RBI Enforcement Actions Prompt Fintech Scrutiny

Reserve Bank of India (RBI), has recently taken significant enforcement actions. Last month, it ordered Paytm Payments Bank to cease operations due to persistent compliance issues. More recently, Visa and Mastercard were directed to suspend domestic transactions for business payment solution providers (BPSPs).

In an opinion piece, Bloomberg columnist Andy Mukherjee links these actions to the rise of neo-banking facilitated by cloud computing. While this innovation enables rapid small payments, it also increases the risk of fraud, especially with challenges in enforcing know-your-customer (KYC) rules.

Mukherjee suggests a three-part strategy to combat fraud, emphasizing the need to enhance the security of India’s Aadhaar ID verification. He highlights that despite the popularity of the Unified Payments Interface (UPI), traditional lenders lack incentives to upgrade technology due to free UPI transactions. He also advocates increased competition in the National Payments Corporation of India to mitigate fraud.

Contrary to speculations, RBI’s Executive Director P. Vasudevan clarified that no harsher measures are forthcoming on fintech. However, the regulator expects strict adherence to customer verification and data protection rules.

In a separate development, reports emerged of a financial crime probe against Paytm by India’s authorities regarding potential foreign exchange rule violations. Paytm denied any wrongdoing, dismissing the allegations as baseless.