After the pandemic, the fintech landscape in India has undergone a profound transformation. Before Covid-19, technology had only made tentative inroads into the financial world by way of Internet banking, ATMs, and wallet services. At that time, technology created efficiency and was not a threat to financial stability; thus, technology-oriented regulations were not deemed necessary.
However, the situation has changed substantially over the last few years. Fintech companies have multiplied in numbers, and are now striving to carve out their legitimate space within the realm of finance. The extensive adoption of UPI is just one example of how technology can be a force for good if aligned with regulatory objectives. This evolution has been accompanied by a growing need for self-regulation to curb unwanted behaviour, and to encourage the right behaviour by emerging companies.
Balanced approach
In response to these challenges, the RBI has taken measured steps to regulate the fintech industry. What’s noteworthy about these regulations is their balanced approach. The RBI has primarily focussed on addressing malpractices and safeguarding customer interests. Furthermore, the regulator has actively collaborated with fintech companies, leveraging their expertise to create innovative solutions that bridge the gap to the last mile. In doing so, the regulator has played a proactive developmental role so that fintechs continue to innovate but do it responsibly.
Self-regulation
Both the RBI Governor and Deputy Governor have suggested that they desire the fintech industry to establish its own effective Self-Regulatory Organisation (SRO). It should evolve industry best practices, ensure data privacy and protection in accordance with the nation’s laws, set standards to prevent mis-selling, promote ethical business conduct, and enhance pricing transparency.
SROs serve as consultative bodies, uphold ethical standards, and often collaborate with regulators to shape industry practices. Examples include the Indian Banks’ Association (IBA), the Foreign Exchange Dealers Association of India (FEDAI), and the Fixed Income Money Market and Derivatives Association (FIMMDA), and Association of Mutual Funds of India (AMFI), among others.
By bringing together the largest and most active companies along with the smaller players in their specific industry, these SROs have emerged as a force for good by fostering positive industry behaviour, greater sensitivity to the concerns of customers and stakeholders, and most importantly as a unified voice of reason which the regulator listens to.
The key ingredient for making SROs successful would be the active participation of the largest and most innovative companies in fintech. These would include companies involved in lending, banking platforms and tech development, which are shaping the tomorrow of banking and financial services. While the formal structure of SROs – their objectives, agenda and bounds of activity – is important and the regulator will prescribe the format, SROs’ success will be defined by the participants and contributors. The involvement of large active companies will make the activities of SROs relevant by providing a grounding for their advocacy, with the regulator and steering change in day-to-day customer operations.
Importantly, we would need to look at broadening the participation to include investors and shareholders of fintechs. Their interests are usually aligned with the regulator’s long-term customer objectives, and they could play an important role in corralling and advising fintechs towards the right behaviour. Further, small players’ interests would have to be given due importance to balance the outcomes, which investors would be keen to highlight.
As India takes the lead in financial technology, the creation of a fintech SRO can position the nation as a global standard-setter in fintech practices. I would urge us, the fintech community, to quickly come together and form a responsible and trustworthy SRO that will not only shape a brighter future of finance in India.
The writer is Asia Partner and Head, QED Investors