According to RBI, Regulators may have challenges in guaranteeing the ecosystem’s stability and control when so-called Big Tech firms enter financial services in emerging markets like India. Monopolistic tactics, antitrust difficulties, cybersecurity threats, and data privacy issues are among the major concerns raised by the central bank.
“Big Techs offer a wide range of digital financial services…of several advanced and emerging market economies,” RBI said in its biannual Financial Stability Report. “While this holds the promise of supporting financial inclusion and generating lasting efficiency gains… concerns have intensified around a level-playing field with banks, operational risk, too-big-to-fail issues, challenges for antitrust rules, cybersecurity, and data privacy.”
Google, Amazon, Facebook, Apple, and Microsoft are the five most powerful information technology companies in the world, with market capitalizations ranging from $1 trillion to $2 trillion apiece.
During the involvement of the Indian government in a legal battle especially with Twitter, the RBI gave remarks at that time, on the new Intermediary Guidelines and Digital Media Rules it just released.
Google, Amazon, and Facebook’s WhatsApp are all active players in India’s real-time payments network, the Unified Payments Interface, or UPI. Financial gateway services like loans and card payments are also available through Amazon and Google’s payment methods.
The banking authority identified three main categories as probable difficulties emerging from Big Tech’s involvement in financial services.
“First, they straddle many different (non-financial) lines of business with sometimes opaque overarching governance structures,” the central bank said. “Second, they have the potential to become dominant players in financial services. Third, Big Techs are generally able to overcome limits to scale in financial services provision by exploiting network effects.”
The RBI believes that creating an international standard based on rule coordination is the best method for financial regulators and global central banks to monitor these firms. It also suggested a method known as “entity-based prudential regulation,” in which each Big Tech firm’s operations are examined separately against a set of preset norms.
“For central banks and financial regulators, financial stability objectives may be best pursued by blending activity and entity-based prudential regulation of Big Techs,” RBI said. “Furthermore, as the digital economy expands across borders, international coordination of rules and standards becomes more pressing.”
According to the central bank, anti-money laundering (AML) and fighting the financing of terrorism (CFT) are already being implemented across jurisdictions.
In November 2020, the National Payments Corporation of India, which owns UPI and is regulated by the Reserve Bank of India, introduced a market share-capping rule for third-party apps on UPI, stating that no single company could have a volume exposure of more than 30% in any given quarter beginning in 2022.
The rule, according to NPCI, was implemented to prevent monopoly and competition threats. Over 85% of UPI volume is accounted for by Walmart’s PhonePe and Google Pay.