The Reserve Bank of India (RBI) Governor Shaktikanta Das recent suggestion that fintech firms should form a industry self-regulatory organisation (SRO) has been received with a lot of enthusiasm by large industry players. They believe that such a move will bring in much needed recognition to some smaller players and provide a common voice.
“I am absolutely for it and there is nothing better than self-governance. Why should even a regulator get an opportunity to point a finger if industry is well behaved,” said Paynearby MD, CEO Anand Kumar Bajaj. He added that fintech industry bodies such as Fintech Convergence Council, Digital Lenders Association of India and Payments Council of India are all on track to get an SRO approval from the regulator.
According to Virender Bisht, co-founder and CTO at Niyo, a neo banking startup, the recognition of SROs by the RBI carries several “invaluable benefits” for industry players. First, it grants them recognition on a formal platform, thereby establishing commitment to responsible and ethical practices.
“Secondly, it provides us with a common voice, enabling us to communicate and collaborate effectively with regulators and fellow industry members,” he said, adding that SROs will play a crucial role in the development of the fintech ecosystem by helping weed out “rogue actors” who may tarnish the industry‘s reputation.
Delivering his speech at the GFF earlier last week, Governor Das had stressed that the fast-growing fintech industry needs to set higher standards for themselves to avoid mis-selling of different products, promote ethical business practices and ensure transparency in pricing of loans. “In the dynamic and ever-evolving world of business, it is easy to get caught up in the pursuit of revenue, bottom lines and the relentless drive for valuations,” he said.
Speaking to FE, MobiKwik co-founder and COO Upasana Taku said that the RBI believes in co-creation and therefore the SRO call is positive move to secure growth of the sector and strengthen the ecosystem. “A fintech SRO can significantly benefit the sector by customising standards and promoting responsible innovation with industry expertise,” she says. Taku says the SRO will dynamically adapt to industry developments to foster a competitive and diverse ecosystem while emphasising compliance in areas such as consumer protection, cybersecurity, among others.
According to IndiaLends Founder & CEO Gaurav Chopra, SROs can help build trust and credibility within their sectors, fostering investor and consumer confidence, which is essential for sustainable industry growth. “One of the key challenges in self-regulating the fintech sector revolves around achieving a delicate balance between profitability and maintaining a 100% customer-centric approach,” Chopra says, adding that the regulator’s role is pivotal here in cheering the same.
A recent report by venture capital firm Elevation Capital and McKinsey & Company pointed out that India’s fintech ecosystem is the third-largest globally and is expected to reach a scale of $70 billion in annual revenue by FY30, accounting for about 18%-20% of the addressable financial services revenue pool. The report says that India is home to over 9,000 fintechs and fintech funding has increased 3X from $2.2 billion in 2018 to $5.8 billion in 2022. The report said as much as 70% of overall digital payment transactions are being captured by fintechs and 50% of active broking accounts on NSE are held by fintechs.
Fintechs have majorly captured material share in categories such as payment gateways, small ticket personal loans, pay later or BNPL market and are also rapidly growing their market share in other areas such as card issuing business and wealth & insurance distribution segment. While the sector is growing fast, the report quoted industry members as saying that for continued growth, fintechs will need to overcome a few challenges such as achieving sustainable profitability, ensuring a regulatory-compliant business model, and adhering to risk and security standards.
“Fintechs have emerged as significant players, making meaningful headways into key categories and capturing a sizable market share of 3%-5% of India’s very large and growing financial services revenue pools,’ said Mridual Arora, Partner at Elevation Capital. Elevation Capital Principle Vaas Bhaskar, meanwhile, said he expects this value creation to accelerate, catalysed by India’s digital public infrastructure, allowing fintechs to capture 12%-15% of the overall financial services revenue pool by 2030.