Consumer benefit should determine regulation: Kris Gopalakrishnan

As fintech continues to evolve at a breakneck pace, new opportunities are emerging to reach the last mile of consumers. In an exclusive interview, Infosys Co-founder and Axilor Ventures Chairman Senapathy Kris Gopalakrishnan, shares insights on how the convergence of innovation and regulation is driving fintech’s next phase of growth, from enhancing user experiences through vernacular AI to establishing cross-border payment systems. Amid excitement and scepticism, Gopalakrishnan believes the best is yet to come for fintech.

How do you see the landscape of fintech evolving, what are the opportunities with emerging technologies?

One opportunity is with emerging technologies to provide services that reach the last mile. For example, we can do automatic translation using AI/ML to connect with all the billion people in India, so we can reach people in their own vernacular languages. It started last year, and it has to scale up. Similarly, to complete transactions using a voice interface rather than a keyboard—this is another way to reach the last consumer. This year, they also announced the UPI Lite Circle. New services are one way because they expand services to existing customers but also attract new customers. There’s a lot of excitement in the fintech space, with new products and services emerging. Fintech started with payments but is now moving into stock trading, selling insurance products, and even offering credit. That’s what’s exciting about fintech — it pushes the envelope further and further, innovating on products.

What about taking UPI global?

The second opportunity is taking UPI global. Again, there are two ways: one is Indian consumers going abroad and using UPI outside the country. The second is connecting to the payment systems that exist in those countries. For instance, Singapore has already implemented something called FAST, and we can interface with that seamlessly, so if you go to Singapore, you can use UPI.

What are the other global opportunities?

The third opportunity is in the global south, emerging markets, and emerging economies wanting to create new payment infrastructures. NPCI can actually help them either extend our systems or set up a national system that’s local. You can set it up, and they will operate it. That’s another opportunity. The next thing is to look at B2B as well as using UPI for cross-border transactions. Several remittances come to India, so we can use UPI for cross-border transactions. That’s one way to look at all possible paths to expand and scale up.

The Fed has expressed scepticism about too much innovation, especially in cross-border transactions. What are your thoughts?

Clearly, cross-border regulation of country A vis a vis country B needs to be harmonised. Some of these things will require bilateral agreements, harmonization of regulations, and building rules into the application itself. That’s why it takes more time, but it’s a direction countries will look at because ultimately, you are ultimately serving the consumers’ needs, more trade, more tourism, etc. If you make it easier for consumers to travel, they will travel more and spend more. That’s what will drive this going global. Indian tourists are now one of the largest communities of tourists in the world.

On interoperability of cross-border systems, is the reluctance of regulators understandable?

Their concern is legitimate as they are worried about criminal activity happening at the intersection where there is regulatory arbitrage. It’s a legitimate concern, and that’s where both regulators will have to work together to facilitate this. A forum such as the Global Fintech Forum is the right place to start these dialogues, discussions about concerns, and how to address them.

What do you see as the next phase of UPI going global?

Two countries are looking at implementing UPI in their own markets and the other way is for Indian consumers to use UPI abroad which are in 8 countries.

How comfortable will the regulator be if the fintech players look to push the envelope far?

The regulator has a fine line to walk — on one side, they are encouraging innovation. The governor himself announced ULI (Universal Lending Interface), the next step in UPI as a universal lending interface. The regulator is pushing the envelope even as they are regulating. They play both roles: enabling and enforcing. Our regulators have done this as well as it can be done. UPI wouldn’t be here without the full support of the Reserve Bank of India.

What about the influx of money into fintech? What are the growth possibilities?

There is a cycle associated with these things. Suddenly, there’s a splurge of money coming in, owing to money flows in the global system. During Covid, there was excess money, so everyone got funded, then the funding dried up. Markets work in cycles. All investments must fetch returns before further investments happen. As long as new technologies emerge, and they are emerging continuously, you will see innovation happening, new products and services being pushed. That’s the history of the world—new cars, new power sources, new fuels, everything from medicine to transportation, e-commerce—continuous innovation. That’s what will happen in financial services too. Typically, it’s the new players who introduce these products because the existing players are sometimes unwilling to take risks. Startups, with no legacy or history, may try it out. That’s why startups are very important for any economy. When they scale and reach a certain size, they become the norm. Look at Uber —initially, everyone said they were breaking all the laws, but now nobody talks about it. Multiple taxi services that are now digitally enabled. Why did it take off? Convenience to the consumer and pricing transparency helped. The convenience for the consumer is what really enabled that to happen, and so long as one can provide benefits to the consumer, sometimes the regulator is forced to accept that and change regulations. Consumer benefit should determine regulation, especially in an innovation cycle.

You see innovation across every sector…

Human nature is creative, innovative, driven by curiosity, and the urge to find something new and gain economic benefit from it. That’s why the global economy is growing. Introduction of new technology accelerates GDP growth. Global GDP is growing four times faster than it did 100 years ago. From $11 trillion in 1980, it has become $110 trillion in 2020.

But much of this growth is fuelled by cheap credit. Is that sustainable?

That’s always there. The more the size of the GDP, the more money is available to invest. Growth of GDP means more businesses, more money, more wealth, more investments. Per capita income is going up, even in India. The middle class has grown, banks have more money. This is the virtuous cycle we have created. That’s why we feel confident in saying we will become a $10 trillion economy or a $30 trillion economy twenty-five years from now because this is a virtuous cycle.

