Google-Equitas Small Finance Bank deposits deal under RBI's watch

Panel on digital lending may focus on marketplace for banking products

The recent move by Equitas Small Finance Bank to tap into the user base of Google Pay for garnering deposits has thrown a curveball to the Reserve Bank of India (RBI), which is closely watching the deal to gauge its implication on the banking landscape. 

The RBI has always favoured technological innovation in banking but has maintained that regulation should remain a step ahead of innovation. Predictably, it is wary of ‘Big Tech’ firms, such as Google, Facebook, Amazon, Apple and Microsoft. In the half-yearly Financial Stability Report (FSR), released on July 1, the regulator even listed the growing presence of Big Tech in financial services as among the key risk factors for financial stability.  

Big Tech firms, the FSR said, sometimes have “opaque overarching governance structures,” and the potential to become “dominant players in financial services”. 

That is why the Google Pay-facilitated deposit scheme has made the RBI uneasy. The central bank, sources familiar with the developments said, is carefully weighing the pros and cons before firming up an opinion on the issue, even as the deal seems well within the existing rules. 

Many of these concerns may find a place in the report of the working group committee on digital lending, expected to be released shortly. The panel, headed by RBI Executive Director Jayant Kumar Dash, was constituted in January and it missed the deadline once as it needed more time to finish the consultation process. The panel was rescheduled to submit its report in August but sources said it had been told to focus more on the digital marketplace for banking products now, a reference that could be linked to the Equitas-Google tie-up. 

Equitas, its technology provider Setu, and Google, all clarified that the tie-up should not be interpreted as anything more than a usual product offering. 

Google, in a blog post, said on Friday that products in financial services are from regulated industries and each merchant should be duly authorised to provide those before they can be boarded on to the Google platform. 

“As Google Pay, our role is firmly circumscribed to providing these merchants a surface where Google Pay users can discover and gain from these offerings -- be it credit products, insurance or any other,” wrote Sajith Sivanandan, business head, payments and new business unit of Google APAC. 

Sivanandan also clarified that these products are not “Google Pay’s offerings”, and that Google’s role is limited to being just a partner to the existing financial system. 

Murali Vaidyanathan, senior president Equitas SFB, told Business Standard that Google has nothing to do with the product as such, and is not earning any fee for the service. In any case, earning deposit commission is not allowed in India. In fact, Google’s association is a continuation of two such existing offerings by the bank — one with Grow fintech, and another product owned by the bank named Selfie-FD. 

“We are using the Google distribution channel to democratise the deposit product, complying with all norms of the RBI,” said Vaidyanathan. 

REGULATOR'S CONCERNS

• RBI is yet to give its go-ahead to Big Tech in banking
• If Google is allowed, other tech firms can demand similar privilege
• This may also extend Google's reach beyond the pole position in UPI
• Big Tech may end up dictating terms to banks in the long run
• As product moves to their platform, bank apps may be rendered useless
• RBI is evaluating if deposits should be treated as any other product in a marketplace

“Google is a facilitator for the transaction. We are not sharing any information with Google, whose role ends after facilitating the transfer of funds. If the customer leaves the Google platform in the interim, the money will transfer back to her original bank account upon maturity, or on premature withdrawal,” Vaidyanathan said. 

Sahil Kini, co-founder and CEO of Bangalore-based Setu, said that his firm is careful about meeting the norms in everything that the firm does. Services of various tech majors, including Google, are being used all the time for banking needs, be it on mobile platforms for apps, or through web browsers.  

 “Using Google Pay to access a financial product does not differ substantially from using the Chrome browser to access the banking site. The transaction passes through the core banking solution of the bank; KYC is carried out solely by the bank in a fully compliant manner, and funds move from the user's existing bank account with any licensed bank and go back directly to the same bank account. All sensitive parts of the transaction happen on regulated bank infrastructure.” Kini said. 

Still, the tie-up could have surprised the banking regulator, which was not expecting Google Pay to get linked with such sensitive issues as deposit products, especially when the regulator is committed to protecting depositors’ interest and maintaining the financial stability of the system. 

“The RBI asked for the product page, which we gave. We have not received any objection after that,” said Vaidyanathan. 

Kini also said that many other banks have shown interest in the technology as it efficiently taps into an existing distribution channel, and is covered by existing regulations that are followed by all players in this space.