Tighter regulations are for the greater good of fintech ecosystem, not obstacles, say industry leaders
fintech sector in India has been facing a decline in funding since last year, majorly owing to tighter regulations by the government. Scaling up is now coming at a cost for many firms in this segment. However, industry leaders and experts believe that it’s important for the regulator to do its job and the tightening of regulations is for the greater good. These regulations should be looked at as an enabling tool over obstacles.
As per reports by Tracxn, the fintech sector saw a decline of 63% in 2023 in terms of funding. It received $2 billion in funding in 2023, compared to $5.4 billion in 2022 and $8.4 billion in 2021. This year, the sector raised $551 million from the January-March period in 2024, a decline of 50% a year earlier.
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Shreya Suri, Partner, IndusLaw, says that the last 5-7 years saw India’s financial sector suddenly being over-flooded with multiple tech startups operating on the edge of regulation, leaning on the authorisations, registrations, and licenses of regulated entities under rent-a-license models to infiltrate the market.
“Some of these outfits were fly-by-night operators and enablers for defrauding unsuspecting users. Given the systemic risk involved, the financial regulators (particularly the RBI) started cracking down on the sector leading to more robust regulation and higher thresholds and standards for security as well as outsourcing (be it for technology or financial support services),” she says.
The SEBI and IRDAI also soon followed suit.
