Uday Kotak raises concerns about dominance of fintech – PhonePe and Google Pay

The dominance of payments businesses like PhonePe and Google Pay is a wake-up call for Indian banking, says Uday Kotak, MD & CEO, Kotak Bank. Speaking at an event organized by India’s International Financial Services Centres Authority (Gift City) and Bloomberg, Kotak said policymakers also need to look at the issue from a financial stability point of view.

He claimed that Indian banks have been behind the curve and have allowed the growth of UPI payments to be monopolized by Google Pay and PhonePe, who now control 85% of the market. Kotak believes bankers were shortsighted in the last two years.

“It is a wake-up call for Indian banking, wake up or you will see a large part of the financial market move out,” he said. “From a policy and financial stability point of view which policymakers have to look at.”

Kotak highlighted that the bankers had said there is no money in payments and let the payment market be taken by these two-three companies. He believes the bankers need to be mindful that consumer tech companies have revenue models outside finance. “For example, the e-commerce model. Banks under section 6 of the Banking Regulation Act cannot get into non-financial business. There are serious issues of how we are going to draw the line and simultaneously, there is an issue of financial stability.”

He also made reference to raising of deposits by Google Pay and to the RBI’s move to ban first default guarantees provided by lending platforms. Kotak said there was a need to establish who was responsible for the deposits and who was bearing the risk on loan assets. Competition between a regulated entity and a fintech or consumer tech usually ends up with the tech company being fast and loose on regulation, and gaining market share at great speed. “I am not against competition, all I am saying I the name of competitive service we do not have a systemic and stability challenge at the same time.”

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Kotak urged authorities to take Unified Payments Interface and the Aadhaar Enabled Payment Systems global.