There are a large number of stories where banking customers have lost their hard-earned money to fraudsters. Whether it was due to the fear of digital arrest, or losing their details and blocking the cards or accounts, fraudsters have emptied gullible people’s bank accounts. In fact, once a bank CEO told me that a senior officer working in a bank himself got trapped.

In the world of innovation when everyone is looking for a seamless experience, the biggest challenge for banks and companies is to prevent fraud and cybercrime, because innovation means stepping into an unknown territory, which comes with risks.

Of late, there has been a lot of upheaval in the banking and fintech world with the Reserve Bank of India tightening norms for fintechs and penalising some banks over tech failures. This has stirred a debate about how the central bank should allow innovation so that the security of customers is not compromised.

Wading into this debate, former RBI governor and finance secretary Dr D Subbarao, batted for change at the regulators’ level. “The main purpose of RBI regulation is to maintain financial security and consumer safety. Regulation is changing, tech is coming in a big way, so the RBI must change,” he said.

Delivering the keynote address at the two-day ETBFSI Converge Summit 2024 being held in Mumbai, Subbarao was emphatic that RBI should not stifle innovation.

The big challenge before the RBI is to foster innovation without disruption, he said, adding that positive disruption is okay but RBI needs to have sufficient control.

“It is important to allow innovation without the financial sector getting out of hand and causing a negative disruption. They would need to retool themselves in order to catch up with technology,” he said.

With the technology sweep in the financial world, Subbarao feels that the RBI should have more engineers and innovators in its ranks now. He said that the central bank and other regulators need to include more people with a tech background as technology is coming in a big way in finance.

Cybersecurity paramount

Cybercrime poses a significant challenge, as it can erode public confidence if people lose money to such activities, the former finance secretary noted.

Other top bankers and tech honchos too spoke about the important role of technology and innovation in the financial world at the ETBFSI Converge Summit.

Rajiv Anand, deputy MD of Axis Bank, said that fear and greed is the major reason why people lose their money.

“Traditionally, banks have been associated with liquidity risk, but now, there’s a greater fear of reputational risk. Its less about regulating solely by the words of law, but by spirit as well,” he said.

Another banker stressed the regulator’s pivotal role in fostering innovation. “The regulator acts as one of the biggest innovators in India. In terms of data collection, Account Aggregator allows data to be shared with financial institutions with the consent of the customer. This helps financial institutions with data collection and in offering better contextual products to the customer base,” he said. He added, “Going ahead, fintechs are going to bring a lot of agility to the way banking is done. The only flip side is that fintechs need to be more mindful about a compliance-oriented culture.”

Underlining the role of technology in banking evolution, Dhanashri Rane, Head of Digital Acquisition & Engagement at RBL Bank, highlighted how digitisation has transformed the financial landscape. “Digitisation has democratised services. Customers’ technological understanding and knowledge today have vastly helped in inclusion,” she said.

As digital is the theme of the world and BFSI companies today can’t imagine the business without digital. It is critical for regulators also to innovate on regulations.

I think it’s time RBI and banks should look at regulations for innovation. Someone should take an onus…

Meanwhile, Dr Subbarao emphasised the need for regulators to consider the psychology of those in poverty, explaining that understanding their priorities—such as access to and the cost of finance—is crucial. Highlighting the irregularity of their incomes, he said that while daily earnings are often low, they can vary significantly, with expenses tied to festivals and family events like weddings needing careful consideration.