Creating a secure fintech 2.0

The government has introduced new regulations for the fintech sector to ensure stricter compliance with risk and security standards. While these reforms will continue to make businesses resilient, they will prove beneficial in the long run.

“India is one of the fastest growing fintech markets in the world today,” said Indian Prime Minister Narendra Modi while addressing the Infinity Forum in GIFT City.

We have seen the fintech revolution take the Indian market by storm over the last decade. Today, with beyond Over 4.2 thousand active fintech startups, India has the fastest global adoption rate of 87%.

Being the third largest fintech ecosystem in the world, the market size of the Indian fintech sector is expected to reach USD 150 billion by 2025. It is without a doubt that India is building a blueprint for innovation models in the fintech sector for the rest of the world. world.

It is fair to say that Indian fintechs have captured a significant share in segments ranging from payment gateways and small amount personal loans to Buy Now Pay Later (BNPL) loans, insurance distribution, etc. The tailwinds for India’s fintech story are the rapidly growing digital population, advanced digital public infrastructure (DPI) and proactive regulators.

But this growth story is one stage in India’s fintech growth. While the segments are expected to please Loans to SMEs, wealth creation and SaaS fintech will play a significant role in this growth, it is only possible with sustainable profitability and regulatory compliant models, as well as compliance with risk and security standards. In recent months, the government has become proactive in promoting fintech 2.0 by tightening the noose around compliance and regulations.

How RBI is strengthening the Fintech sector?

Over the past few months, we’ve seen the regulator crack down on one payment platform bank and another bank over compliance gaps. It has been about two years since RBI Governor Shri Shaktikanta Das warned fintech companies against “Be careful to governance, business conduct, regulatory compliance and risk mitigation frameworks” speaking at the third edition of the Global Fintech Fest in Mumbai.

However, just two months later, the fintech Association for Consumer Empowerment, in collaboration with the Center for Financial Inclusion, flagged governance risk in its survey.

Two years later, today, the RBI is in the process of setting up a self-regulatory organization for fintech. During a recent meeting with founders of fintech startups, Finance Minister Nirmala Sitharaman acknowledged the role of the fintech sector in the growth of the Indian economy, emphasized compliance with regulations and said there can be no compromise on compliance.

However, the regulatory body and the government have not left fintech companies to fend for themselves. They are proactive in enabling fintechs to achieve compliance. In a statement addressed to the startups and fintech industry, the Finance Minister further said, “The RBI, Department for Promotion of Industry and Internal Trade (DPIIT) and the Ministry of Finance will look into the change of ownership or the oversight of listed fintech companies to enable them to be in sync with regulatory compliance.”

The ministry also announced that the Department of Financial Services (DFS) will conduct workshops with the fintech industry and law enforcement agencies to achieve the same goal. Regulators and the RBI should hold monthly meetings with fintechs to address fintechs’ queries and concerns regarding compliance.

Investor attention on regulations

Investors have taken note of these reforms. In a recent estate Mahakumbh startInvestors have encouraged fintechs to operate within regulations as they meet consumer needs and strive to achieve financial inclusion goals.

Siddharth Pai of 3one4 Capital said at the event that fintechs have created products that solve customer pain points and that fintechs that not only satisfy customers but also recognize regulations are successful.

He said: “There is a strong need for the financial system to be resilient. Don’t look at the regulator as someone to fight with. He is not your enemy.” The sentiment expressed by Siddharth Pai is valid and it is crucial that the industry is attuned to this perspective.

Embrace the change

Instead of viewing regulations and compliance requirements as a burden, government fintech regulations need to be viewed as ambitions of a strong financial ecosystem.

Sustainable growth in the industry cannot be achieved if we do not comply with the rules and regulations, ensuring that customer data is protected and that there are no outstanding issues. In China, the world saw how the lack of regulations led to system failure P2P lending industry.

Fintechs need to embrace governance and compliance and make them part of the business model. Investing in robust compliance systems is essential, especially when the market is rapidly expanding.

The next step to standing out is to recognize potential regulatory pitfalls and take proactive steps to address them and ensure a sustained growth trajectory. It is the way forward to strengthen India’s position as a fintech leader globally.

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