Central banks leading global fintech rush

Both developed and developing nations have taken giant strides in enabling technology adoption.

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The fintech revolution has spread far and wide across the world with both developed and developing countries taking giant strides in adoption.

Among the Asian countries, Singapore is fast emerging as the leading hub for fintech activities with the Monetary Authority of Singapore (MAS) leading the way in implementing state-of-the-art data analytics tools such as Artificial Intelligence (AI) and Machine Learning (ML) to spot market manipulation, while its advanced data science tool Apollo uses data on past misconduct cases to spot suspicious patterns. In fact, the Bank of Canada and MAS conducted an experiment on cross-border and cross-currency payments using central bank digital currencies. The first such trial, it has the potential to increase efficiencies and reduce risks in cross-border payments.

Besides this, Singpore’s Application Programming Interface Exchange (APIX) platform — announced last year as a collaborative effort among ASEAN Bankers Association, IFC and MAS — enables financial institutions to discover and connect with fintech firms through Application Programming Interfaces (APIs) on a globally curated platform. As a sandbox, it provides a platform for financial institutions and fintech firms to collaborate and experiment on solutions in a contained environment, according to the RBI.

Not one to be left behind, Chinese banks are investing heavily in fintech and launching services to counter competition from internet giants, such as Baidu, Alibaba Group Holding, Tencent Holding and JD.com. Reason: The rapid increase in e-commerce transactions. China accounts for about 40 per cent of global e-commerce transactions, a staggering increase from just about 1 per cent a decade ago.

Given the market potential, the Bank of China launched its first global fintech innovation lab last year in Singapore to harness the power of AI, blockchain, big data and cloud technologies, while the People’s Bank of China is pilot-testing a trade finance blockchain platform to assist SMEs getting access to broader financing options to provide seamless and efficient inter-bank transactions, help banks conduct business authenticity audits and reduce costs.

Similarly, the Bank of England set up a permanent FinTech Hub last year as a nodal authority and to help integrate fintech into the Bank’s functions. In the US, banks are investing heavily in developing open APIs, which allow different software applications to communicate with each other and exchange data directly, unravelling options for value-added services linked to bank accounts. In March, the Federal Reserve Bank of New York also launched a Fintech Advisory Group to provide bank leaders with a high-level platform for collaborative efforts, find solutions to emerging issues related to financial technologies, their application and impact and to integrate them with New York Fed’s regulatory and supervisory tools.

Apart from individual efforts, multi-lateral agencies too are doing their bit. For instance, in October 2018, the IMF and the World Bank launched the Bali Fintech Agenda comprising a set of 12 policy elements as a guiding document for countries in the process of policy formulation in the field. Likewise, in January, the Global Financial Innovation Network (GFIN) was formally launched by an international group of financial regulators and organisations as a global sandbox enabling regulators to share experience and knowledge. It aims to create a new framework for co-operation between regulators on fintech-related issues, provide a platform for joint regulatory monitoring, reporting and compliance and create an environment to facilitate cross-border fund transfer experiments.

Digital payments juggernaut thunders forward

India’s digital transformation has become nigh unstoppable, with digital transactions witnessing consistent growth in individual segments of retail electronic payment systems leading to a decline in paper-based transactions. Here’s a synoptic view of all types of digital transactions and how they have performed:

Immediate Payment Service (IMPS)

• Since its launch in November 2010, IMPS has been clocked high growth
• Remittances through IMPS grew 73.6 per cent in FY19 and 78.2 per cent in value terms.

Unified Payments Interface (UPI)

• Similar to the IMPS, UPI too is an immediate money transfer system available round the clock.
• Since its commercial launch in August 2016, it saw a mammoth rise in volumes, far exceeding the transactions done on the IMPS platform
• UPI volume reached a peak of 799.5 million in March 2019, 4.5 times March 2018’s volume.
• In FY19, total volume was six times larger than the previous fiscal year, while value saw an eight-fold increase over the previous year

Pre-paid payment instruments (PPI)

• PPI too saw significant volume and value growth.
• They grew 33 per cent in volume and 50.3 per cent in value in FY19 buoyed by increasing mobile wallets.

Cards Acceptance Infrastructure

• The number of cards used in point-of-sale (PoS) transactions grew 30.1 per cent in FY19 and in value terms by 30.2 per cent.
• FY19 also saw debit cards rising by 19.5 per cent and 16.3 per cent in volume and value terms, while credit cards shot up by 25.4 and 31.4 per cent respectively
• During 2018-19, debit card PoS usage grew by 32.0 per cent and 29 per cent for volume and value respectively

Paper Clearing

• Reflecting the impact of digitalisation, Cheque Truncation System (CTS) saw a de-growth of 2.6 per cent in volume, while increasing marginally by 2.3 per cent in value terms.

Mobile Banking

• Witnessed a sharp annual increase in transaction volume of 227.7 per cent in FY19 as against 91.7 per cent in FY18
• Acceleration in value terms too has been remarkable at 99.5 per cent, substantially higher than 12.5 per cent witnessed during 2017-18.

Source: RBI