Hi everyone,

Welcome to the 67th edition of The Pattern, a weekly newsletter where we unpack the latest from the worlds of finance, technology, and the economy.

Here’s an offer - give up Google search for a month and we’ll pay you Rs 500. No? What if we paid you Rs 5000? Rs 10,000? What will you need to be paid to relinquish your right to use Google? Your answer could help  the government measure the size of the digital economy. 

The Indian government is seeking proposals to figure out how we can measure the digital economy. While the project is ambitious, it also presents a chicken-and-egg problem. 

Allow me to explain.

The current measurement of GDP, which is based on monetary transactions, fails to capture the full value of digital goods and services. Many digital offerings are available for free, such as Wikipedia and online maps, and therefore do not contribute directly to GDP. However, these digital goods provide significant value to individuals and society. That's the more obvious problem. 

Policymakers rely on GDP data to inform their decisions regarding investments in various sectors such as infrastructure, research and development, education, and cyber defence. Regulators utilise this data to establish policies that impact technology firms and other entities. However, due to the significant underestimation of the digital economy, these decisions and policies are formulated with an inadequate grasp of the true reality.

The chicken-and-egg problem is most evident in FinTech. 

The Deputy Governor of the Reserve Bank of India (RBI) T Rabi Sankar said  earlier this week that the apex regulator is in talks with industry players to understand if there is any need to regulate them.

The way I look at it, the evolving nature of FinTech necessitates the establishment of appropriate regulations. Policy and regulatory frameworks should adapt to accommodate new technologies and business models while ensuring consumer protection, financial stability, and fair competition. 

Accurate measurement of the digital economy is crucial for formulating effective FinTech regulations that promote innovation while addressing potential risks and challenges. 

But what comes first? The digital economy GDP or FinTech regulations? 

And while we’re on the subject of FinTech, there are a few new developments this week that could impact the industry - 

1. The Reserve Bank of India (RBI) plans to allow customers to choose their card networks , aiming to provide them with more options. Currently, credit and debit card companies have agreements with banks and non-banks, limiting customer choice. The RBI's draft circular asks banks and non-bank lenders to issue cards on multiple networks to offer customers freedom of choice. The proposal also seeks to prohibit exclusive agreements between card-issuing banks and networks. Sure, customers will get the freedom of choice, but what does it mean for a country with growing  credit card penetration  and low  financial literacy ?  

   And more importantly, this means banks may need to renegotiate fees with card networks, potentially leading to slightly higher operational costs that may be passed on to customers. 

   But, it could also mean this move will provide banks with much-needed encouragement to issue credit cards on UPI, as that is clearly the strongest proposition on the credit side from the RuPay network. 

   
   

2.  The India Cellular and Electronics Association (ICEA) has conducted a study comparing input tariffs in the electronics sector across five nations, including India, China, Vietnam, Thailand, and Mexico.  The study revealed that India has the highest tariffs among these economies . No wonder smartphone penetration is tanking in India, just take a look at this graph from the  Indus Valley report  released earlier this year -

Basically, no matter how wide  Jio’s 5G net  is and how inexpensive data becomes as a result, what good are FinTech’s financial inclusion goals without smartphones?   

That’s all from me this week - as always, leaving you with my favourite reads and some interesting numbers from the week:

Between the digits:

• 9.3 billion: The number of UPI transactions  in India in June 2023

• 79%: The percentage by which VC funding fell in H1 2023

• 30x: The rate by which the market capitalisation of all listed stocks on BSE has surged in the last 20 years 

• INR 140: The price of a kilo of tomatoes in Delhi NCR (P.S. McDonalds is dropping

   the vegetable from its India offerings given the price surge)

Reading list: 

• Inside Paytm’s cashback offers for retailers

• Bank of England: ‘any gender’ can be pregnant

• 'Secret databases' banks use to find information about you - and close your account

• Don’t Ask ChatGPT For Financial Product Recommendations

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 never miss any updates.  

Cheers,

Mayank

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