The Parliamentary Standing Committee on Finance, headed by Jayant Sinha, is only the latest to voice its concerns about the potential risks from the rapid growth of the digital economy (the report is expected to be submitted shortly). In particular, the risks arising from the inherently anti-competitive nature of players in the digital world, known as the network effect, the peculiar characteristic that makes up the value of digital platforms, increases rapidly as more and more people joins.
Unfortunately, the same characteristic that results in economies of scale causing great externalities (not always positive, unfortunately) also lends itself to the creation of monopolies, enabling powerful players, riding on network effects, Potentially takes advantage of gullible consumers. Add to this the fact that in the digital world, it is much easier and quicker to defraud customers, and therefore requires greater vigilance on the part of both the authorities and the public, Sinha tells Mint in an interview. Competition law needs to evolve in sync to deal with the issues arising due to the dramatic increase in digital transactions.
The European Union’s Digital Markets Act and the Digital Services Act and similar laws being considered by other countries provide a potential template as we navigate our way in a relatively new and rapidly changing world.
But what is becoming increasingly clear, especially when it comes to the financial sector, is that the Competition Commission of India (CCI), which is the custodian of consumer interests against anti-competitive behavior, has been mandated by other financial sector regulators- We should work closely with the Reserve Bank. Ministry of Corporate Affairs (MCA) under the aegis of Securities and Exchange Board of India (SEBI), Pension Fund Regulatory and Development Authority (PFRDA), Insurance Regulatory and Development Authority (IRDA) and Investor Education and Protection Authority (IEPF) – ensure customers To do so, whether the saver, investor or borrower, is not taken along for the ride in the digital world, where it costs just the click of a mouse to lose hard-earned money.
The RBI’s decision to list eligible loan apps that can be hosted on the App Store, as part of a multi-pronged government strategy to curb illegal digital lending outside regular banking channels, has a piece with this. MCA’s attempt to identify and deregister shell companies to prevent misuse.
However, it is important to remember that RBI remittances run only for regulated entities and not for unregulated ones. Similarly, SEBI has jurisdiction over listed companies and not over unlisted companies. It is possible for many unscrupulous elements to slip through the cracks. This is where law enforcement agencies come in.
True customer protection is more than just ensuring that savers and investors get their money back. This includes providing them with more options, greater transparency and market integrity, in other words, protecting firms against non-competitive practices. Also ensuring easy and quick access to redressal in case of fraud. This includes speeding up the investigation and judicial system to keep pace with the pace of the digital world. And last, but not least, it also includes ensuring that the massive amount of data collected by these entities is not misused while carrying out financial transactions.
The Government’s Digital India program aims to transform India into a digitally empowered society and knowledge economy. It aims to move towards a ‘faceless, paperless, cashless’ society. While it is a noble ideal and promises great potential, it empowers the bottom half of the pyramid, as with anything in life, it comes with both opportunities and challenges. One of the biggest challenges is ensuring that abuse and fraud are minimized, even if they can never be eliminated.
True, financial literacy is the best defense to fully realize the promise of the world of digital finance. But authorities must always be vigilant to address shortcomings, even as they walk the fine line between regulation and innovation.
Unified Payments Interface (UPI), which powers multiple bank accounts in a single mobile application (of any participating bank) and integrates multiple banking features under one platform, has democratized the payment system like never before. Have given. But this is also an area of fraud.
Similarly, digital lending platforms have made it easier for small borrowers to access finance. But apart from the risks to the financial system, where funds are sourced from banks and non-bank financial companies, as recent media reports have shown, retail borrowers are often harassed by recovery agents; Not to mention the risk of misappropriating sensitive data and funds to other countries, especially China.
In the non-digital world, financial sector regulators have resisted any move to include CCI in their comfortable club. But given the inherently anti-competitive nature of digital players, meaningful customer protection should involve not only traditional financial sector regulators—SEBI, RBI, IRDA and PFRDA—but also the CCI and, at some future date, one-time data. The reality, once the Protection Bill becomes a reality, is a new data regulator, if the Bill envisages the need for such a regulator.
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