Amazon and Google have both announced their plans to foray into deposit booking services even as the Reserve Bank of India red-flagged the involvement of large tech players in the financial services segment.
Amazon Pay India, the payments app of the United States’ e-commerce major, announced on Wednesday that it will partner with Indian investment platform Kuvera.in to provide investment opportunities to its customers in mutual funds and fixed deposits. On the other hand, Google Pay has announced its partnership with Equitas Small Finance Bank to allow its users to book deposits.
The RBI has raised concerns on the entrance of big tech firms in offering digital financial services.
Amazon and Google Partnerships
Through the partnership with Kuvera, Amazon Pay’s customers will be able to invest in fixed deposits and mutual funds. “Kuvera will provide its services, products and technology know-how to create an exclusive experience for Amazon Pay’s users to facilitate investments into mutual funds, fixed deposits, and more over time,” said a statement released by the company.
Meanwhile, Equitas Small Finance Bank will launch a unique fixed deposit scheme that will be offered through the Google Pay app. Google already offers a bevy of wealth management products through its platform with players such as CashE, Groww, 5paisa, and Zest Money. However, this is the first time the platform will distribute a deposit product.
Why is the RBI concerned?
The RBI finds “too-big-to-fail” tech companies like Google, Facebook, Apple, Amazon and Microsoft difficult to regulate. These companies have enormous resources to cause a complete meltdown, apprehends the bank regulator. If not handled well, big tech firms can disrupt financial stability in India.
If the RBI fails to check the reins of these giants, all banks may end up partnering with big tech platforms. This will lead to such firms getting an upper hand and at some point dictating terms while dealing with banks, a potential new trend the RBI is worried about.
Also, customers may get used to the convenience of apps and not go back to any bank. This can cause banks to fail, which will have a domino effect on the entire financial system.
Flagging such concerns, its Financial Stability Report published in July 2021, the central bank said there were pre-existing challenges for banks which included the growing presence of big techs in financial services.
Big techs offer a wide range of digital financial services and have a substantial footprint in the payment systems, crowdfunding, asset management, banking and insurance of several advanced and emerging market economies, according to the RBI.
The RBI recognizes that there is promise of supporting financial inclusion and generating lasting efficiency gains by encouraging the competitiveness of banks. However, the RBI sees policy issues behind the move of the big techs. “Specifically, concerns have intensified around a level playing field with banks, operational risk, too-big-to fail issues, challenges for antitrust rules, cyber security and data privacy,” the RBI said.
According to the RBI, tech giants pose three challenges to the Indian system. “First, they straddle many different (non-financial) lines of business with sometimes opaque overarching governance structures. Second, they have the potential to become dominant players in financial services. Third, big techs are generally able to overcome limits to scale in financial services provision by exploiting network effects,” it said.
“Furthermore, as the digital economy expands across borders, international coordination of rules and standards becomes more pressing,” the report read.
Although the RBI has not said anything about the two moves, it will weigh the entry of the two giants and assess its impact on the Indian banking system.
(Edited by : Aditi Gautam)
First Published: IST