By Srinath Sridharan

Finance is one of the oldest business in human history, as well as one of its most regulated ones, to ensure stability of markets, nations, and maintain global economic balance. The Indian financial sector is still slow in waking up to the 21st century. Contemporary India has moved from Delhi and Destiny, and now looks to the young who dare to dream, desire and go digital.

For years, we have spoken about financial inclusion with ‘tick-mark compassion’ marked by lack of evident outcomes. The greatest catalyst for financial reach has been digital, including structural strength, the JAM trinity if you will. Isn’t it time for a fresh perspective to generate financial impact for the new India, instead of the usual pondering on financial inclusion?

That the consumers’ needs and wants are rapidly changing is an understatement. Young Indians are growing in an era of choices, with boundless opportunities. They expect brands to offer wider options, to cater for their taste, preference, and, importantly, their mood. They are willing to spend generously on personalised experiences that create memories. Language is not a barrier for e-commerce in India; rural India’s buying power and tech-adoption prowess is showcased in the importance it is acquiring for the focus of e-com players.

Traditional institutions—banks, insurance companies, asset management firms, etc—have been slow to change. Most of them have used regulatory-licence as the moat, tacitly provided by regulations. The conversation on whether traditional institutions will survive doesn’t have a binary set of answers. Yet.

In this era of ‘collaborating with competition’ to have shared industry resources, regulations have to be pragmatic about what is expected of the industry players. In the past two decades alone, regulators have seen usage of technology move from “build” to “buy” to, currently, “lease” model. Regulations so far have cheered for financial product development, rather than ‘solution-ing’. In this era of data, one who can use data for offering solutions to consumer needs, will win. Let us understand that history or legacy or past glory of institutions do not cut ice with the younger audience.

With the gig economy covering over 23% of the Indian workforce (including digital non-natives), and 65% of the Indian population less than 35 years of age, there is a large set of opportunities for digital finance entities to serve for the next many years ahead.

Almost all surveys indicate that millennials and Gen-Z have better inclination towards and access to education. They are more likely to upskill themselves with vocational and technical courses. As a consumer behavioural change, their generation has moved away from frugality to ‘spend’ mode; this opens up new sources of demand for credit, as well as savings potential, if harnessed well.

Herein lies the catch: regulations. Old templates—in the name of financial inclusion—and licensing-moats have to give way to use of technology as well as understanding current consumer needs, all the while being agile enough to take action as needed against errant entities.

Why do regulators seem to dislike NPAs, even if the private investor is ready to keep pumping in capital to provide for the NPAs as well as business losses? What if they want to change consumer behaviour, with brute force of large equity capital? Is there a reason why we use NPAs for stability assessment, devoid of future equity-preparedness? Why do regulators not like BNPL? Digital non-natives like me grew up at a time when ‘credit’ was a bad word; udhaar was almost a sin! But, not so for this younger generation. Are we wearing a morality-hat, when we equate young age to financial rashness?

In the insurance sector, we still have product-specific approvals and prefer standardisation. For new age consumers (be it rural or urban), simplifying product information would go a long way in earning trust. They would rather benefit from customisation of product to suit their needs and wallet! There is a larger pool of investment—private investment—going into alternate avenues. Some of this investment is in entities that come under the existing regulatory purview, most of it many that don’t. Because we cannot count them all, does it mean they don’t exist? As a principle, should regulations define contours of solutions or should they specify each and every product? Do we want regulations to be like ‘helicopter-parenting’?

Ten years ago, we would not have imagined payments systems using mobile-phones, or financial distribution using chats. Yet, here we are, with digital disruptions in our midst and more coming our way. As the famous Pulitzer-winning journalist Thomas Friedman said:

“In 2004,
Facebook didn’t exist,
4G was a parking space,
an app was something you sent off to college,
LinkedIn was a prison,
Tweet was a sound a bird made, and
Skype was a typo”.

In this, there is a lot to be learnt on ‘context-repurposing’ for our regulatory systems. Even their teams feature millennials and Gen Z. It is time that we connect disruptions, digital, and demographics to the larger purpose of regulations. Call it contemporarisation of regulatory framework, if you will.

The writer is a corporate advisor and independent markets commentator. Twitter: @ssmumbai.