Mumbai: India's fintech sector is undergoing a regulatory shift, with industry leaders emphasizing the need to balance compliance and innovation.
At a panel discussion titled Indian Fintech: Balancing Disruption and Regulation during the Mint BFSI Summit on Friday, experts highlighted the challenges and opportunities of navigating this evolving landscape.
“You may be right in the letter, but if you’re not right in spirit, then that over a period of time can also become a problem,” said Anuj Kacker, co-founder, Freo, a neobank.
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Kacker explained that his company operates within multiple regulatory frameworks, including non-banking financial companies (NBFCs) and oversight by the Reserve Bank of India (RBI). He added that they also hold an insurance corporate licence regulated by the Insurance Regulatory and Development Authority of India (Irdai). Beyond the financial sector, the company works closely with the Telecom Regulatory Authority of India (Trai) to ensure compliance in its communications.
Kacker noted that his team remains prepared to address any additional regulatory requirements as they arise. “It's either a zero or a one, so either you're compliant or you're non-compliant. As we make business decisions, you can't just say that for you guys, this is okay, for you guys, this is not okay. It's very difficult to otherwise have very clear communication and clarity down the road,” he added.
Kacker acknowledged rising compliance costs, attributing them partly to past regulatory arbitrage by some companies.
"Suddenly when you see a lot of actions, it is because it’s been building up over the past 7-8 years…Now smart guys are saying they will not work in regulatory arbitrage. Our compliance team has increased and we are adding more people to it but that is just the nature of the beast now. People who do not accept that bit will have a problem today or tomorrow,” he said.
Ajay Rajan, country head for transaction banking at Yes Bank, said India’s fintech landscape is at a “fascinating intersection” of innovation and regulation.
“I think the way in India, especially, the way we interact, save, borrow, and lend, everything has seen a transformation from a consumer perspective. And when I say consumer, not only individual consumers, but also businesses, especially MSMEs, we've seen a massive transformation here." Rajan said, adding that the ecosystem’s disruption has been powered by collaboration between fintechs and banks.
Rajan credited the government’s proactive approach and creation of digital public infrastructure for fostering innovation. “This is the backbone of innovation in India along with a very progressive regulator who has made sure that there is a fine balance which is being stricken between innovation, especially financial innovation, and security in terms of the public at large,” he added.
Governance, however, remains a broader cultural challenge, said Naveen Surya, co-founder of Beams Venture Capital.
“I think as a country, if you see governance per se, whether you're in a listed space, whether you're in any industry, traditionally, historically has not been very good. In fact, we should be proud that because financial services are regulated, the sensitivity is higher,” Surya said.
He expressed pride in the ecosystem, crediting regulators and the government for maintaining integrity in the regulated space. “At least I am not aware of instances where people have lost money from regulated and known fintechs.”
Surya advised fintechs to adopt governance frameworks similar to banks and larger NBFCs as they grow.
“The larger you get, you need to have a proportionate compliances framework, etc., coming into play. Fortunately, I think post-covid time, in the last five years, a lot has changed," he said, adding that most fintechs now have expert directors, advisory boards, and independent board members.
Anish Mashruwala, partner at JSA Advocates & Solicitors, noted that the regulator’s approach is evolving.
Mashruwala said the RBI is not trying to stifle innovation but is prioritizing governance and customer centricity. He added that the shift toward a governance model is the most significant change observed, and fintechs are now adapting to this balance between good and bad disruption.
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