Fintech start-ups welcome RBI governor’s call for self-regulation amid lingering concerns

RBI Governor Shaktikanta Das' appeal to financial technology companies to establish a Self-Regulatory Organisation (SRO) has garnered favourable reception from start-ups in the sector. Companies in this burgeoning space feel a self-regulatory framework can enhance ethical standards, bolster protection against systemic risks, and strengthen the global competitiveness of the sector. Additionally, they anticipate that this initiative will improve the adaptability of fintech entities, while fostering credibility and trust.

“Effective self-regulation establishes ethical standards, protects against systemic risks, and facilitates confidence, vital for sustaining growth. Moreover, it ensures the sector's global competitiveness and adaptability, enabling fintech companies to navigate evolving regulatory landscapes. Self-regulation should strike a balance between safeguarding customers and allowing room for creative solutions that meet the ever-evolving changing financial needs,” Gaurav Chopra, Founder & CEO of IndiaLends, said.

Mahesh Shukla, CEO and Founder of Payme, commented that the establishment of an SRO would not only showcase a commitment to nurturing innovation but also recognize the industry's level of maturity and responsibility.

“Such a body could play a vital role in facilitating collaboration among companies, regulators, and stakeholders. It would serve as a platform for open dialogue, enabling us to collectively shape the future of fintech while ensuring that robust guardrails are in place to protect consumers and maintain the integrity of the industry,” Shukla said.

Speaking at the Global Fintech Festival, Das said a SRO would provide fintech firms a platform to voice their requirements while alleviating the RBI from shouldering the entirety of regulatory responsibilities. "The other advantage is that all the aspects of regulation will not be burdened on the RBI," he said.

“An SRO can significantly benefit the sector by customising standards and promoting responsible innovation with industry expertise. It will dynamically adapt to industry developments to foster a competitive, diverse ecosystem while emphasizing compliance in areas such as consumer protection, cybersecurity, etc," Upasana Taku, co-founder & COO, MobiKwik, said.

Virender Bisht, Co-Founder & CTO of Niyo, noted that the creation of an SRO would provide a common voice for fintech players, helping them communicate and collaborate effectively with regulators and fellow industry members. It would also allow the industry to weed out rogue actors who may tarnish the industry's reputation.

Niyo is one of the few companies, along with an industry association, that has signed a draft document outlining the establishment of a SRO and has subsequently submitted it to the RBI. The document is currently under review with the RBI.

However, lingering concerns within the entrepreneurial community revolve around how it would impact their ability to maintain a balance between profitability and a customer-centric approach and the burden of the costs associated with complying with self-regulation. In addition, they also seek further clarity on the impartiality of the organisation and its assurance on addressing potential compliance gaps.

One of the primary challenges in self-regulating the fintech sector, as highlighted by Chopra of IndiaLends, lies in the complex task of striking a careful balance between profitability and adhering to a customer-centric approach.

“A key challenge in self-regulating the fintech sector revolves around achieving a delicate balance between profitability and maintaining a 100% customer-centric approach. The regulator's role is pivotal here, as they must remain impartial, without any interest in driving profits. This ensures that regulations prioritise consumer protection and fair competition over the financial gain of individual firms. And so, striking a balance here is absolutely important,” Chopra said.

Hemant Vishnoi, Co-founder of EnKash, emphasized the importance of consulting with all stakeholders in the industry, including SMEs, to ensure fair representation across various sub-sectors.

“Even with self-regulatory bodies in place, enforcing regulations can be challenging. Fintech companies may lack the incentive or resources to enforce regulations rigorously, leading to compliance gaps. The rapidly evolving nature of fintech can make it difficult for self-regulatory bodies to keep up and establish appropriate guidelines. Smaller fintech startups may struggle with compliance costs associated with self-regulation,” Manavjeet Singh, MD & CEO, of CLXNS said.

“To mitigate these challenges and dangers, it's essential for self-regulatory bodies in the fintech sector to be transparent, inclusive, and responsive to the evolving landscape,” he added. 

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