Evolution of FinTech: Concept and Developments in India

What is FinTech?

Financial Technology (‘FinTech’ in short) is a term primarily used to describe any form of technology that makes the delivery of financial, banking, advisory, cryptocurrency, payment etc. services to consumers through efficient means. This is carried out through interactive portals, computer software and mobile apps. With the rapid growth in technology, the nature, speed, volume and veracity of financial services have evolved, leading to a steady growth in public access to said services in India.

FinTech, thus, aims to “close the gap between the financially and digitally included on the one hand and those who are excluded on the other. FinTech is an enabler to global financial inclusion, creating a more equitable world[1].

FinTech companies in India:

The advent of the Covid 19 pandemic in 2020 saw the emergence of many FinTech companies and the revival of many existing ones. Globally, India has the highest FinTech adoption rate with over 2100 FinTech companies -67% of which have been set up in the last 5 years[2].

As of now, there are 107 Unicorns (valued over $1Billion) in this space with a otal valuation of over 370 Billion USD. Some of the big names include the likes of Groww, BharatPe, PayTm, PhonePe, Pine Labs, CoinDCX, CRED, and PolicyBazaar.[3]

Types of FinTech companies:

• Digital Payment Companies ( PayTm, BharatPe, Razorpay)

• InsurTech Companies (PolicyBazaar, Acko Insurance)

• Digital Lending Companies (Blacksoil, DMI finance)

• WealthTech Companies (Zerodha, Groww, Tyke, Upstox)

• Agri/Agro-Tech Companies (Unnati, Ninjacart, Acquaconnect)

• Crowdfunding platforms (Ketto.org, Milaap)

• NeoBanking Companies (Slice, Jupiter)

Recognized FinTech forums/associations/committees in India:

1. India FinTech Forum (IFF) - Policy and Advocacy:

This is an open-for-all public forum that consists of more than 30,000 individuals and 2750 FinTech companies[4]. The forum hosts a multitude of courses, awareness campaigns, webinars, networking events and exclusive job alerts related to the FinTech space.

They take charge of change by inviting meetings with the regulators of the country (RBI, SEBI, and IRDAI etc.) where they let consultants, scholars and eminent lawyers represent the interests of the FinTech industry as a whole.

Key members:

• Vikaas Sachdeva (CEO, Emkay Investment Managers Ltd)

• Saurabh Srivastava (Ex-chairman of NASSCOM)

• Nithin Kamath (Founder, Zerodha)

• Gaurav Hinduja (Co-founder, Capital Float)

• Deepti Sanghi (Founder, Kodo)

2. Digital Lenders’ Association of India (DLAI):

DLAI was founded in 2016 by 9 leading players in the digital lending sector- Capital Float, NeoGrowth, Zest Money, LendingKart, KredX, Indifi, IndiaLends, Moneyview and UPF Ltd.

Their primary objective is to bring together all digital lenders- MSME, Consumer and online marketplaces and leading industry members to create a one-stop platform for all knowledge regarding best practices, regulatory compliance and, recommend policies to government bodies.

DLAI’s work:

• They conduct comprehensive research on innovative business models and work in tandem with the regulators.

• It has also framed a set code of ethics that is signed off on by every new member.

• They put together recommendations and suggestions for maintain a balance between regulatory compliance and customer’s interests in context to data privacy. DLAI was the first to suggest the “video KYC” as an option for KYC.

• DLAI also contributed to the revised P2P guidelines – that eventually resulted in the RBI Master Direction for NBFC-P2P lending platforms in 2017.

Key members:

• Bank of Baroda

• RBL Bank

• MobiKwik

• IIFL

• CRED

• PayTm

3. FinTech Association for Consumer Empowerment (FACE):

FACE strives to bring together the different stakeholders that drive FinTech adoption in an ever-growing economy like India. It seeks to establish an effective dialogue with industry policy stakeholders like the RBI, Ministry of Finance, Niti Ayog and other government authorities, to present digital finance industry’s views and observations.

FACE members are major players in the FinTech lending ecosystem and serve more than 4.5 million customers across 19000 pin codes[5].

FACE works:

• By engaging with regulatory bodies and consumer forums/engagement platforms.

• In maintaining fair and responsible digital lending practices.

