Financial Services Will Never Exist Without Regulations: ZestMoney’s Priya Sharma

Abiding by the regulations should become a primary focus of fintech founders at a time when the fintech industry is growing bigger with varied services and is likely to see new regulatory changes, said Priya Sharma, cofounder, CFO and COO at ZestMoney. 

In her words, “Financial services are never going to exist without regulations and consumer protection,” ZestMoney’s Sharma said while speaking at the second edition of Inc42’s The Makers Summit.

Sharma said the fintech founders need to proactively act on protecting customers’ data rather than reacting to it when regulators say and need to prioritise the subject from day one.

Making consumer protection and consumer trust the core philosophy would ensure that a fintech business is always aligned with regulations, ZestMoney founder said.

However, INDMoney founder Ashish Kashyap said that the job of sticking to regulations and ensuring customer data protection is particularly tougher in the fintech business than in any other business. 

“The hard part of this (fintech) business versus any other business is that you need to be worried about every funnel including KYC, purchase and sale funnel,” Kashyap said.

Despite the challenging regulatory compliances, Kashyap said his business mantra right now lies in putting a ‘maniacal focus’ on customers and data.

The statements come at a time when the Indian government has been working proactively to regulate the sector/sub-sectors within fintech. From KYC to buy now and pay later (BNPL), RBI is currently looking deeper into the complaints raised by many users against digital lenders.

In fact, RBI had constituted a committee to form a draft report on digital lending last year, including lending through online platforms and mobile apps. RBI governor Shaktikanta Das said earlier this month that RBI has already received more than 650 suggestions/comments from industry stakeholders and their examination is almost over. RBI would also take necessary measures against those complaints if new announcements around the same are expected in a few months.

However, there have also been instances when fintech regulations have turned out to be challenging for the stakeholders. When the new RBI norms on recurring payments came into effect in October last year, all industry players cited inadequate infrastructure and the lack of coordination among merchants, fintech players and banks as the key reasons why banks and merchants could not implement the directive that came with a sunset clause.

On the other hand, crypto is another area that requires stricter regulations and deeper scrutiny to not only safeguard customer data but also to protect customers from crypto frauds.

Fintech Regulations In India

In January this year, the Reserve Bank of India (RBI) announced the creation of a separate fintech department.

In 2018, a fintech division was first set up under the regulation department. Later, it was moved to the department of payments and settlements system (DPSS) in 2020 as most fintech activities, as well as entities, were in the area of ‘payments’. 

Since the fintech landscape is constantly evolving, the new fintech department, a spin-off from DPSS, has now been set up to look at regulations, identify opportunities and challenges, provide a research framework and aid RBI with policy formation.

According to the RBI’s internal circular, all matters related to inter-regulatory coordination and internal coordination on fintech shall also be dealt with by the fintech department.

In fact, with the interest in cryptocurrencies growing rapidly in the country, RBI officials had earlier also pointed out the need for creating an innovation-friendly regulation around it.

The latest addition to the regulatory changes taking place in the financial sector is the central bank’s decision to allow non-banking financial companies (NBFCs) registered with it to issue credit cards to potential users. However, this can only be done upon receiving prior approval from the RBI.

“Without obtaining prior approval from the Reserve Bank, NBFCs shall not issue debit cards, credit cards, charge cards, or similar products virtually or physically,” the RBI recently said in its circular for all scheduled commercial banks and non-bank lenders.

Meanwhile, India’s fintech startups raised around $8 Bn across 280 funding deals in 2021, a record high in both cases, while the average investment ticket size stood at $33 Mn, according to an Inc42 report. 

In the fintech subsector, lending tech and digital payment startups received the highest venture capital inflow in 2021. Together, they accounted for 68% of the total funding amount and 44% of the deal count.