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 FINTECHS

 FINTECHS

FinTech (financial technology) is a catch-all term referring to software, mobile applications, and other technologies created to improve and automate traditional forms of finance for businesses and consumers alike. FinTech can include everything from straightforward mobile payment apps to complex blockchain networks housing encrypted transactions.

Importance of FinTech

• FinTechs are an essential part of the Indian financial ecosystem; though they have been around for decades, their importance is pronounced post demonetisation, with the Covid-19 pandemic further intensifying their significance.
• FinTech is redefining financial services for the common man and woman; the use of big data for small credit through smart analytics and algorithms has vastly expanded the pool of eligible borrowers in India.
• FinTech has brought down the cost of doing business drastically. The cost of a digital transaction like payments, credit assessment and fraud check is a fraction of the amount spent on physical processes.
• Fintech is breaking geographical barriers and shrinking the country into the palm of the hand. It is opening doors to a large number of underserved yet economically viable customers.

Regulation of FinTechs

• Activity-based regulation, in which identical actions are regulated equally regardless of the legal status or type of the entity doing the activity.
• Entity-based regulation, which requires laws to be applied to licenced firms engaged in comparable and specified activities, such as deposit taking, payment facilitation, lending, and securities underwriting, among others.
• Outcome-based regulation, where firms are required to ensure certain fundamental, common, and technology related aspects.

Concerns Related to Regulation of FinTechs in India

• Regulation is a major problem in the emerging world of FinTech, especially cryptocurrencies. In most countries, they are unregulated and have become fertile ground for scams and frauds.
• Due to the diversity of offerings in FinTech, it is difficult to formulate a single and comprehensive approach to these problems.
• Regulatory uncertainty in the FinTech sector is making things complicated for both FinTech service providers and consumers.
• The absence of an overarching regulatory framework for FinTechs have created multiple points of ambiguity in the system for companies, investors and consumers.
• Being away from the radar of the regulator, a number of unethical practices in lending have also been reported.
• Brutal collection methods, opaque lending practices, mis-selling of products, customer harassment, etc. are some of the instances.

Solutions to Regulate Fintechs

• Comprehensive Regulatory Framework: A sensible regulation with transparency will strengthen the sector in the long run and facilitate the Indian economy in growing at its potential rate by allowing its growth drivers to fuel the engine of economic advancement.
• Bringing Bigtechs in Regulatory Ambit: The real challenge for FinTech comes from Bigtechs, which have primary businesses in non-financial sectors such as social media, telecommunications, Internet search and e-commerce.
• Prioritising Consumer Protection: Trying to find the right balance between consumer protection and product innovation has been a struggle for regulators when looking to govern the FinTech space.
• Provisions for DeFi: The absence of governing entities mean DeFi is a challenge for effective regulation and supervision. The regulation should focus on the entities that are accelerating the rapid growth of DeFi. Supervisory authorities should also encourage robust governance, including industry codes and self-regulatory organizations. These entities could provide an effective conduit for regulatory oversight.