The term "FinTech Law" refers to the rules and ordinances that cover every facet of financial technology, including investments, banking procedures, and new technologies. The term "FinTech" first appeared in the 1990s, but it wasn't until most people began using internet banking that it was widely known.. At this point, Fintech's influence on the financial industry is incredible. Every major industry in India is overseen by a particular regulatory body, and the fintech sector is no exception.
The laws and regulations governing fintech in India will be the main topic of this article. A common pattern with Fin-Tech in the 20th century was that, like Diner Club Cards, these technological advancements were pioneered by legacy institutions (conventional banks, NBFCs, clearing houses, etc.). As a result, the Fin-tech advancements of the 20th century were regulated from their very inception as Banks and were heavily regulated in comparison to those of the 21st century. On the other hand, Payment Aggregators and Payment Getaways have produced the Fin-Tech books that have been published in recent years (hereinafter referred to as PAs and PGs). Due to their lower cost of compliance, these organizations—which are less regulated than Financial Institutions—can offer end-users high-quality services at competitive prices. The Indian fintech market has expanded significantly over the past six (six) years, and consumers are increasingly embracing fintech products. In terms of FinTech adoption, China and India are tied for first place globally. Indian customers now demand and expect the same standards from FinTech service providers because they have had positive experiences with tech companies providing non-financial services like cab aggregation and hotel bookings. According to estimates, the total transaction value in the Indian FinTech market will increase from roughly $65 billion in 2019 to $140 billion in 2023. With investments totaling around $286 million across 29 (twenty-nine) deals, India has surpassed China as Asia's top FinTech funding target market, surpassing China's $192.1 million across 29 (twenty-nine) transactions. Of course, all of this was done before the discovery of the novel coronavirus disease, but assuming things return to normal in a few months, FinTech is the area to watch in the Indian business ecosystem as it develops and modernizes.
The prominence of fintech in the financial sector
Fintech companies have increased in number in India as a result of the market's constantly changing technology. These businesses primarily serve larger organizations, smaller businesses, and clients, enabling them to manage their financial transactions efficiently. Additionally, it is enabling financial services companies to change their emphasis from business-centric to customer-centric services. At the moment, fintech is contributing to -
Regtech
Regtech, also known as regulatory technology, is concerned with automating compliance procedures related to financial avenues. Additionally, it guarantees the error-free and seamless management of enormous amounts of data, including transaction and compliance records.
Insuretech
The use of technology within the insurance model, known as "insuretech," allows businesses to offer specialized insurance plans and data security. Additionally, it facilitates the insurance process's simplification through online claim submission and policy management.
Crowdfunding Websites
The fintech sector frequently makes use of technology that enables start-ups and new companies to raise capital internationally. Aspiring business owners now have easy access to global markets and investors thanks to technology.
Robo-Advisors
Robo-advisors are online investment management services that use algorithms to allocate assets intelligently and build client portfolios. Additionally, they enable end users, regardless of age, to make an investment at lucrative fees with little manual labour.
Cellular Payments
Some prime examples of Fintech's reach are mobile payment applications and gateways. Users of these technologies can anticipate quick financial transactions without even going to the bank. Customers of companies like PayPal and Venmo can conduct financial transactions with low transaction costs.
Cryptocurrency and blockchain technology
Blockchain, a revolutionary digital currency that is more secure than fiat money, heavily relies on encrypted technology. In essence, blockchains open up a wide range of opportunities to challenge and alter conventional business models.
Perhaps the best example of a blockchain application is a smart contract. They are ideally used to establish self-executing contracts (written as lines of code) between the parties involved. The codes are crucial in carrying out the agreement according to the agreed terms. Due to its ability to introduce previously unconnected parties, the technology appears to be revolutionary. Whereas physical confrontation with traditional contract practices is obvious, a smart contract eliminates such obligations by digitizing the entire procedure.
A Brief Explanation on Fintech Laws in India
Even the most cutting-edge technologies have shortcomings. Fintech firms are more likely to have security flaws because they primarily offer digital solutions, which makes them more vulnerable to attack. Here, regulating entities come into play. The regulator tests and regulates the functional aspects in an effort to prevent these businesses from engaging in illegal activities. Fintech firms are currently governed by the RBI, IRDAI, SEBI, Ministry of Corporate Affairs, and Ministry of Electronics & Information Technology. Fintech businesses that deal with P2P lending, account aggregation, payments, virtual currencies, etc. are governed by the Reserve Bank of India.
The PSSA's conditions as well as any associated RBI rules and regulations apply to marketplaces like Uber and Oyo that direct payments from customers to suppliers.
Payment Aggregators are organizations that allow e-commerce sites and/or merchants to receive a variety of payment instruments from clients after they have fulfilled their payment obligations without having to design a unique payment-integration system for every client. PAs give retailers the ability to interact with customers. Payment Gateways are organizations that make the necessary technological arrangements without taking part in the actual handling of the funds to direct and speed up the processing of an online payment transaction.
In the Fintech industry, the advent of cryptocurrencies is a major growth. The majority of cryptocurrencies are found on decentralized networks built on blockchain technology, which is a distributed ledger used by a particular computer network and is a digital currency protected by cryptography. A crucial feature of cryptocurrencies is that they aren't issued by a single entity, which theoretically shields them from interference from the government. The RBI, however, has long held a negative view of cryptocurrencies and has effectively outlawed them through a number of notices. However, the Hon'ble Supreme Court of India invalidated the RBI Circular and lifted the ban on cryptocurrency trade in India in the case of Internet and Mobile Association of India v. Reserve Bank of India. However, it should be noted that the Hon'ble Court, in overturning the RBI Circular, held that the RBI can regulate or outlaw "anything" even if the said activity is not a part of the credit system or the payment system because it could potentially pose a threat to or have an impact on the Indian financial system.
Regulations
The main organizations in charge of regulating the fintech industry in India are the RBI or other regulators like SEBI or the IRDAI. Despite the fact that there were numerous submissions, none of the requests for the creation of an independent authority to regulate the payments sector were granted. Additionally, there has been a global upsurge in the notion of regulatory concepts. To help with this, the RBI released an Enabling Framework for Regulatory Sandbox. The Framework states that any company connected to or supporting financial services, including start-ups, financial institutions, and others, is eligible to participate in the sandbox. The regulatory sandbox is intended to provide in areas where innovations are being proposed for deployment on the Indian market. There aren't really any rules in place therefore it is necessary to temporarily relax regulations in order to make the proposed innovation possible. The proposed innovation promises to significantly improve the efficiency and effectiveness of the delivery of financial services.
Consequently, we can conclude that the Indian financial services market differs somewhat from its western counterparts. Rather than a need for convenience, the need for financial inclusion has sparked the growth of financial service providers and related services domestically. Due to this, adoption rates are much higher even though financial services are still not widely used, resulting in intriguing business opportunities. The success of Fintech companies is also greatly aided by the low data prices in India and the steadily declining cost of smartphones.
Navigating the Indian fintech landscape, however, is challenging for foreign players due to the numerous regulators and developing laws. However, the size of the market and numerous legal gaps make the opportunity a very strong one.
References:
Navin Kumar Jaggi
Varishtha Parasar