In fintech, do you see the big getting bigger as in other industries?

It is always like that. When an industry starts maturing, there’s consolidation, and you end up with only a few players left because they will buy out all the others. The economy of scale gives them that advantage, and that’s why the big get bigger. Unfortunately, that’s true. Finally, you ended up with a few automotive companies. But when an industry reaches a certain stage of maturity, when growth slows down, consolidation happens. In India, many sectors have not yet peaked, like banking. In the US, consolidation has happened — there are only three or four automotive companies left. Unless a disruption comes through technology, such as Tesla.

Are we at that stage in fintech?

Not yet.

When will that tipping point happen?

India has to get to $30 trillion. We have $3.6 trillion now, so there’s a huge amount of money to be made.

But before we reach $30 trillion, the most-funded VC firm will go ahead and consolidate?

Venture capital will go for high returns in high-risk businesses, which are new ventures. PE guys will start entering when growth is constrained. When growth is possible, it’s the venture money that will drive innovation.

Right now, venture capital is driving the fintech space.

Yes, nobody has a dominant market share yet.

But in fintech, we are seeing a few exceptions…

There are always exceptions to generic statements. That’s the challenge in an interview like this — you will always push a certain point of view.

How do you see the acceptance of digital currency?

You have to create a compelling use case. Compelling use cases is what will drive adoption. Right now, it’s an interesting idea and concept.

Is it more beneficial for the regulator as e-currency is about currency management costs and e-rupi digitises the balance sheet of the regulator to a certain extent?

For the regulator it’s the cost of printing and managing currency. If it’s digital, it’s cheaper, and there are other benefits such as eliminating black money, fake notes, etc. Use cases need to be created. RBI has demonstrated multiple use cases for Central Bank Digital Currency (CBDC). Which one will take off? I do not know. But they have demonstrated multiple use cases.

But physical currency is fungible, but programmable currency is not. It restricts the end user’s rights.

If the government is dispersing a farmer loan for buying seeds, fertiliser, or farm equipment, they don’t want that money to be used for buying clothes or a car. That’s why there is a use case for creating programmable currency. Until now, it wasn’t possible to specify that a note can only be used for buying farm equipment. Here, you can do that. They hope leakages can be prevented.

But that takes away the flexibility?

These are all experiments in an innovation cycle. You create new products and services with a certain purpose in mind, and if the purpose isn’t compelling enough, it will go away. But don’t stop experimentation. Don’t kill these experiments because innovation will be discouraged, and that should never happen. We want an economy that’s innovative, dynamic, entrepreneurial, always thinking of new ways of doing things, and that’s what will drive growth. Look at OpenAI—it came out of nowhere. It didn’t come from an established company; it came from a startup, a non-profit. That’s the economy we want to create in India — the creator economy. That’s why I believe the regulator works with the industry, creates sandboxes where innovations can be tested, and then they try to understand the implications, the downsides, and figure out what’s right.

But in the digital rupee case, it’s the regulator who’s being innovative and not the industry?

Yes, the regulator has two roles: enable and enforce. Without enablement, there is no enforcement. We should be happy that in India, our regulators are willing to support innovation, work with innovative companies. Otherwise, UPI would never have happened. UPI is one of the biggest revolutions in the world in terms of inclusiveness. Look at every highway you drive through, you see someone selling fruits and vegetables with a QR code on the roadside. They don’t even accept cash anymore; they prefer digital payments like G-Pay or PhonePe, which is good. The inclusion and empowerment it has created is why we need these innovations. Our government is very clear: emerging technologies must be used for inclusion. Products and services must be affordable, which is why there’s zero charge for the consumer. They’re also ensuring transaction completion is 100% with less and less fraud. Other countries are looking at India with appreciation for what we’ve been able to do.

The phenomenal success of UPI is the first time India has created a product that can be replicated globally…

Yes, UPI is a great example. But there’s also something called the Modular Open Source Identity Platform (MOSIP), which is being implemented in 22 countries. It’s an open-source version of UID, which is now operational in the Philippines, where 100 million IDs have been issued. There are MOSIP-compliant companies, there are MOSIP implementers. There’s a huge ecosystem around it, and it’s being incubated at IIIT Bangalore. One government does not want to buy the services of another government and hence they have created an open source in an non-profit foundation which is now being deployed across the globe. This is a wonderful example of something that has gone global and is actually not-for-profit.

But who will absorb the cost of payments?

Right now, the volume is so large that even small retailers are accepting digital payments because there’s no cost. At some point, someone has to absorb the cost. You can’t give a service without making money forever. This has been talked about, and I believe it will be taken care of eventually. The system will figure it out.

Do you think the growth will continue if costs increase?

There are different models being built through monetising of data — lending is possible, pushing advertisements is possible, understanding consumer behaviour is possible. Data is now the new currency.

Coming to the IT services industry, will AI create more opportunities or challenges?

It’s both an opportunity and a challenge. The challenge is how to use the technology effectively. But it will create growth opportunities for the services industry as they implement it for all their customers.

Will it affect job creation in the industry?

Temporarily, there may be a pause as the industry figures things out, and there may be some impact on jobs. The industry will continue to grow and create new kinds of jobs. Forty years ago, when computers were introduced in banks, everyone said jobs would be lost. But look at the banking industry now — it’s a hundred times bigger. The same will happen with AI and other technologies.