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Google vs digital lending - Missing the wood for the trees?

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The digital behemoth Google and Indian FinTech lenders have locked horns - once again.

Google vs digital lending - Missing the wood for the trees?
The digital behemoth Google and Indian FinTech lenders have locked horns - once again.
In July, Google updated its financial services policy for developers. According to the updated guidelines, which come into effect on September 15, apps in the business of digital lending are now required to comply with a new set of regulations such as being categorized as ‘Finance’ apps in the store and also carry a declaration along with disclosure of collection, access and use of sensitive user data.
This is not the first time Google has intervened in the digital lending ecosystem. In January this year too, Google had updated its Play Store policies for financial services apps. According to this set of updates, apps that offer unsecured or secured personal loans had to disclose key information in the app description on the store and at the time of submitting the app. This information includes but is not limited to pointers such as minimum and maximum periods of repayment, the maximum annual percentage interest rate and a representative example of the total loan cost.
This move came after reports of several lending apps charging exorbitant rates of interest on their personal loans and resorting to bullying and intimidation tactics for recollection. Concerns first surfaced in 2020 after pandemic-induced mass defaults when reports claimed that at least 50 loan apps were indulging in unethical collection methods which in some cases had reportedly led to borrowers committing suicide.
Google began removing lending apps that failed to comply with its guidelines from the Play Store soon after the RBI set up a working group to suggest regulations around digital lending. The group is expected to release its recommendations soon.
This situation has led to an uproar of sorts in the FinTech sector, with legitimate apps fearing the fallout it could have on their operations. While many might feel that Google is playing the role of a ‘super regulator’, circumventing even the RBI with mandates such as a loan repayment period of at least 60 days for a personal loan app to survive on the app store even as a number of apps were removed from the Play Store for non-compliance with Google’s new policies.
Googling the future of the digital lending ecosystem
Digital lending is a fairly new and fast-evolving sector that has limited precedents and currently lacks a clear-cut policy direction. It cannot be denied that certain lenders or frontend apps have exploited these characteristics of the sector to misuse user data, charge high rates of interest, and use unscrupulous recollection methods. Such activities have a major impact on the borrowers, and also tarnish the image of a sector in which many legitimate FinTechs have worked towards improving financial inclusion.
However, over-regulation could throw a spanner in the works of the sector’s growth and the businesses’ operating environment. The latest set of rules from Google, coupled with RBI’s upcoming recommendations could have a stifling effect on this dynamic industry. It also raises several difficult questions that must be pondered upon. The debate between light-touch regulation to enable growth versus an iron fist remains as relevant today as it was in the heydays of the banking bubble in the 90s.
It must be considered whether Google and other digital tech giants will eventually act as de-facto regulators of regulatory grey areas? If yes, what does it mean for the ecosystem as a whole and especially those borrowers at the bottom of the pyramid.
Are we losing sight of the impact fast and easy loans have on a borrower’s financial position, and also their psychology? Where does convenience end and exploitation begin?
These are questions that legitimate FinTech players must grapple with as they navigate increasingly complex regulations. As for those regulating - the focus must remain on weeding out the bad apples, not chopping down the tree.
The author, Rajat Deshpande, is Co-founder and CEO at FinBox. The views expressed are personal.