• By Promoting technology adoption and financial inclusion in member companies.

• By establishing and maintaining thought leadership in Consumer finance

Key members:

• PaySense

• CASHe

• Paisabazaar.com

• Orange- Retail Finance

• KreditBee

• LoanTop

• Kissht

4. FinTech Convergence Council (FCC):

FCC is a part of the 2004 established Internet and Mobile Association of India (IAMAI) and works closely with the Ministry and regulators like RBI, Ministry of Finance, IRDAI, SEBI etc. to grow the penetration of financial services in India.[6]

Formed in 2018, FCC aims at being platform for all the stakeholders in BFSI ecosystem to deliberate, integrate and lead the development of the financial sector. Their mission is to identify and work on opportunities for collaboration and convergence between various players in the financial services domain to drive market expansion and subsequent growth.

They perform advocacy functions in the sector by proactively working with lawmakers to build workable policies in certain areas where there is no legal purview on the part of the regulators.

Key members:

FCC is governed by an Executive Council of 8 members from the FinTech industry, namely:

• Naveen Surya, Chairman, Fintech Convergence Council & Chairman Emeritus, PCI

• Srinivas Jain, Co-Chairman, Fintech Convergence Council & Executive Director, Chief of Strategy, Digital & Technology, SBI Funds Management

• Mukesh Kalra, Founder & CEO, ET Money

• Sarbvir Singh,Chief Executive Officer, PolicyBazaar

• Varun Dua, Chief Executive Officer, Acko General Insurance

• Alok Mittal, Co-founder and CEO, Indifi Technologies

• Rajat Gandhi, Founder and CEO, Faircent

• Deval Sheth, Managing Director- India, Giesecke & Devrient

• Subho Ray, President, IAMAI[7]

A brief on the Legal framework behind FinTech Companies in India:

With the growth aforementioned types of companies (and the sector itself), the law and the regulatory bodies have had to adapt accordingly. Most of these companies are under a general umbrella of the Companies Act, 2013, LLP Act 2008, Indian Partnership Act 1932, SEBI Act and its subsequent regulations. As for their day-to-day conduction of business, it does involve a mix of different laws and regulatory bodies.

The Regulations (not exhaustive):

• Securities & Exchange Board of India Act, 1992 (SEBI Act) with relevant SEBI Regulations

• Securities Contract (Regulation) Act 1956 (SCRA)

• Banking Regulation Act 1949

• Reserve Bank of India Act 1934 and Regulations, Master Directions, Circulars, Regulatory Sandbox

• Payment and Settlement Systems Act 2007 (P&SS Act)

• National Payments Corporation of India (NPCI)– Guidelines

• Prevention of Money Laundering Act 2002 (PMLA) and Prevention of Money Laundering (Maintenance of Records) Rules, 2005.

• Information Technology Act 2000

• The Insurance Act 1938

• Insurance Regulatory and Development Authority Act 1999 with Rules and Guidelines:

• IRDA (“Issuance of E-insurance policies”) Regulations 2016 and (Insurance on e-commerce) Guidelines 2017

• IRDA (Regulatory Sandbox) Regulations 2019

• The Foreign Exchange Management Act 1999 (FEMA)

The Regulatory Bodies:

• National Payments Corporation of India (NPCI)

• The Reserve Bank of India (RBI)

• The Securities & Exchange Board of India (SEBI)

• Unique Identification Authority of India (UIDAI)

• Insurance Regulatory and Development Authority of India (IRDAi)

• The Ministry of Corporate Affairs (MCA)

• The Ministry of Electronics and Information Technology (MEIT)

Stay with us for PART-2 which shall discuss the legal framework under which Digital Payment and InsurTech (Insurance Tech) companies operate in the current market.

Resources:

[1] Shailendra Singh Bisht & Vishal Mishra (2016) ICT-driven financial inclusion initiatives for urban poor in a developing economy: implications for public policy, Behaviour & Information Technology, 35:10, 817-832, DOI: [2] https://blog.cfte.education/fintech-unicorns-in-india-full-list/ [3] https://tracxn.com/d/unicorn-corner/fintech [4] https://www.indiafintech.com/forum/ [5] https://faceofindia.org/aboutus.html [6] www.fintechcouncil.in [7] https://www.fintechcouncil.in/about-fcc