In its annual report for 2022, the Reserve Bank of India (RBI) cautioned against the systematic risks involved in allowing global Big Techs to venture into the BFSI sector. Industry experts called it a valid concern as market dominance, cyber security, regulatory and data privacy risks could hinder the sensitive financial sector.

The RBI reportnoted: “In parallel, the central bank, while encouraging innovation, is also factoring in the emerging risks in the FinTech segment. Greater use of technology accentuates the concerns related to cyber security. Further, the involvement of Big Techs in the BFSI segment, also brings along the systemic risks.”

It added: “All of the above have implications for financial stability, and it is the endeavour of the Reserve Bank to mitigate such risks through careful choice of technology and frameworks while providing an impetus to the FinTech in a wide array of useful applications in the financial service industry.”

“The entry of Big Techs will indeed raise a new set of questions, which need careful consideration. From the fintech lending perspective, it will be important to ensure that regulations, including those around customer protection, uniformly apply to all and that there is no arbitrage. Other critical aspects are ensuring competition, choice and innovation in the marketplace in the interests of the customers, so that they have suitable and affordable credit on a sustainable basis,” Sugandh Saxena, CEO, Fintech Association for Consumer Empowerment (FACE), told BusinessLine.

“When large-scale operations are hinging upon 2-3 vendors for a lot of critical requirements, it increases the risk. But when several vendors are involved, the risk gets mitigated, and this is true for all sectors and not just the BFSI sector. But the case is a bit peculiar for BFSI because of the sensitivity in the transactions involved. Every organisation today wants to de-risk themselves, that’s why hybrid cloud, multi-cloud exists,” said Sanchit Vir Gogia, Chief Analyst and CEO, Greyhound Research.

“However, the moment you add even an Indian big tech or co-location company and you step into new architecture like public cloud, API, you open up to a lot of new risks. That will continue to exist whether it is a local or an international vendor. It’s important to have more vendors at multiple layers. Banks are doing open source offerings, which is great, but it cannot survive without the Big Techs. Beyond a point, you cannot survive without Oracle, Microsoft or Google; these are very critical to your operations,” he added.

Customer data

According to Sonam Chandwani, Managing Partner, KS Legal & Associates, cyber security risks and data privacy concerns rises with international Big Techs as they gain control over the customers’ data.

“Data privacy is very crucial for financial services and that’s what the RBI is concerned about. As the digital economy expands in India, the Big Techs anyway have a lot of control over the market; they have huge data sets of existing customers. This will give them an anti-competitive advantage as most clients would go to them,” she said.

She added: “There are already international laws applicable on the Big Techs, so the RBI will not be able to regulate or over-power them as they do with banks. This brings additional concerns over regulations.”