Fintechs Call for Clearer Rules and Legal Safety as it Incorporates AI

As the Indian Fintech sector moves towards incorporating newer technology like the AI, it pushes for updated regulations as it faces tighter scrutiny.

The National Payments Corporation of India (NPCI) Chief, Mr Dilip Asbe called for a regulatory framework for India's digital payments and financial technology ecosystem. NPCI hosts the UPI platform and is the quasi regulator for the Fintech sector. By the end of April 2026, the value of transactions on UPI was at Rs 29.03 lakh crore against Rs 25.14 lakh crore, the same month a year ago. This is a 19% growth rate on an annual basis 

He favoured use of newer technology like AI and automated AI agents, while emphasising on strict rules to keep transactions safe and handle customer grievances. He further mentions that the rules should define clearly how transactions are approved—whether an AI does it automatically, or if a human needs to give permission.

NPCI has built its own small language AI model called FiMI (Finance Model for India). FiMI has been rolled out as an NPCI UPI Help Assistant this year, which acts as an AI-powered conversational support system. The assistant supports Indian languages such as Hindi, Telugu and Bengali along with English, among others. It already has around 1 million monthly users.

In another development, the fintech and payments industry in India is preparing a working paper proposing the introduction of a “safe harbour” framework for the sector. This is likely to be submitted to the RBI. Reportedly, Singapore is among the jurisdictions being studied for introducing legal safeguards for the sector.

The action was necessitated by the arrest and subsequent bail of Fino Payments Bank CEO Mr Rishi Gupta over alleged GST tax evasion by third-party merchants using the bank's platform. Even as the Bank claimed all the necessary KYC norms and due diligence were followed, yet the Bank was held liable as the tax-evading merchants could not be traced.

The National Payments Council of India (PCI) wants to introduce the "safe harbour" framework - which gives the Fintech companies a legal protection from penalties and liabilities if all rules and regulations are seen to be followed. 

OUR VIEWS:

As Indian Fintech sector transitions from traditional digital payments towards autonomous AI-driven systems, the statement of NPCI chief, Mr Dilip Asbe calling for a proper regulatory and governance framework for the same, is timely. While welcoming the transition to AI, Mr Asbe wants to ensure the safe and orderly rollout of next-generation financial technologies.

On one hand, he emphasises in India experimenting with newer technologies as that would be beneficial for both users and merchants. On the other hand, he also gave importance to risk management and proper tracking of dealings.

Risks, as he mentions, should be "well protected and indicated." That involves

·                determining the transaction amount limit,

·                keeping a log of all communications the user has with AI agent, and

·                from a governance perspective, determining the level of human involvement in the transactions (whether actions are fully autonomous, human-consented, or human-authorized). 

He stressed upon these frameworks as that would help outline policy verifications and dispute resolutions.

Thus, the main focus of Mr Asbe is not just adopting new technologies but also having a proper regulatory guideline in place to manage risks, protect users, and handle disputes before these technologies go mainstream.

As the Industry gears up for the AI challenges, it is also in the fray of preparing a working paper for the introduction of a "safe harbour" framework for the sector. The issue necessitated from the Fino Payments Bank case, where the Bank was held liable over alleged GST tax evasion by third-party merchants using the bank's platform, even as all due diligence was followed (as per Bank). Even as the framework likely gets submitted to the RBI, the case highlights the importance of having a balanced grievances redressal mechanism which looks at issues not just from customers' end but also from the Company's end. 

______________________________

Related Article 

•https://www.business-standard.com/companies/start-ups/fintechs-seek-safe-harbour-provision-as-regulatory-waters-turn-choppy-126052701580_1.html

•https://www.business-standard.com/finance/news/npci-chief-dilip-asbe-bats-for-regulatory-framework-for-fintech-ai-systems-126052901413_1.html