However, it is quite possible that the RBI will soon insist on increasing regulatory oversight of many new era creditors. (Representative image)
On the surface, it’s just a symbiotic relationship with the interests of both partners. However, the impact of the Equitas Small Finance Bank (SFB) and Google Pay partnership could be even greater. It may not be known for some time whether regulators are concerned that Big Tech could break into potentially risky areas. For now, it’s other lenders who stand up and notice that Equitas gets deposits in the Google Pay Business Section through the Google Unified Payment Interface (UPI). Banks and other intermediaries are not without clearing deposits through markets and aggregators.
Equitas clearly uses the vast reach of Google Pays. There is no official data on the number of users of the platform in India, but it accounts for 35% of UPI transaction volume, and not many users are comparable. More importantly, GPay is being used by young people in the gig economy and others who may not have a significant amount of fixed deposits. Most of these could be these workers, but they are not touched on the traditional financial system where the unit economics of reaching out to them proved infeasible. The ease of making deposits and the relatively high interest rates can be a winning combination.
For lenders like Equitas who find it difficult to build a deposit franchise, the Google Pays Spot platform is a way to raise deposits from entirely new customers that would otherwise not be reachable. And Spot isn’t just about raising deposits. In a recent blog post, Google India states that Spot is particularly useful for products and services in the financial sector, with lenders such as CashE and Zest Money, investment platforms such as Grow, and brokers such as 5paisa from Google Pay users. It is of great interest.
While it is true that traditional banks and their new era challengers have different customer segments, there are also significant overlaps that pose no immediate threat to legacy banks. For example, today’s “Pay Now” (BNPL) consumers are future credit card users, and beauticians who accept UPI payments could be potential mortgage borrowers. The fact that some legacy lenders have created the EMI format for BNPL or debit cards shows that they are eager to keep up. Nonetheless, many traditional banks may find it difficult to keep up with smart new lenders, especially their loosely regulated competitors, while innovating their products and marketing solutions. They cannot rely on regulations forever to maintain relevance in some segments of the digital space, such as the UPI platform, and need to put in place a suite of products and services.
However, the Reserve Bank of India (RBI) is likely to insist on increasing regulatory oversight of a large number of new era creditors soon. Given its growing presence in the financial system and, more importantly, its connections with existing players, this universe is expected to contain fintech in all hues. True, pure digital lenders make up a portion of total lending, but they are growing in size and regulations need to be introduced early rather than later. In addition, the connection between Big Tech and creditors can be worrisome to regulators. Google may not know which product the customer is choosing on the seller’s platform, and the deposit is the responsibility of the lender. In that respect, it’s just a platform, nothing more. Nevertheless, the RBI will want to keep an eye on it. Big Tech needs to not grow too large in India’s financial system.
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