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Big tech corps. has the potential to destabilise India's financial stability: RBI

Amazon and Google have both declared ambitions to enter the deposit booking business, despite the Reserve Bank of India (RBI) warning against huge digital companies entering the financial services sector.

Amazon Pay India, the e-commerce giant's payments app, announced on Wednesday that it will collaborate with Indian financial platform to provide users with mutual fund and fixed deposit investment options. Google Pay, on the other hand, has announced a partnership with Equitas Small Finance Bank that would allow users to make deposits.

The RBI has expressed worry about huge IT companies entering the digital financial services market.

"Customers of Amazon Pay will be able to invest in fixed deposits and mutual funds, thanks to the relationship with Kuvera." According to a statement made by the firm, "Kuvera will provide its services, products, and technical know-how to create an exclusive experience for Amazon Pay's users to facilitate long-term investments in mutual funds, fixed deposits, and more." Equitas Small Finance Bank, meanwhile, will launch a one-of-a-kind fixed deposit scheme through the Google Pay app. With players like CashE, Groww, 5paisa, and Zest Money, Google already has a slew of wealth management solutions on its platform. This is, however, the platform's first time offering a deposit option.

The RBI finds it difficult to regulate “too-big-to-fail” tech companies like Google, Facebook, Apple, Amazon, and Microsoft. The bank regulator believes that these corporations have vast resources to bring about a full disaster. Big tech corporations have the potential to destabilise India's financial stability if they are not handled properly. If the RBI fails to rein in these behemoths, all banks may be forced to collaborate with huge tech platforms. This will give such enterprises an advantage, allowing them to dictate terms to banks at some time, a potential new trend that the RBI is concerned about.

Customers may also become accustomed to the ease of apps and refuse to return to any bank. This could lead to bank failures, which would have a cascading effect throughout the financial system. The central bank noted there were pre-existing issues for banks, including the growing involvement of big technology in financial services, in its Financial Stability Report published in July 2021.

According to the RBI, big IT companies provide a wide range of digital financial services and have a significant presence in payment systems, crowdfunding, asset management, banking, and insurance in several mature and emerging market economies.

The RBI acknowledges that fostering bank competitiveness has the potential to boost financial inclusion while also providing long-term efficiency gains. The RBI, on the other hand, sees policy difficulties as the driving force behind the large technologies' decisions. “In particular, concerns have grown about a level playing field with banks, operational risk, too-big-to-fail issues, antitrust challenges, cyber security, and data privacy,” according to the RBI.

According to the Reserve Bank of India, tech behemoths pose three threats to the Indian system. “First, they operate across a variety of (non-financial) lines of business, with sometimes obfuscated governance structures. Second, they have the potential to dominate the financial services industry. Third, big techs can usually overcome scale limitations in financial services provision by leveraging network effects,” the report stated.

“Furthermore, as the digital economy expands beyond national borders, international coordination of rules and standards becomes increasingly important,” the paper stated.

Although the RBI has not said anything about the two moves, it will weigh the entry of the two giants and assess its impact on the Indian banking system.

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