including those without collateral or a credit history and added that lenders use platforms provided by fintech companies.
“Such large-scale use of new credit assessment methodologies can create systemic problems such as over-indebtedness, inadequate quality assessment and other similar risks,” he said, adding that authorities and regulators must strike the right balance between enabling innovation and preventing systemic risks. .
“Big Techs also pose challenges related to competition, data protection, data sharing and operational resilience of critical services in situations where banks and NBFCs use their services. These concerns may also materialize in sectors other than financial services,” the governor said.
Lending through digital channels, including mobile apps, has led to issues related to unfair practices, data privacy, documentation, transparency and violation of license terms, Das said.
To deal with such cases, the RBI will soon issue guidelines to make digital lending ecosystems “safe and healthy while enhancing customer protection and encouraging innovation”, he said.
Making clear that the risks that emanate can be broad enough to encompass financial or overall market stability, Das said there can be different ways of regulating fintechs depending on the activities they do, or regulation based on the entities and on the results.
The fintech game also requires multiple regulators to work together, as a single technology like blockchain or decentralized finance (DeFi) can have multiple uses falling under the purview of different watchdogs, he said.
“DeFi poses unique challenges for regulators because it is anonymous. The lack of a centralized governance body and legal uncertainties can make the traditional approach to regulation somewhat ineffective.
“There is therefore a strong case for a globally coordinated regulatory approach and cross-regulatory coordination to enable a comprehensive assessment of these activities, activities and risk mitigation,” the Governor said.
He also spoke about the use of artificial intelligence and machine learning to determine a borrower’s creditworthiness, and pointed to cybersecurity risks, software development limitations in transaction capacity, customer data privacy and data security.
The methodology of the algorithms that underpin digital financial services must be “clear, transparent, explainable and free from exclusionary bias”, he stressed.
In an age of technological change, the governor also called on banks to prepare and embrace more technology, suggesting that banks should not just operate like banking businesses, but like technology businesses.
Das also said the deployment of harsh recovery methods like calling borrowers at odd hours or using foul language is “unacceptable” and assured that the RBI gives “serious attention” to such occurrences to ensure that the necessary measures are taken to curb these activities.
He said most of these cases are reported by unregulated entities, but added that the central bank has also come across such tactics used by RBI-regulated entities, and urged all actors to pay close attention. .
The comments come at a time when many borrowers have reported suicides triggered by harsh collection practices by officers. PTI AA ATM


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