According to Reserve Bank of India (RBI) Deputy Governor M Rajeshwar Rao, financial institutions that use digital outsourcing and their "third-party dependencies" get benefits but also face hazards.
"Poorly managed third-party relationships can expose regulated entities to not only customer dissatisfaction and reputational damage, but may also invite regulatory and supervisory actions," he stated at CareEdge Conversations BFSI - Navigating Growth and Risk.
He also stated that regulated businesses must assess the trustworthiness and security of third parties and guarantee they satisfy the relevant criteria. The issue is related to the choosing of outsourcing agencies or digital lending service providers.
"Regulated businesses are increasingly turning to third-party firms and outsourcing their operations to boost efficiency, cut costs, and improve customer experience. However, while third-party dependencies provide some advantages, they also present certain dangers and obstacles. One of the most pressing considerations is the selection of an outsourced partner, or, in the case of digital lending operations, LSPs," he stated.
He stated that while digital lending rules require regulated organizations to ensure that their LSPs have appropriate grievance resolution processes on their websites or applications (apps), a recent RBI investigation discovered that not all LSPs or apps meet this criteria.
Rao also stated that cybersecurity is a major area in which regulated businesses must examine the ability of third-party service providers to secure their digital assets and client data.
With the rising frequency and sophistication of cyberattacks, organizations must ensure that service providers implement strong cybersecurity measures to protect against threats. Dependence on third parties can lead to vendor lock-in, in which organizations rely on a single provider for vital services.
This lack of vendor variety raises dependence risks and hinders organizations' ability to adjust to changing market conditions or technology improvements, he said.
Rao highlighted that a lack of vendor variety might increase dependence risks and impede entities' ability to adjust to changing market conditions or technology improvements. "Dependency on third parties can also lead to vendor lock-in, in which regulated entities rely on a single vendor for critical services," Rao added.
