Hello everyone,

Welcome to the 100th edition of The Pattern, a weekly newsletter where we bring you the latest from the worlds of finance, economy, and technology. There’s much to unpack as we hit this important milestone, so let’s dive right in!

The NBFC-FinTech ask

After about two years, credit on UPI is once again making headlines. In 2022, the RBI allowed banks to link RuPay credit cards to UPI. We wrote on the subject at length, you can read it here .

Now, NBFCs and FinTechs (which can often belong to the same entity) have asked the regulator to extend the same prerogative to them as well. It is a fair ask, given that regulation is slowly also extending to these non-traditional financial entities.

However, there’s a reason why credit on UPI – although permitted – has not taken off yet. Two years ago, there were concerns about its adverse impact on UPI adoption in favour of PoS devices. Apprehensions around the fact that merchants using UPI to accept payments might have to start paying MDR on credit card payments made via UPI were abundant.

The NBFC and FinTech camp’s bid to use UPI for credit is also bound to run into similar misgivings. In a single line, borrowed from our CEO Rajat Deshpande, here’s why – credit cards are an elite product . They require a high cost of customer acquisition; NBFCs are subjected to higher costs of capital than banks; NBFCs’ new-to-credit customer base might post asset quality challenges to overall business.

This could make it difficult for NBFCs to sustain their credit card business, let alone propagate it through UPI.

KYC to get a facelift

Digitisation has done a lot to standardise banking workflows, but KYC has always posed a logistical and operational challenge. There are many problems with the way in which we conduct KYC in India – it’s resource-intensive and expensive, there is a glaring lack of standardisation in operating procedures for various loan categories, and manual intervention such as site visits can undermine digitisation efforts of banks.

However, now banks are set to improve their KYC standards. Here’s what’s on the cards:

1. All existing KYC accounts will be upgraded

2. Multi-level verification for joint accounts

3. Standardisation of documentation based on identification levels

The focus of this exercise will be on identifying accountholders who have multiple accounts linked to the same phone number, as well as standardisation for joint accounts.

In the case of joint accounts, banks may seek “secondary identifier” documents like PAN, Aadhaar, and unique mobile number. These identifiers will also help fetch multiple unlinked accounts belonging to the same individual that were opened using different documents.

Another exciting outcome of this is that this KYC standardisation will bring joint accounts within the ambit of the Account Aggregator framework – helping financial service providers expand their product offerings.

Additional reading: The FinBox guide to KYC

In other news

‘Not against FinTech’: RBI Governor Shaktikanta Das came to the central bank’s defence against a wave of criticism following its Paytm Payments Bank order. He rejected that the bank was against FinTechs in India.

"The RBI’s action was against a regulated entity. It was not against any FinTech company. I fail to understand why a narrative is built that RBI has acted against a FinTech company... In the financial sector, there are rules of the game. Our endeavour is to ensure there are no major accidents,” he said.

Crackdown on world’s biggest banks: The Basel Committee took steps to stop “regulatory arbitrage behaviour” on part of globally systemic banks (G-SIBs). These banks are obligated with heavier capital requirements, given the potential of their impact on the global economy.

But the committee observed and sought to rectify “window dressing” close to reporting dates that would artificially diminish the magnitude of their systemic impact. It has now instructed these banks to disclose indicators based on average values over the entire reporting years instead of year-end.

Between the digits

Rs 10,000 crore : Estimated fundraising by small finance banks (SFBs) through securitisation in FY2024

27,000 tonnes : Total estimated gold holdings in Indian households

Rs 468 crore : The amount owed by developers to home buyers in Karnataka for delayed delivery of apartments

Reading recommendations

1. Fintech, age and central banking

2. The story of China’s economy as told through the world’s biggest building

3. Financial literacy will empower women Beti bachao, Vitt sikhao

4. Apple’s $2 billion fine marks a new dawn for antitrust regulation

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on Twitter here and follow FinBox on LinkedIn to always get all updates.

Cheers,

Mayank

All opinions expressed are my own and do not necessarily reflect the views of FinBox or its promoters.