In response to the challenges posed by technology, the Reserve Bank of India (RBI) has enacted initiatives to address cybercrime as well as the disruptions caused by the emerging fintech sector, including blockchain technology.
The RBI has established the Reserve Bank Information Technology (ReBIT) has been established to address these issues. R. Gandhi, deputy governor of the bank, summarized the critical role of the ReBIT activities during the 12th Institute for Development and Research in Banking Technology (IDRBT) excellence awards function in Hyderbad. Gandhi’s remarks were provided in a report by the Basel, Switzerland-based Bank for International Settlements.
In addition to ReBIT, the RBI has also formed a working group on financial technology to better understand the new fintech paradigm and chart the best way to use it.
Cyber security marks one of the most serious challenges for the financial sector, Gandhi said. While banks have made use of technology to prevent crime, criminals have also increasingly made use of it. Banks’ IT systems are the prime target for cyber criminals, and the problem is growing.
Gandhi cited recent incidents at Bangladesh Bank and other institutions. “If we need to provide safe and secure banking, then providing for safe IT systems is an undeniable requirement,” he said. “It is essential that in every IT-based initiative, security is addressed as a vital component.”
He noted that cyber attacks have become highly sophisticated and are making use of specialized techniques to exploit minute variables that often go unnoticed. The IDRBT has a Chief Information Security Officer (CISO) forum for banks to exchange information and be able to respond to cyber incidents.
Cloud-based computing and blockchain processing technologies are developing rapidly, he noted. Virtualized IT systems could provide safe, trackable and secure digital currency, homogenous IT systems and distributed ledger keeping. These improvements will deliver better customer service.
Another key development has been the emergence of fintech companies, which Gandhi referenced as “new, non-conforming disrupters.” Banks have historically seen one another as competitors and viewed fintech companies as their own enablers. Banks did not view these technology players as direct competitors.
The banking knowledge is no longer with the bankers, but with the techies, Gandhi said. Technology today has dissected the entire banking and finance value chain and bundled it in innovative ways, making the fintech players the ones who intermediate between savers and investors, or between senders and receivers of funds.
“Banks need to handle them (fintech companies) carefully without inhibiting innovations; banks have to find ways to cooperate, co-opt and compete with the fintech companies.”
The fintech innovators are becoming competition for central banks as well, he said. The long-held view that central banks have no competitors for issuing currency has been challenged by e-currency. “However, I still maintain, as I did way back in 2001, that e-currency is no substitute for currency; if at all, it can only be a better alternative to any other payment instrument,” he said.
Nevertheless, innovators and researchers will continue to develop e-currency, and Gandhi said he supports this research.
Another important topic is the payment revolution that technology has unleashed. This is an area that has brought great benefit to banks. India has the world’s best state-of-the-art payment and settlement systems that are handling increasing volumes.
New payment system initiatives aimed at improving customer comfort are satisfying, Gandhi said. But it is important to make sure the systems are safe and deliver efficiencies, including lower costs for the average user. Taking full advantage of the payment revolution is a challenge.
Financial inclusion represents yet another challenge. Gandhi said financial inclusion is achievable, and that IT will play a fundamental role. The banking industry needs to integrate KYC (know your customer) and account opening requirements with other systems like AADHAR. (AADHAR is a unique identity number issued by India’s Unique Identification Authority, the world’s largest national identification project.) Such integration will enable the use of funds without the movement of cash. It will also ensure the average user will have access to banking and financial services.
Finding the right mix of technical solutions in the shortest possible time is a big challenge, Gandhi said.
He called on banking professionals, academics and industry to work together to meet all of the challenges he described. He noted that the CIOs Forum and the CISOs Forum that IDRBT coordinates are the proper channels for these activities.
Raghuram Rajan, the governor of the Reserve Bank of India, has questioned the unconventional monetary policies central banks are pursuing and claims that pushing down interest rates results in people saving rather than spending, CCN.com previously reported.
Rajan has also publicly stated that bitcoin is “fascinating”.
Featured image from Flickr.