Financial ecosystems need a mechanism to strike the right balance between innovation and regulation
The collapse of Lehman Brothers in 2008 heralded a new era in the regulation of the financial industry not only in the US but also in India. Today, the industry is known for its innovations that are changing the way financial institutions lend and insure. Yet another area that is growing fast within the financial industry is fintech. From established banks and non-banking financial companies (NBFCs) to lean start-ups, almost all players are betting on innovations in technology that increase the efficiency of financial products. The pace of innovation in the financial sector, however, has been slow, in part, as an unintended consequence of the maze of regulations governing the sector. While many of these regulations were expected in the aftermath of 2008, the second order effects of these regulations have inhibited the speed of financial, and more so fintech, innovation. Ultimately, this affects the rate at which India brings its hitherto excluded masses into the formal financial system.