Why RBI is concerned about Equitas SFB's new scheme for Google Pay users

Last week, Equitas Small Finance Bank (SFB) launched a unique fixed deposit scheme that can be booked through the Google Pay app in an instant, much like buying a shirt from an online marketplace. It is a welcome product in a world moving to the sachetisation of financial products. However, this particular deposit scheme, say sources, has rankled the banking regulator.

What is the Equitas deposit scheme and how does it work? 

Equitas SFB announced that any Google Pay user can open a fixed deposit account with the bank using Google’s Unified Payment Interface (UPI).

Equitas has been given a ‘Spot’ in the Google Pay business section. A Spot is a visual code, similar to a QR code, but only available for Google. When a Spot is scanned for a given business, it takes you to the website or platform of that business. Google does not have visibility into what the customer selects on the platform of the merchant, which in this case is Equitas SFB.

Once the deposit tenure is selected and the amount finalised, the payment is made through UPI. Here, Google debits the account linked with the UPI ID and credits it to Equitas. Before this, Equitas will also ask for the know-your-customer (KYC) compliant documents to open an account. Google’s role ends with the payment transfer, and the relationship moves to Equitas and the customer’s native bank account to which the UPI is linked.

Such a transaction can be done through bank websites anyway. Why need Google?

Nobody needs Google’s help for opening a bank deposit for sure. What Equitas is doing here is using Google’s distribution channel as an alternative means to reach out to new customers. The customer can always go to the nearest bank branch or visit the bank website thro­ugh a browser on a computer or smartphone to open deposit accounts digitally. But what if the same can be done in an instant without bothering to visit any website, or creating new passwords etc — in short, simply by using the Gpay password? Equitas is betting that some from Google’s vast customer base will do just that.

Is it a new thing, given that there are already so many banking services available in Google Pay? 

It’s true that a bevy of wealth management products is already available on the Google platform. Google Pay has close to 400 merchant spots on its platform and it has seen that financial product offerings perform especially well. Offerings from Spot experiences delivered by financial services players such as CashE, Groww, 5paisa, Zest Money etc are seeing significant growth and engagement from users on Google Pay.

However, nobody has so far used the platform to distribute or market a deposit product. Equitas is the first mover in this space. It is doing so using an application programming interface (API) of Bengaluru-based fintech company Setu.

What’s in it for Google?

Google charges a commercial fee from all merchants using Spot on Google Pay.

And who’ll be responsible for the safety of the deposits?

It is the responsibility of the bank. The Reserve Bank of India (RBI) is there to ensure the bank honours all its obligations to the depositors. But deposits are a serious business and the very basis of RBI’s existence. At the core of RBI’s banking regulations are two objectives: The safety of depositors’ money; and the financial stability of the system.

If the deposits are safe, transactions are secure, and RBI is watchful, what is the issue then? 

The real concern is Google’s involvement in it, albeit innocuous and perfectly legal. The RBI is suspicious of Big Tech, which includes Google, Facebook, Apple, Amazon and Microsoft, since these companies are, in the RBI’s words, “too-big-to-fail” and difficult to regulate. They have the funds, the technology and a global network to do enormous good in whichever field they enter — or cause a complete meltdown if they so choose.

The financial system in India is built over decades of careful regulations, and banks are not allowed to do anything that can threaten financial stability. Big Tech firms, if not handled well, can disrupt that in a matter of months, if not weeks. The experience of developed countries shows that these companies, with cash holdings equivalent to the economy of many small nations and which command the technology that runs modern civilisation, are not easy to rein in.

Google is already the leader in UPI, a payment mode that processed 3.5 billion transactions worth Rs 6.4 trillion in August. Apps by banks, which are closely monitored by the RBI, are as it is barely used for payment purposes.

The same can happen for other banking products as well, starting with deposits — the most sensitive of products. Left unchecked, all banks may end up having a Spot or QR code each on Big Tech platforms. That may lead to Big Tech becoming the term-setters for banks. The platforms can then yank any bank out of the system for not meeting the criteria set by the tech firm. Customers, comfortable with using the tech firm’s apps, may not bother going back to any bank that is not a part of the ecosystem, and the bank may fail. In an interconnected world, the entire financial system can go down with it. Besides, the for-profit tech giants can end up having a say in public policy matters, which is, to say the least, dangerous.

What is to be done then? 

That is not yet clear. The RBI is weighing carefully if this could eventually lead to a backdoor entry of Big Tech in the Indian banking system. Its stance on this issue may be reflected through a working group panel report on digital payments. For now, though, the Equitas deposit scheme continues as any other product.