The Reserve Bank of India could engage with fintechs more to avoid any potential destruction of value creation before issuing any circular, Siddarth Pai, founding partner of 3One4 Capital, said at the Moneycontrol Startup Conclave on August 9.
“The regulator needs to understand the pain that a fintech entrepreneur goes through and the effort they put in before they come up with a one-line circular that destroys their business,” Pai added.
Other panellists also agreed that more discussions between the regulator and fintechs could avoid business disruptions that happened over the last couple of years in the ecosystem. The session was moderated by Nikhil Kumar, founder of Setu, a SaaS firm for fintech products.
“The ecosystem could come together on a common platform more often. It is usually dispersed at the moment. Most banks are in Mumbai while most startups are in Bengaluru. We have to create platforms where you can do it formally in more forums,” said Noopur Chaturvedi, CEO of NPCI Bharat Billpay Limited (NBBL), a company that aggregates all bill payments under one roof.
Yes Bank's Chief Digital Officer Naveen Chaluvadi said that most of RBI’s expectations can be clubbed under three important things such as whether they have visibility of the customer, do the entities have a customer grievance redressal mechanism and whether they have a mechanism to monitor suspicious transactions.
“Fintechs feel they are tech first and excited to solve customer requirements. But as a regulated entity, we have a larger responsibility in saying no to a few things and educating why we are saying no,” Chaluvadi said.
Perfios CEO Sabyasachi Goswami said that regulator often takes more time and the reason is often not clear. But waiting for their clarifications could mean that there will not be any disruptions.
“We were the first to collaborate with the regulator on account aggregator framework but the last to get a license. We worked with the regulator to craft the guidelines. But then it became frictionless after that. We can see that in payments through UPI,” Goswami said.
More fin than tech
“Move fast and breaking things work for most startups and SaaS. But in regulated financial services, you deal with someone’s actual security or cash. Failure is not an option. You can't recall a bad product if customer loses money,” said Pai cautioning fintech founders to be judicious while innovating fast.
While the panellists agreed that the founders are not doing this with bad faith, the fact is that the regulatory ambiguity cannot be seen as a market opportunity, they said.
The RBI has emphasised that the the nature of the business will determine the kind of regulation that it will entail irrespective of whether there is a vacuum in the regulation at any given point of time. For instance, if the nature of the product is a credit card, the existing rules on credit cards will apply.
Pai said that fintechs understand this and are addressing this by spending more time and effort on compliance. “If you are touching money or securities, you will be regulated. Fintech founders need to internalise this,” he added.
Watch the full edition of the Moneycontrol Startup Conclave 2024 here.
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