Hello everyone,

Welcome to the 106th edition of The Pattern, a weekly newsletter where I bring you the latest from the worlds of finance, economy, and technology. Let’s dive right in.

During the previous general election in 2019, one would never have imagined the influence and responsibility the then-fledgling FinTech industry would come to wield. It was tottering on the blurred edges of financial regulation and legitimacy.

Things have come a long way since – this year, the RBI has entrusted it with enabling a critical function of democracy. The regulator, in a first, asked payment companies to track high-value transactions during the Lok Sabha elections.

Normally, it directs banks to track suspicious financial activity. But since digital payments have risen exponentially since the previous election and payment system operators (PSOs) and payment gateways like PayU, Paytm, Razorpay, Mobikwik are now under regulatory scrutiny, it has become the duty and privilege of these FinTechs to check the misuse of money power during the electoral process.

India’s march towards becoming a digital-first economy was the product of many considerations, one of which was the inability to audit cash transactions, and difficulty in tackling money laundering and corruption. However, the fact that financial institutions including FinTechs are being asked to monitor the flow of money on digital channels sheds light on the fallibility of digital payments in this regard.

In March, chief election commissioner Rajiv Kumar said, “NPCI will look at whether there are more demands for payments through wallets. We will be looking at all wallet transactions. Banks will be sending almost daily reports of suspicious transactions. This is part of the steps from the poll body to curb the impact of money power and ensure fair elections.”

Digital payment tools like mobile wallets aren’t as easy to monitor as direct UPI transactions. Transactions made through mobile wallets, where money is stored digitally in an encoded format, lack transparency and accountability. Users can recharge their mobile wallets and use them to further make payments. This can be used to break the trail between the origin and end of a transaction, making it easy to route suspicious person-to-person transactions covertly.

Another reason why these FinTechs are being called upon to check suspicious activity is because there are concerns that merchants might be used as conduits of fishy fund transfers. Money could be transferred to merchants to be further distributed and influence voters. Moreover, point of sale (PoS) terminals could be used for laundering money from digital to cash.

Digital payment systems may not be perfect, but there is plenty of evidence to suggest that they have been instrumental in checking corruption. But to steer the digital economy towards its intended goal, it is necessary to make FinTechs part of the conversation around regulation, compliance, and policymaking.

Of late, regulators are tightening the screws around the deficient IT systems, inadequate onboarding, and subpar KYC practices of financial institutions. FinTechs can provide expertise in these compliance-sensitive areas through partnerships. However, the most efficient way to achieve this would be by giving them a say during policy formulation and not post-facto, in the spirit of democracy.

Less than 10% : The Status of Women's Landownership in India: A Comparison of Estimates from NFHS and AIDIS estimates that land ownership by Indian women may be 5.5% and not 31.7%.

$13 billion : Goldman Sachs has revised its valuation for Blinkit to $13 billion – more than Zomato’s food delivery business.

$1.25 billion : Swiggy has filed for a $1.25 billion public listing confidentially.

1. India’s employment paradox of the 21st century: A crackable puzzle

2. What's in store for 'India's most sincere bank'?

3. Will UPI’s ‘digital public good’ status slip with the 30% cap on market share?

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.