Of Crowdfunding and Cryptocurrencies: No Free Rein for Fintech

It appears RBI will not give free rein to fintech.

Banking has ceased to be the sole preserve of banks with developments in information and communication technology enabling non-banks to get into lending and other activities, according to the RBI deputy governor R Gandhi, reports Times of India. He, however, cautioned that two key developments in fintech — crowdfunding and cryptocurrencies such as Bitcoins — will not be given a free run. 

According to Gandhi, the central bank will regulate crowdfunding. "You need an organised and a regulated entity to ensure that the innocent and weak parties are protected. Any democratic set-up cannot dismiss it quoting 'Consenting Adult' argument. 'Consenting adult' argument cannot be presented when mass scale failure takes place," said Gandhi.

On Bitcoins or any other virtual currency, Gandhi said the two important elements of any currency were confidence and anonymity. "The initial rounds are always filled with adventurists and risk-seekers; the moment masses get in, the risk-avoiders get in, they will need greater 'confidence' for acceptance and that can come only if an 'authority' issues it. As regards 'anonymity', the blockchain technology apologists say it can be made very difficult to track, and that is not 'anonymity'. Therefore, it may remain a pipedream that blockchain will eliminate currency, by ushering in virtual currency," said Gandhi.

Speaking at a fintech conference jointly organised by FICCI, Indian Banks Association and Nasscom, Gandhi said that the industry is witnessing 'chunking' of activities carried by banks, where specialist entities are engaged in focused lines of business — which are carved out of banking. Gandhi listed over a dozen services that have been chipped away 'chunk after chunk' from banking. These include those by payment service providers, peer to peer services, peer to business services, SME financing, consumer retail financing, crowd funding, open ended mutual funds, money market mutual funds, deposit alternatives, trade financing, invoice financing, bill discounters, bill collectors, credit referrals, account aggregators, interest free products, syndicators, investment bankers, micro finance institutions and housing finance companies.

"With their specialisation and focused service rendering, non-banks are able to offer that chosen service at greatest efficiency, speed and at very affordable cost to consumers. When these specialised entities make innovative use of ICT as their business model, they tend to be called fintech companies," said Gandhi. However, he said real fintech companies were those who develop innovative systems, products and solutions for use by those in the financial sector, without rendering financial services on their own.


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