Reality Check: Challenges Fintechs Face

Especially when it comes to regulatory policies, there is an urgent need for the industry to clearly articulate its stance in front of regulators and convince legislators to aid the growth of the category

From regulatory compliances to cut-throat competition to dried-up funding opportunities, fintech companies have to contend with a lot of challenges to stay relevant in this fast-changing business environment.

Fintech players in India are playing an important role in bridging the gap between policymakers and the masses. These new-age technology startups are proving instrumental in bringing benefits to the doorsteps of the unserved and underserved in the country. Through their innovative models of extending financial products to underserved segments, fintech has become an important cog in the policy wheel to ensure the holistic well-being of society. Besides, these ventures are stimulating the innovation ecosystem in the country by bringing innovators, developers, and funders together. No wonder, these startups have found a prominent place in the mentions of policymakers, industry bodies, and other important stakeholders contributing to the economic and social well-being of the country.

In terms of numbers too, the fintech growth story in India is nothing less than impressive. with an adoption rate of 87%, the Indian fintech industry leads the adoption rate on a global horizon. According to official figures, there are a total of 6,636 startups registered in the country out of which 22 have already acquired the status of unicorns with valuation reaching the magic figures of $1 Bn. The total market size of the Indian fintech industry is $31 Bn in 2021 and this figure is expected to touch $150 Bn by the year 2025.

Despite these rosy forecasts, fintech players are contending with their own share of problems and challenges. From tough regulatory stances to drying up funds and from declining margins to employees churn, the struggle to survive in the fintech category is very intense. Among these multifaceted problems, industry experts agree that the fintech industry needs to first tackle the issues of tightening regulatory policies, lack of funding opportunities, and high churn of talent in the segment. These issues have been identified as the critical inhibitors that are keeping the industry from realising its full potential.

Especially when it comes to regulatory policies, there is an urgent need for the industry to clearly articulate its stance in front of regulators and convince legislators to aid the growth of the category. Unfortunately, the current perception about regulators in the industry is not very encouraging as many believe that the policies drafted by regulators are impinging upon the growth potential of the industry. Take, for instance, the recent ban imposed by RBI on nonbanks to load prepaid instruments is one such decision that will negatively impact the growth of buy now pay later (BNPL) startups in the country. Even the chief executive officer of Niti Aayog, Amitabh Kant, had in the past admitted that regulatory policies had obstructed the growth potential of the fintech sector time and again and this has to change if the country wants to harness the game-changing potential of the fintech industry.

Staying ahead in the innovation curve is another challenge that the fintech industry is facing in the backdrop of a fast-changing technology scenario. The fintech industry demands companies to remain engaged in innovation although the process is extremely resource-intensive in nature. To integrate new-age technologies into business and invent global solutions, fintech companies require a hefty amount of money, arranging which is a herculean task given the fact that most startups in the industry have become operational through the route of bootstrapping. To make things worse, demanding customers are putting further pressure on fintech firms to deliver the best experience to target audiences.

Fintech startups are facing the heat on the critical aspect of human resources too. Recruiting and retaining talented employees is increasingly becoming a big issue for the industry. Amidst the pressure of sales and new customer acquisition, employees keep on changing companies, leading to a high employee turnover rate in the industry. This high turnover is not only impacting the profit potential of fintech firms but also adversely impacting the overall stability of the industry. In fact, experts think that the issue to retain talent in the fintech industry is as challenging for firms as finding new customers and clients for their businesses.

The holistic solution to all challenges mentioned above is empathy towards each other's perspective. The nation and its people deserve a safe and regulated environment when it is all about their hard earned money which is at stake this is ideally what the regulators doing leap & bound to ensure. For the industry to progress the fintechs and innovators need to be

empowered and should be given an opportunity to create innovative newer models. Only regular dialogue, constant engagement, equal participation & business assurance between key stakeholders is key to a self-sustaining ecosystem for the fintech industry.

All stakeholders in the ecosystem should collaboratively work with each other to successfully address all small and big issues contending the industry. The regulators and policymakers also need to establish two-way channels of communication with the industry and should take the industry into confidence before bringing any new legislation or reform to the sector. In sum, by adopting a holistic and all-encompassing approach, the fintech industry can grow by leaps and bounds while also contributing effectively to the success story of the nation.

(The given article is attributed to Shubhradeep Nandi, Co-CEO and Chief Data Scientist, Dvara Solutions)

Tags assigned to this article:

Around The World