Fintech, digital banking and the digital rupee

Financial technology, or fintech, uses software, data and mobile networks to provide payments, lending, investment and insurance more cheaply and quickly than traditional branches. In India, fintech growth has been built on public infrastructure, including Aadhaar-based identity verification, the Unified Payments Interface and the Account Aggregator framework for consent-based data sharing. Neobanks, which offer banking services through apps in partnership with licensed banks, illustrate the model: the technology firm owns the customer experience, while the licensed bank holds deposits and bears regulatory responsibility.

Digital lending has expanded credit to people without formal credit histories, using transaction data, phone usage and other alternative data to score borrowers. The Reserve Bank's digital lending guidelines, issued in 2022, require that loans be disbursed and repaid through bank accounts of regulated entities, that charges be disclosed, and that recovery practices respect borrowers. These rules responded to complaints about hidden charges, harassment by recovery agents and unauthorised data access by some lending apps. The episode shows that innovation without consumer protection can quickly undermine trust in digital finance.

The digital rupee, or e-rupee, is a central bank digital currency issued by the Reserve Bank of India. Wholesale pilots began on 1 November 2022 and retail pilots on 1 December 2022. Unlike UPI, which moves money between commercial bank accounts, the digital rupee is a direct liability of the central bank, like cash, in digital form. Its stated aims include reducing cash-handling costs, improving settlement and offering a sovereign digital alternative to private cryptocurrencies, which the Reserve Bank has treated with caution. Adoption has so far been limited, and questions remain about privacy, offline use and whether it offers enough advantage over UPI for everyday payments.

For civil studies, fintech raises questions about the boundary between innovation and regulation: who is a bank, who owns customer data, who is liable when an app fails or a loan is mis-sold, and how competition is preserved when a few platforms dominate. The answers affect inclusion as well: digital services can reach remote users cheaply, but they can also exclude people without smartphones, connectivity or digital literacy. Fintech is therefore not a separate sector from banking; it is banking reorganised around data and platforms, with the same old questions of trust, risk and accountability in new form.