The Reserve Bank of India (RBI) has been thrown a curveball by Equitas Small Finance Bank's recent decision to tap into Google Pay's user base for deposit collection. The RBI is closely monitoring the deal to assess its impact on the banking landscape. The RBI has always supported technical innovation in banking, but believes that regulation should always be one step ahead of innovation. It is understandably apprehensive of ‘Big Tech' companies like Google, Facebook, Amazon, Apple, and Microsoft. The regulator also named the expanding presence of Big Tech in financial services as one of the important risk factors for financial stability in its half-yearly Financial Stability Report (FSR), released on 1 July.
According to the FSR, big IT companies often have "opaque overarching governance structures" and the potential to become "dominant players in financial services." That is why the RBI is concerned about the Google Pay-facilitated deposit system. Sources familiar with the situation said the central bank is carefully assessing the benefits and drawbacks before forming an opinion on the matter, despite the fact that the arrangement appears to be within existing guidelines.
Many of these concerns are likely to be addressed in the report of the working group committee on digital lending, which is due out soon. The team, led by RBI Executive Director Jayant Kumar Dash, was formed in January and missed the deadline once because the consultation process took longer than expected. The panel's report was rescheduled for August, but sources said it had been directed to concentrate on the digital marketplace for financial products now, a reference that could be tied to the Equitas-Google partnership.
Equitas, its technology provider Setu, and Google have all stated that the partnership is nothing more than a standard product offering.
In a blog post published on Friday, Google stated that financial services goods are regulated businesses, and that each merchant must be duly authorised to provide them before joining the Google platform.
"As Google Pay, our role is firmly circumscribed to providing these merchants with a surface where Google Pay users can discover and benefit from these offerings — be it credit products, insurance, or anything else," wrote Sajith Sivanandan, Google APAC's business head for payments and new business. Sivanandan also highlighted that these are not "Google Pay's offerings," and that Google's participation is confined to partnering with the existing financial system.
According to Murali Vaidyanathan, senior president of Equitas SFB, Google has no involvement with the product and does not receive any compensation for the service. In any case, deposit commissions are prohibited in India. In truth, the bank's partnership with Google is a continuation of two current offers — one with Grow fintech and another with Selfie-FD, a product owned by the bank.
“We are using the Google distribution channel to democratise the deposit product while adhering to all RBI norms,” Vaidyanathan explained.
The following were the concerns of the Regulator:
The Reserve Bank of India has yet to approve the use of Big Tech in banking.
If Google is approved, other tech companies will be able to seek comparable treatment.
This might also help Google expand its reach beyond its current UPI leadership position.
In the long run, Big Tech may end up dictating conditions to banks.
Bank apps may become obsolete as more products migrate to their platform.
The Reserve Bank of India is considering whether deposits should be regarded like any other market product.
"Google acts as a middleman in the transaction. We do not share any information with Google, whose involvement ends after the payments are transferred. If the customer quits the Google platform within that time, the money will be sent back to her original bank account upon maturity or premature withdrawal,” Vaidyanathan explained. Setu's co-founder and CEO, Sahil Kini, said that his company is meticulous about following the rules in all it does. Various internet giants' services, including Google's, are constantly employed for banking demands, whether on mobile platforms for apps or through web browsers.
"Using Google Pay to access a financial product is very similar to accessing the banking site using the Chrome browser." The transaction is processed through the bank's core banking solution; KYC is handled completely by the bank in a fully compliant manner; and monies are transferred from the user's existing bank account with any licenced bank and returned straight to that account. All of the transaction's sensitive portions take place on regulated bank infrastructure.” Kini remarked.
Nonetheless, the partnership may have startled the banking regulator, who did not expect Google Pay to be related to such sensitive problems as deposit products, especially given the regulator's commitment to defending depositors' interests and ensuring the system's financial stability. “We provided the RBI with the product page, which they requested. After that, we didn't get any objections,” Vaidyanathan said.
Many other banks have expressed interest in the technology, according to Kini, because it effectively taps into an established distribution route and is governed by existing laws that other companies in this field observe.