Indian Society of Artificial Intelligence and Law.
Technology continues to transform the way we live from booking tickets to socializing and it is also bringing about a shift in the financial service industry. The employment of emerging technology in the financial sector gave rise to fintech (financial technology) in the 21st century. Its use is to improve and automate the delivery and use of financial services by consumers. It includes different sectors and industries such as education, retail banking, fundraising and non-profit, and investment management to name a few . Fintech concerns itself with the development of a broad range of services such as peer-to-peer lending (P2P), mobile payments, blockchains and cryptocurrencies, and much more.
Fintech is a booming industry and its future looks shinning and growing rapidly on the back of rise of fintech start-ups, penetration of smart phone users, continuous build-up of the digital infrastructure and over-all streamlining of financial process in many industries. In a recent report, by Research and Markets, as of March 2020, India alongside China, accounted for the highest FinTech adoption rate 87%, out of all the emerging markets in the world. On the other hand, the global average adoption rate stood at 64%.The report also states that “The FinTech market in India was valued at Rs 1,920.16 billion in 2019 and is expected to reach Rs 6,207.41 billion by 2025, expanding at a compound annual growth rate (CAGR) of approximately 22.7 percent during the 2020-2025 period .
Fintech, despite being a great tool for individuals to attain financial independence, comes with its drawbacks. To contain the vast influence and access these technologies and their developers could have on individuals, we need establishment of proper, uniform government regulations and special laws. However, governments all over the world have been struggling to keep up with these new fast developing technologies. This has resulted in various cases of fraud, harassment and even suicides.
Recently, apps providing peer-to-peer money lending service have been in the spotlight in India but due to the wrong reasons. Four Indian digital lending apps — 10MinuteLoan, Ex-Money, Extra Mudra and StuCred — have been removed from the Google Play Store for violating Google’s policy on offering personal loans requiring full repayment in 60 days or less. They had been (StuCred, one of the banned apps, has been restored after it removed its offer of a loan that required full repayment in 30 days) . Expanding the crackdown, it took down hundreds of more money lending apps who were found breaching user safety policies while some Chinese apps were allowed to function despite not being in accordance with the aforementioned policies. This has led Indian fintech lenders to write to Google on the need for uniform regulations among fintech players .
P2P and Money Lending Applications
Peer-to-peer (P2P) transactions allow the transfer of funds between two parties using their individual banking accounts or credit cards through an online or mobile app. Some apps have evolved P2P transaction service into a money lending service where one party can lend money to another party at a certain rate of interest. Lendbox, Faircent Capital Float, Zest Money, Indifi, KredX, BharatPe, Lendingkart, Paisabazaar, and RupeeCircle are some examples of money lending platforms in India.
Regulation of P2P Lending Platforms
RBI regulates P2P lending platforms in India. All P2P lending platforms are required to be registered with the RBI as an NBFC (Non-Banking Financial Company). The eligibility requirements for a company to register as a P2P lending platform include, among other things:
a minimum capital of 20 million rupees;
that the company applying for registration is incorporated in India;
a robust and secure information technology system must be in place;
there must be a viable business plan; and
promoters and directors must fulfil the fit and proper criteria laid down by the RBI .
How Malicious Money Lending Platforms Operate
Across India, people have fallen prey to illegal money lending apps and raked up huge amounts of debt by getting caught up in the cycle of borrowing to pay back dues. During the pandemic, people who lost their jobs or people from low income households have become the ideal target for dubious money lending apps due to their vulnerability and instant need for money. These apps offer short tenure loans (ranging from 7 to 30 days) at ridicousily high interest rates (form 35-65 percent). Some of these apps apply steep processing fees, as high as 2,000 rupees ($27) on loans of less than 10,000 rupees with tenures of 30 days or under, according to the 15 borrowers. Together with other charges including one-off registration costs, borrowers can pay, in real terms, interest rates as high as 60% per week, their loan details show .
Mobile applications of loan sharks gain access to the contacts database and the gallery of the phone they are installed in and often this sensitive information is misused if the borrower misses the deadline or fails to pay the dues. The borrowers then face harassment and are threatened through phone calls and text messages. Unfortunately, numerous cases have been reported where the victims, being unable to pay back dues, were harassed by lenders which led them to commit suicide .
India's Google Play Store has a plethora of such dubious money lending applications, with most of them being owned by Chinese operators or companies. Some of these are Bubble Loan, Liquid Cash, Cash Bee, Rupee Factory, Paisa Loan, SnapIt Loan, In Need, Rupee Plus, Pan Loan, Cash Port, Wow Paisa, Gold Bowl, Ok Cash, Udhaar Loan, Go Cash, FlashCash, Cash Pot, One Hope and Bily Cash. These applications are illegal as they are not registered lenders and are neither connected to banks nor NBFCs .
RBI and Google’s Way Forward
With increasing number of cases of scams, frauds, harassment and suicides related to digital lending platforms the Reserve Bank Of India (RBI) has constituted a working group to suggest regulatory measures to promote orderly growth of digital lending . The group will evaluate digital lending activities and assess the penetration and standards of outsourced digital lending activities in RBI regulated entities and identify risks posed by unregulated digital lending to financial stability, regulated entities and consumers. It will also recommend a robust fair practices code for digital lending players, insourced or outsourced and suggest better consumer protection measures . RBI has also opened up an official portal for the registration of complaints against NBFCs or money lending apps.
While RBI formulates a plan to tackle the widespread problem of illegal money lending apps, Google, which provides these apps a platform to reach its target audience, needs stricter and more uniform user safety policies. Google has managed to take down hundreds of malicious money lending apps offering short-term loans but is yet to crackdown on similar apps of Chinese origin which do not follow its user safety policies and RBI regulations.
With new innovations and widespread reach, fintech is opening new avenues for people and helping them obtain more control of their finances. However, due to the absence of stringent rules and regulations to police malicious applications has opened the public to danger of being scammed and harassed by loan sharks while simultaneously jeopardising their privacy, a fundament right. To protect the rights of citizens, Google needs to uniformly implement its policies as to protect its users and also to provide a levelled playing ground for the fintech applications on its store. RBI’s Working Group to study aspects to study digital lending activities is a step towards the availability of safer fintech services.
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