Raj N, Founder, Zaggle

Raj is a seasoned professional with over 24 years of experience working in India and the US. He is a Serial Entrepreneur and has built and sold businesses in areas such as Financial Services, Prepaid Internet Retail, Loyalty, Merchandising, Reward and Recognition, Open Banking, and Expense Management. Raj is currently the Founder and Chairman of Zaggle, an award-winning FinTech Company which helps companies digitize spends and automate processes related to payments. Being a 5x Startup Founder, he is part of multiple Founders and Angel Investor Groups and being part of the group, he
learnt about the challenges faced by Founders to access credit, to meet their business expenses.

 

The emergence of FinTech haschanged the way businesses operate in the present day and age. The synergy of financial services and technology has brought about a paradigm shift in how enterprises and corporations carry out their variousoperations in the contemporary times.A simple example would be getting instant loans through various digital platforms without undergoing the process of paperwork. Such is the power of FinTech whether it is about getting a loan approved or about transfer of funds it can now be done instantly, thereby making the process faster, seamless and effortless. 

The financial services industry grew as a result of technology-driven developments and business model adjustments. Indian FinTech investments increased by 60% during COVID-19, from $919 million in 2020to $1467 million in 2021.According to a new study by RBSA Advisors, India overtook China as Asia’s top destination for FinTech deals. 

The quarter ended June 30, 2020, saw about 33 agreements valued at $647.5 million in India, compared to $284.9 million in China. This statistic further highlights the effective growth of the financial technology industry in the country. FinTech Industry has caused massive disruption in India and itseems the most promising sector in the post pandemic era.

However, the restrictive rules and regulations that are predominant for this sector limits its expansion. Regulatory forces have been very stringent in regards to the FinTech industry. 

The underlying reason for this is the impending threats the FinTech industry can subliminally bring to its customers. For instance, FinTech companies store a humongous amount of sensitive data and they are vulnerable to various cyber security threats which could likely put the customers at an increased risk from cyber criminals and other acts of digital frauds.The digital availability of financial details of businesses and individualsaggravates cyber security risks and data frauds. To prevent such risks, the government has imposed regulatory frameworks that have eventually led to the sluggish growth of the ecosystem. 

Although such frameworks have been put into practise thinking about the greater good of the financial ecosystem, there is a need for the concerned regulatory bodies to come up with laws that will not create a hurdle in the further expansion of the FinTech sector. To ensure the growth, innovation and success of the FinTech ecosystem, the government must administer regulatory changes or offer guidance which enables this sector to reach newer heights.

  • Rules and Regulations for the use of Blockchain

Regulatory bodies must provideclear guidance when it comes to the use of blockchain technology. Having no clear-cut regulations will only instil the fear of penalisation among companies using this cutting-edge technology for its products. Hence, guidance in terms of access to the block chain andstandard procedures for information transfer via blockchain are few areas in which government’s rules or directives would be beneficial, to bolster the further growth of FinTech Industry.

  • Redressal Mechanisms

The issue of ‘smart contracts’ around private encrypted Distributed Ledger Technology has become a common grouse for FinTech companies which does not have any definite solution. And the lack of a solution further leads to unnecessary complications and technicalintricacies when consumers seek complaints and grievance redressals. The absence of a designated officer for such complaint redressal further makes the matters worse.Hence, the only way in which this problem can be solved is when the legal systems become more agile and adapt to the emerging trends in technology, to provide quicker solutions to such problems.

  • Encouraging innovation and growth

Regulatory systemsmust come up with new activitiesthat not only enhance but also improve FinTech sandboxing. The norms and requirements of testing or sandboxing could be eased upon, which could encourage firms to try out sandboxing and other such efforts before introducing their innovative products and services in this space.  So, the need of the hour isto enableunauthorised innovators to be a part of sandboxing; to test the true potential of their products.

At the same time, regulatory bodies should also ensure that any kind of unwarranted favours arenot offered to any FinTech firms for bolstering competitions. Besides, Institute for Development and Research in Banking Technology (IDRBT) set up by the Reserve bank of India needs to be in frequent contact withbanks, RBI and other financial solution providers, to ensure e smooth implementation of new services and offerings, which would eventually lead to growth and innovation of this sector. 

  •  Self-Regulatory mechanisms

Although the need for a regulatory framework is unequivocally the need of the hour, much of the growth and expansion of the Fintech ecosystem depends on the Fintech players themselves. Practising a set of self regulatory rules and a certain code of conduct becomes quite essential. 

Incorporating regulatory rules and a code of conduct in daily operationsensures transparency and accountability which can extend credibility to the company and its innovative services. Furthermore,it will help regulatory bodies in understanding the robustness which lies in the services of the concerned firm and accordingly informs customers in terms of the security mechanisms, plus it will enable potential firms to enter the market without imposing exorbitant compliance costs. Thereby, making it difficult for new age start-ups to penetrate the market. 

Apart from these suggestions, there are few other ideas which can be adopted by the regulatory body to offer a better framework. To begin with,this could include publishing reports, papers and case studies surrounding the developments in the FinTech industry. Secondly engaging with new and existing FinTech companies regularly and making changes in the process and systems of supervision as per the needs of the ecosystem.

Lastly, implementing a fresh set of rules to keep abreast with this fast pacedindustry, which factors in recent advancements as well as current market offerings to ensure a level playing field. Hence, to ensure parity and a fair chance for financial technology companies (Fintech) and large technologyorganisations, better laws are critically required. Recent advances in data analytics and artificial intelligence (AI) are bringing a transformation and bringing a digital shift that delivers financial inclusion even to the most remote areas. 

FinTech offers significant benefits to consumers,investors, as well as financial services firms and financial market infrastructure.However, the growing use of FinTech solutions and emerging technology comes with it dangers, to which regulators and supervisors should be responding. 

India is witnessing rapid increase in digital app-based lending, prepaid payment instruments and digital payments. The trend shows that even cash driven economy like India is moving to digitisation wherein cash is merely used as a way to store value as an economic asset rather than to make payments.

To conclude we can say, innovation and technology go hand in hand which has led to rapid advancement in the financial services ecosystem. The pace at which this sector is growing requires severe attention from the regulators. The need of the hour is regulatory policies and intervention that will facilitate the development as well as keep checks on activities in the FinTech space. Lastly to fit in the with the FinTech business models a thorough understanding of this industry and businesses is very crucial. 

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