Why do we need regulation for fintech firms?
Mint explains: Fintechs play a pivotal role in India’s financial system by saving time, enhancing access and lowering costs. Nonetheless, there are concerns. India’s fintech industry is largely unregulated and from time to time, issues crop up on data privacy, cyber security, grievance handling and internal governance.
The RBI recognizes the impact that fintechs could have on financial stability due to poor lending standards. The rise in fraudulent loan apps, on the back of rapid growth in digital lending, has added to concerns. Also, a rush to roll out products and services could undermine market integrity and customer protection.
This is the RBI’s second attempt to create an SRO for the fintech sector. In 2020, it released guidelines for a payments SRO. This time, the SRO is expected to cover the entire fintech industry.
According to the draft norms, the SRO should be a non-government organization that is expected to identify a path to a phased regulatory compliance. It should engage with the central bank on industry developments, and in developing and updating the taxonomy for fintechs. The SRO is also expected to put in place a code of conduct to foster transparency, fair competition and consumer protection.
According to the RBI, India has the largest fintech ecosystem in terms of the number of entities. India’s fintech market is projected to hit $150 billion by 2025, a big leap from $50 billion in 2021. This projection indicates that by 2030, the sector could potentially contribute to approximately 13% of the global fintech industry’s total revenue, the RBI believes.
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