While digital technologies offer various opportunities for India, such as faster growth, financial inclusion and seamless fiscal transfers and cross-border payments, they also present challenges related to cybersecurity, data privacy and concentration risks, says a report from the Reserve Bank of India (RBI).
The report on currency and finance for FY23-24, is based on the theme 'India's digital revolution'. It highlights that India is at the forefront of the digital revolution, leveraging on its digital public infrastructure, a vibrant financial technology (fin-tech) ecosystem and a conducive policy environment to emerge as the fastest-growing digital economy in the world.
"Digital technologies also present challenges related to cybersecurity, data privacy, vendor and third-party risks, customer protection, upskilling and reskilling of human resources, complex financial products and business models. Balancing financial stability, customer protection, and competition while supporting an environment congenial for innovations is the key policy challenge," it says.
In India, security incidents handled by the Indian computer emergency response team (CERTIn) have increased from 53,117 in 2017 to 1.32mn (million) from January to October 2023, the report says, adding, "Unauthorised network scanning, probing or vulnerable services account for more than 80% of all security incidents in India."
Interestingly, as against common expectations about the banking and finance sector being most vulnerable, as per the report, the automotive industry is the most vulnerable, with smart mobility application programming interfaces (APIs) and electric vehicle (EV) charging infrastructure emerging as major attack vectors.
"The banking and financial services industry (BFSI) sector, governed by well-defined regulations, is relatively protected from such attacks," it added.
According to the report, customers are at the epicentre of the digital economy and the success of any enterprise is intricately tied to the satisfaction and trust of its customers and thus, adopting a customer-centric approach to innovation is vital for sustainable growth.
Further, while digitalisation offers enhanced convenience and accessibility, the growing complexity of financial products also introduces new challenges in ensuring customer protection, the report says. "With the increasing adoption of digital payments, the share of complaints related to mobile or electronic banking, ATM or debit cards and credit cards received in the offices of the RBI ombudsman accounted for 47% of total complaints in FY22-23."
The report also expresses concern over the rapid increase in digital lending and the buy-now-pay-later (BNPL) module. "Illustratively, while the digital lending platforms and BNPL services bolster consumer convenience, they also entail various costs, including exorbitant charges, coercive recovery practices and hidden fees."
In India, BNPL constitutes around 3% of total e-commerce finance by value. While BNPL is projected to grow every year by 74%, making it a US$56bn (billion) market by 2026, the model highly depends on late fees to ensure profitability which could become predatory for customers. These risks are exacerbated by the seamless nature of digital technologies, facilitating impulsive spending and debt accumulation, the report says.
According to the report, digitalisation is also giving rise to certain 'invisible risks' or 'dark patterns', whereby consumers are tricked into making decisions detrimental to their interests.
Further, the use of extensive customer data by companies raises concerns about data protection and privacy, potentially compromising customer trust and security. "In India, three-fourths of the business-to-consumer (B2C) funded FinTech applications request permission to access camera, photo, media, files, location and storage for using applications."
The report states that digital technologies are unlocking opportunities for financial inclusion, fiscal transfers, cross-border trade, and remittances.
The report also finds empirical support for the positive role of the regulatory framework in increasing the confidence of consumers in digital financial products, boosting operating and technical efficiencies of financial institutions and engendering more liquid and integrated financial markets.
Digital technology infrastructure will be India's growth engine of tomorrow. The focus is on next-generation communication technologies like 6G and satellite networks, alongside expanding the 5G network to rural and hitherto uncovered urban areas. Graduating to advanced technologies will unleash opportunities in the last mile," the report concludes.
