A committee constituted by the Reserve Bank of India (RBI) on Thursday recommended that the government should consider offering tax-based incentives to merchants to encourage the adoption of digital means of payments in the country.
“Given that fintech companies are in their infancy but are growing at a rapid pace, the government may consider introducing tax subsidies for merchants that accept a certain proportion of their business revenues from the use of digital payments as opposed to cash,” said the report of the inter-regulatory working group on fintech and digital banking, chaired by Sudarshan Sen, executive director, RBI.
The report also emphasised the need for a “standalone data-protection and privacy law in the country”, stating that while sections under the Information Technology Act, 2000, provide for redressal in instances of data breach, the protections guaranteed by them are often subject to the particular terms of a contract between two parties. “… That data protection is generally governed by the contractual relationship between the parties, and the parties are free to enter into contracts to determine their relationship defining the terms personal data, personal sensitive data, its dissemination, etc,” said the report. “As such, it may be necessary to emphasise the need for an exhaustive stand-alone legislation on data protection in India keeping in mind the innovations in fintech and risk to personal data which comes to the possession of these entrepreneurs.”
The committee said that there is a need to develop a deeper understanding of various fintech products and their interaction with the financial sector before regulating the space.
“The regulatory actions may vary from ‘disclosure’ to ‘light-touch regulation and supervision’ to a ‘full-fledged supervision’, depending on the risk implications,” the report said.
The report also said that the financial sector regulators need to engage with fintech firms to chalk out “appropriate regulatory response and with a view to re-align regulation and supervision in response to the changing environment”.
According to the report, insurance companies need to collaborate with insurtech entities or start-ups to provide better customer experience in a cost effective manner.
The report said banks and regulated entities should be encouraged to collaborate with fintech or start-ups to improve their customer experience. “They may also consider undertaking fintech activity in areas such as payments, data analytics and risk management,” the report said.