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Fintechs need to ‘live' compliance, knowing regulations is not enough: Axis Bank MD & CEO Amitabh Chaudhry

Amitabh Chaudhry, MD & CEO of Axis Bank, added that while fintechs agree they understand the meaning of the word ‘compliance’, it is time they consciously start making it a part of their business model

September 21, 2022 / 03:49 PM IST

Fintechs have a tendency to keep doing what they want to and hoping the regulator does not get involved, said Axis Bank managing director and chief executive officer Amitabh Chaudhry.

“That tendency has to change. Fintechs have to think of compliance much earlier than they are currently,” Chaudhry said on Wednesday, September 21, speaking at the Global Fintech Fest in Mumbai.

Chaudhry added that while fintechs agree they understand the meaning of the word “compliance”, it is time they consciously start making it a part of their business model.

“If you read the tea leaves, the RBI (Reserve Bank of India) gives enough hints. Businesses will suffer if they don’t pay heed,” he said.

The Axis Bank chief was in conversation with Razorpay co-founder and CEO Harshil Mathur talking about fintechs and regulations.


Chaudhry pointed out that he has seen a lot of activity in the regulation in the fintech space recently.

“It has meant that people have had to go back to the drawing board and relook at models. More clarity will emerge in 18-24 months,” he said, referring to fintechs like Slice, Uni, LazyPay and BharatPe, whose models of enabling lending through prepaid cards and wallets will not be allowed as per RBI norms.

On August 10, the RBI approved 12 guidelines on digital lending to be implemented immediately, largely focusing on customer safety and emphasising on transparent reporting of lending activities to credit rating agencies.

The RBI’s norms on digital lending stated that “registered entities shall ensure that in no case, disbursal is made to a third-party account, including the accounts of loan service providers (LSPs) and their digital lending apps (DLAs), except as provided for in these guidelines”.

The norm meant that loans cannot pass through prepaid payment instruments (PPIs). This was a second blow to fintechs with PPI-led lending models after the RBI said on June 20 that loading of credit lines into PPIs is prohibited.

The central bank formally notified the norms on September 2, adding that fintechs have time until November 20 to adhere to the new guidelines.

At the event, Chaudhry added that the fintech and banking space should be prepared for regulation evolution and new norms to be rolled out. “For companies in this business, it is not a question about waiting for the next evolution to come but to anticipate what is coming and change their business models in advance,” Chaudhary added.

Moneycontrol had reported on August 18 that the government of Mauritius-promoted SBM Bank India had sent a communication to its fintech partners Slice, Uni and PayU’s LazyPay saying it is pausing the on-boarding of new customers after the RBI approved the first set of guidelines on digital lending on August 10.

Axis Bank is an investor in Slice, which was disbursing around 300,000 new prepaid cards per month in partnership with SBM Bank India before the norms kicked in. The Tiger Global-backed startup achieved $1 billion in valuation in November 2021 on the back of this growth.

Due to the change in norms, some of the options these companies are now considering include moving from prepaid cards to co-branded credit cards or introducing a bank account from which loans can be loaded onto prepaid cards, which will align with regulations. For this, these fintechs are said to be in talks with multiple large banks, according to sources.

On the side-lines, Chaudhry told Moneycontrol that Axis Bank is open to partnering with these fintechs, but did not divulge any further details.
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