RBI closely monitoring the 'Google deposits deal'

The RBI is carefully checking the pros and cons of the deposits deal from Equitas SFB via Google Pay

 

 RBI closely monitoring the 'Google deposits deal'

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• The story: India's central bank - RBI - has always favoured technological innovation in banking. It also says that regulation should remain a step ahead of innovation. In this context, the RBI is quite cautious of the ‘Big Tech’ firms, e.g. Google, Facebook, Amazon, Apple and Microsoft.
• FSR: In the half-yearly Financial Stability Report (FSR), released on July 1, the RBI listed the growing presence of Big Tech in financial services as among the key risk factors for financial stability. Big Tech firms, the FSR said, sometimes have “opaque overarching governance structures,” and the potential to become “dominant players in financial services”.
• Google's deposits plan: The Equitas Small Finance Bank wants to tap into the user base of Google Pay for taking deposits. Equitas, its technology provider Setu, and Google, all clarified that the tie-up should not be interpreted as anything more than a usual product offering.

1. The Google Pay-facilitated deposit scheme has made the RBI uneasy
2. Many concerns may appear in the report of the working group committee on digital lending
3. The panel is focussed on the digital marketplace for banking products

• What Google says: It said that products in financial services are from regulated industries and each merchant should be duly authorised to provide those before they can be boarded on to the Google platform. As Google Pay, its role was firmly circumscribed to providing these merchants a surface where Google Pay users can discover and gain from these offerings -- be it credit products, insurance or any other. It said that "these products are not “Google Pay’s offerings”, and that Google’s role is limited to being just a partner to the existing financial system.

1. Equitas said Google had nothing to do with the product as such, and was not earning any fee for the service
2. Earning deposit commission is not allowed in India anyway
3. Google’s association was a continuation of two such existing offerings by the bank — one with Grow fintech, and another product owned by the bank named Selfie-FD
4. Google was just a facilitator for the transaction. No information was being shared with Google, whose role ends after facilitating the transfer of funds. If the customer leaves the Google platform in the interim, the money will transfer back to her original bank account upon maturity, or on premature withdrawal.

• Technical clarification: Using Google Pay to access a financial product does not differ substantially from using the Chrome browser to access the banking site. The transaction passes through the core banking solution of the bank; KYC is carried out solely by the bank in a fully compliant manner, and funds move from the user's existing bank account with any licensed bank and go back directly to the same bank account. All sensitive parts of the transaction happen on regulated bank infrastructure.
• RBI's stance: The tie-up surprised the banking regulator, which was not expecting Google Pay to get linked with such sensitive issues as deposit products, especially when the regulator is committed to protecting depositors’ interest and maintaining the financial stability of the system. Many other banks too have shown interest in the technology as it efficiently taps into an existing distribution channel, and is covered by existing regulations that are followed by all players in this space.
• EXAM QUESTIONS: (1) Why is RBI scrutinising the Google-Equitas SFB deposits deal? Explain. (2) What are the inherent risks in allowing Big Tech firms (GAFAM) in finance arena? Explain.

Read more on - Polity | Economy | Schemes | S&T | Environment

#Equitas #Google #RBI #Deposits

 

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