Optimal Access to Financial Infrastructure for Sustainable Growth of Digital Financial Services: Examining the Role of Regulation and Competition

Name: Parveer Ghuman

Organisation: CUTS International

Country: India

Stakeholder Group: Civil Society

Thematic Area: Access

Session Title: Optimal Access to Financial Infrastructure for Sustainable Growth of Digital Financial Services: Examining the Role of Regulation and Competition

Session Format: ROUNDTABLE

Speakers Name: Amol Kulkarni (CUTS International)

Speaker Status: Confirmed

Relevance of the issue with specified session theme: Direct and open access to critical financial infrastructure is crucial for service providers to enable seamless and cost-effective digital financial services. This, in turn, makes digital financial services affordable and accessible. However, indiscriminate and unchecked access to financial infrastructure could result in entry of unscrupulous players in the sector. This could compromise safety and security of the financial system and result in systemic risk, thereby adversely impacting consumer welfare. Consequently, optimal access to financial infrastructure is key for sustained usage and growth of digital financial services.

In India, several entities face challenges in directly accessing financial infrastructure. Challenges include restrictive policies and practices of existing market players. The country also suffers from low uptake of digital financial services.

While the link between access to financial infrastructure and financial services might be obvious, it is often ignored in interactive discussions and platforms. The role of optimal regulation and competition in facilitating access deserves much more consideration that it is currently garnering.

The objective of the proposed session is to discuss the prevailing level regulation and competition in digital infrastructure market, its impact on access to digital financial services, and measures required to facilitate optimal access.

Content of the session (Objective of the session): The primary aim of the session is to deliberate upon the various regulatory issues affecting access to digital financial infrastructure from the lens of competition and consumer welfare. It will seek to explore the effect of prevailing policies and practices on access to digital financial infrastructure and will aim to discuss the linkage between optimal regulation & competition on one hand and consumer welfare and access to digital financial services on the other. For instance, non-banking financial service providers are not allowed direct and interoperable access to financial infrastructure. However, they have led the way in designing high quality products, enabling user friendly interface and enhancing consumer access. However, non-banks are often considered more-riskier and less secured than banks, in digital financial service sector. Consequently, the event would basically entail specific discussions on the current Indian regulatory regime governing digital financial services and infrastructure and how specific regulations impede or promote competition in this sector. The discussants will then try to demonstrate, with the help of evidence, how regulations governing access of diverse service providers and competitors to financial infrastructure indirectly affects financial access. Possible alternative justifications for the present regulatory regime will also be explored in detail.

What is USP of the session: Unfortunately, the ongoing debate regarding the regulatory approaches towards competition in the Indian digital financial services sector is highly polarised. The debate is fraught with vested interests and institutional bias, which has resultantly led to little or no consensus on important aspects which consequently inhibits the speed of financial access and impinges on the benefits posed by digital finance. Moreover, in this debate, the role of optimal regulation and competition in enhancing access to digital financial infrastructure is often ignored and this session would try to establish the same. The uniqueness of this session lies in the fact that it proposes to present a fresh, unbiased take on regulation and competition in the Indian digital finance sector, solely keeping in mind benefit of the last-mile consumer. The session will ensure presentation and equal weightage to competing points of view on the subject, and facilitate a dispassionate discussion. This inimitable character of the session would hopefully lead to some consensus on the fundamental regulatory issues in the digital finance space.

Please describe how you will use your speakers and how their views/ perspectives /expertise will be included in the session: CUTS International, being an independent, non-partisan, policy research and advocacy think tank has consciously ensured that the selected presenters at the roundtable exhibit expertise in the field of finance and simultaneously represent institutions which promote high-quality research for better policy formulation and implementation. An attempt will be made to put forward all possible arguments which can justify or challenge the present regulatory approach towards digital financial services. Both speakers will try to focus on elucidating the impact of competition and regulation on important consumer welfare indicators regarding digital financial services such as access, affordability, systemic risk management, grievance redress, cost and quality of services etc. Moreover, the speakers will purposely try to end their presentations with open-ended regulatory alternatives, which would expectantly initiate healthy discussion. The speakers are expected to present different and competing points of views, thus enabling healthy debate. Benefits and risks of existing and proposed scenarios will be discussed to facilitate balance.

How are you bringing diversity in your proposed session whether it is relevant to the specified theme? This session will mainly be based on evidence based discussions on the present regulatory environment of digital financial services in India. It will help to provide an unbiased, objective, eagle-eye view of the present Indian scenario and will aim to explore diverse alternative and differing regulatory responses from the competition lens which could help achieve the desired policy objectives of financial inclusion and improved financial access. Discussions based on an objective, evidence-based criteria and a unique consumer perspective towards digital financial services in India will provide the desired diversity to the session.

Relevant Tags (Minimum 3 tags) Digital Infrastructure, Digital Finance, Access to Digital Financial Services, Optimal Regulation, Competition