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S Ravi

The author is a practising chartered accountant and an independent director on many large public companies whose views and ideas have been instrumental in framing policy

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Fintech Needs Regulation – But With A Dash Of Futuristic Thinking

Fintech, like most emerging technologies, and as one of the key verticals in the startup ecosystem, can be a game changer for India

The world over fintech has been designed to be innovators and technology leaders. However in India as with all innovation, fintech has been viewed as a dated system and a historic roadblock which may need to be relooked at.

RBI regulations issued recently showed again that a mindset gap exists between government entities - whether they be regulators or tax agencies - and new-age technology companies and startups. While the regulations issued by the RBI seem to make it easier for NBFC-linked fintechs to be able to continue with their business they place huge premiums in terms of the effort required going forward on technology-first fintech companies.

We have seen in the years gone by how the income tax department had pursued funded startups for shoring up tax collections. And now, we are seeing the RBI playing a similar underthought role in terms of regulating fintechs.

Of course, in this case, the purpose and the methods are different but it is the same gap between innovation and control as was there in the case of the Income Tax Department. We have seen in many instances in the past that for the system, anything new and innovative that may help to generate wealth for the creators of these new age companies – while at the same time making life easier for the end customer – is viewed with a traditional approach at odds with innovation.

It is understandable that anything new must be appropriately regulated, especially where it concerns the BFSI domain. However, instead of creating rules and benchmarks that would foster innovation while at the same time ring-fencing the customer, the outcome – hopefully unintended – of these guidelines would be that of stifling innovation and startups.

We need to encourage our system and all players to create an ecosystem aimed at supporting innovation instead of taking a status quo approach that is a vestige of the past. In this instance, the focus should have been on creating a pragmatic and futuristic set of rules that will facilitate the growth of fintech, and the RBI should relook at their approach in this case and come up with a solution that drives growth and helps India leverage the great fintech opportunity ahead of the rest of the world.

As we have seen in the case of startups, a burgeoning domain, which has the capability of creating jobs, creating wealth and accelerating the economy, similar is the case of fintech, there is a huge opportunity that awaits India.

We have been late in the game of the startups' domain overall, however, given the technology innovation leadership of India, the time is ripe to be ahead of the curve with fintech. While there is some buzz being built around it in terms of saying that this will help fintech to organise their business better. The reality is that fintech goes way beyond traditional banking – it is about creating a completely new financial ecosystem which leverages mobile platforms to rapidly reach where traditional banking has struggled to get in decades. Whether there was the lobbying of certain organisations that have already set up NBFC-linked architectures or in response to connections used by bankers - the traditional kind - within the RBI system to counter the challenges of the growth of an ecosystem which challenges their traditional approaches to the banking system as it exists, we will never know.

However, what is clear is that while the guidelines as issued will address some of the shortcomings of the fintech sector, however, if not nuanced immediately would possibly lead to India falling behind in the fintech race. And yet again, we may have to wait – as with startups – to recover once the world has taken the long lead.

The government has been focused on creating ease of business and fostering innovation and it is imperative that the bureaucracy gets in lockstep. It is nearly a decade coming up with gradual reforms, but it may be time now to accelerate them to a more frenzied pace. If we are to succeed on one of the most prominent of the ‘panch prana’ outlined by the Prime Minister - freeing ourselves from colonialism - then the long overdue and most important step towards this must be to make our bureaucracy forward-looking and a partner in innovation. There are no doubt creatures of great intellect and the time is now right to use this instance to fuel their drive to be the drivers of modern India.

Fintech, like most emerging technologies, and as one of the key verticals in the startup ecosystem, can be a game changer for India. I do hope that like with the many hurdles that the Prime Minister and his government have successfully removed in the way of the hardworking citizens of this country to drive innovation growth and prosperity in India, so also in this case action will be taken with promptness to separate the chaff from the real harvest that the enterprising citizens of this country are creating. There have been many articles and discussions on the granularity of the rules and regulations issued by the RBI in this matter, however, this is a key matter that requires urgent highlighting and I trust that through this note I have been able to shine a light on this. And which I hope shall result in regulators & government agencies becoming partners in the advancement of cutting-edge innovation in India. More importantly than that, I hope this will help redouble its efforts to create better ease of living and ease of doing business environment for the country. It is all in the hope that going forward it is innovation, growth and prosperity that is foremost on the minds of all stakeholders in the interest of the nation and in the interest of India becoming the world’s leading economy by the time we celebrate the 100 years of our independence.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


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