Indian fintech leaders feel that regulations are like periodic examinations, whose frequency has increased in the recent past.
However, they also agreed that these regulations have made investing safer for Indian customers, which has helped the fintech industry grow faster over the past few years.
At Moneycontrol's inaugural India Fintech Conclave (IFC) on March 7, Prakarsh Gagdani, CEO, 5Paisa, said, "Regulations are like exams. You don't like it but you have to go through it. But you come out wiser in the end. Only now we have gone from monthly exams to weekly exams."
Pravin Jadhav, Founder and CEO, Raise Financial added, "It feels like as a stockbroker, we have to repeat exams five times every day."
While speaking during a panel discussion on the topic, “Fintech and Markets: Navigating the Regulatory Landscape”, Radhika Gupta, Chief Executive Officer (CEO), Edelweiss Asset Management Company, said, “We sometimes complain about regulation, but mutual funds have become the Rs 40 trillion industry because we are the best-regulated industry in the country.”
Regulations helped fintech players thrive
Answering a question on the impact of regulations on fintech players, Prakarsh Gagdani, CEO of 5Paisa said, “The changes have been very good. Today, broadly 70-80 percent of the market is consolidated with large players, and when you have large players, both on the banking and on the broking side, it brings in credibility. I think in last three years regulations have been phenomenal.”
Gagdani added that the brokerage industry was under-regulated earlier, which created a lot of problems over the past few years.
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“If you look at the broking industry for the last 20-30 years, there was no entry barrier. What has happened now is that because of technology, no one is categorized as a broker or exchange. Everyone is fintech, and that is the catalyst why you see so many changes that has happened in last two and a half or three years, as technology could enable all of that,” Gagdani said.
Driven by regulations over the past three years or so, the number of demat accounts in India has zoomed from three crore to around 11 crore currently, the broking industry has been able to penetrate across the country and millions of new investors are coming into direct investing.
Experts feel that regulations have also made customers feel safer about their investments. Even the companies which are listed on the exchanges are far more regulated, they said.
How fintechs are evolving
On the question of rising compliance for fintech players, Pravin Jadhav, Founder and CEO, Raise Financial, said “I think we overvalue a lot of tech and undervalue a lot of regulations. I think that is changing today not by design, but because regulations are becoming stricter across all domains. The is good, because today there's clarity amongst the new players.”
According to the expert, there are 5,000 odd broking licenses in the market, out of which around 900 are active.
Jadhav feels that most brokers may not survive the next set of regulations and these are highly demanding on product, technology and infrastructure. “Clearly we will not have a market of 1,000 brokers, we probably have a market of around 30-35 brokers in India,” he said.
On question of what’s more important for fintechs today, technology or financial advice, Subramanya SV, Co-Founder and CEO, Fisdom, said, “The key thing back in, let’s say, 2016 was all about build fast and break things. Today, it has become about being compliant.”
“The markets today are kind of forcing fintechs to think about financial planning, helping customers reach their end outcomes. I think there was very little work that has been done because everyone was busy creating access. I think the next wave of opportunity is clearly in advisory,” he added.
Focus on bond markets
On Securities and Exchange Board of India (SEBI) bringing in regulations for bond investing platforms, Nikhil Aggarwal, Founder and CEO, Grip, said that big company cannot be built without taking in mind what the regulator wants.
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“I think what has changed for us is that regulation can be inclusive, and if you move in the right way towards the spirit, and philosophy of regulation, I think that's the opportunity to create a large business. Otherwise, we're just operating in the niche. The bond trading platform regulations are an incredible step forward in that direction,” he added.
According to Gupta, consumers in India don't understand bond risks. To make bond platforms more secure, she suggested credit-based filters while selecting bond products, ensuring liquidity and bringing in transparency and strong set of disclosures.
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