Experts bullish on fintech’s future in spite of stricter regulations

Bengaluru: The Reserve Bank of India’s (RBI’s) increased crackdown on unsecured retail came to the fore with its strict message to Non-Banking Financial Companies (NBFCs), as it banned four of them from issuing further loans.

Yet even in this atmosphere of heightened regulations, analysts, venture capital firms (VCs), and financial technology companies (fintechs) that DH spoke to unanimously said that RBI’s steps are positive for deeper fintech penetration into the unbanked parts of India as well as protecting the ecosystem from sudden shocks.

According to them, tightening regulations indicates an acceptance of fintech being an important segment. Experts have pointed out the necessity of fintech regulations to avoid rampant problems such as privacy breaches, unfair business practices, hostile recovery practices, and improper know your customer (KYC).

At the same time, investors did express some concern about the unstable environment with fast-changing regulations and caution around certain sectors.

“We need to understand why RBI is hyperactive and why they have come up with regulations. If you look at the last few years, there have been serious observations in the areas of mis-selling,” said Rishi Agrawal, co-founder and CEO of compliance management software company TeamLease Regtech.

Rather than separate regulations, fintechs should follow similar guidelines to banks, according to him.

Sanjay Swamy, Managing Partner, Prime Venture Partners, said, “RBI never said, don't do unsecured lending but has cautioned NBFCs to go a bit slow. However, it said to focus on the priority sector, which is under-penetration of credit.”

Swamy, however, added that the sporadic regulation interventions have created an unstable environment. “What is required is a stable environment, which is perhaps revised every six months. Fintech’s are happy to be regulated but require a proper understanding of how RBI evaluates and grants licences. And the third is a transparent process for granting licenses,” he said.

However, some investors have shown caution due to the uncertainty in regulations.

“We are very much on for fintech companies, but we always stayed away from areas where regulatory clarity was not there. For example, as a fund, we never ever looked at crypto because there are no clear guidelines. Nonetheless, we are certainly invested in blockchain based solutions for digitising specific verticals,” said Anil Joshi, founder and Managing Partner at Unicorn India Ventures.

He added, “We have actually stayed away from the peer-to-peer (P2P) lending platform because we were not very sure how regulators will come out and any small change can impact growing companies. But once there is clarity, then certainly as a fund manager, we would be happy to look at it.”

Joydip Gupta, Head of APAC, Scienaptic, pointed out that despite the advantages, regulations could also slow growth. “Enhanced risk weights for unsecured retail loans and stricter norms for P2P platforms could slow down the pace at which new fintech players or NBFCs can grow in these high-yield segments. This could impact the profit margins that many fintech companies have been capitalising on in the competitive unsecured lending space.” He added that there is a case for a specialised regulatory body for fintechs.