EMERGING TREND OF FINTECH IN INDIA

With Shark Tank India, being the hottest topic of discussion amongst youngsters, teenagers and adults, fintech is no longer a new term. The reality show fairly opened the eyes of general public towards the utility and concept of fintech in India and this is the future of India. Fintech industry is blooming more than ever and is becoming difficult for regulators to keep up with the latest technological developments.

Since fintech is growing, potential threats like frauds, breaches, and danger to cybersecurity are also on the rise. New payment systems and models can compromise security and market integrity. New products and services might be sold to customers who do not realize the risks or cannot provide to meet them. Blockchain, crowdfunding, and distributed ledger technology (DLT) are also developing the dangers of frauds and hacks.

EXISTING REGULATIONS IN INDIA ON FINTECH

Fintech or rather start ups are fairly a new concept in India which has seen an immense growth in last few years not only in terms of starting up of new fintech but also in the area of government support and control and thus the regulatory landscape of the fintech sector in India is highly fragmented. There are no particular set of laws and regulations governing fintech services and products in India. However, they are governed by multiple laws whose application depends upon the goods and services:

  • Payment and Settlement Systems Act (2007): This law is the principal legislation, governing the payments regulation in India. This act prohibits the initiation and operation of any ‘payment system’ in India’ without prior authorization of RBI. Payment structures include credit and debit card operations, smart card operations, money transfers, and PPIs.
  • Guidelines regulating P2P Lending Platforms: Peer-to-Peer Lending Platform Directions of 2017 prescribe the lender exposure norms and borrowing limits concerning the operations of P2P lending platforms in India. The leading player to be governed under this direction includes postpe.
  • NCPI Regulations regarding UPI payments: The UPI Procedural Guidelines, issued by the NCPI, regulate the UPI payments in India. According to this framework, money transfer services through UPI platforms have to be generated by the banks. Banks can engage technology providers to carry out the operation of mobile applications for UPI payments but under the eligibility criteria and prudential norms as prescribed by the NCPI.
  • NBFC Regulations: The Reserve Bank of India Act of 1934 governs all NBFCs. According to its regulations, any organization providing fintech services in India will have to be registered by the RBI. According to section 45-IA of the RBI Act, no NBFC can initiate or carry on the business of a nonbanking financial institution without obtaining the certificate of registration from RBI.
  • Regulations governing Payment Banks: The payment banks do operate as a bank but function on a smaller scale. It cannot provide loans or issue credit cards. These banks are registered as private limited companies and licensed under section 22 of the Banking Regulations Act of 1949. Specific licensing conditions restrict the banks’ activities, especially for the acceptance of demand deposits and on payment and settlements.
  • Regulation of Payment Intermediaries by the RBI: The Directions For Opening And Operation Of Accounts And Settlement Of Payments For Electronic Payment Transactions Involving Intermediaries ("2009 EPT Directions") were issued by the RBI in November 2009 under section 18 of the P&SS Act with a view to safeguard the interests of the customers and to ensure that the payments made by them are duly accounted for by the intermediaries receiving such payments and remitted to the accounts of the merchants who have supplied the goods and services without undue delay.

With the emerging business of fintech industry, these fragmented laws are not sufficient and capable to provide customer and user protection inspite that there is availability of protection under consumer protection act. This industry still requires greater reforms in order to create business structures that actually solve problems of the user and creates a wholistic fintech industry in India.

FUTURE OF FINTECH IN INDIA

The Reserve Bank of India's Framework for Recognition of Self-Regulatory Organisations for PSOs is likely to be key in safeguarding the security and quality of PSO services in India. Creation of the NUEs in the retail sector is also likely to affect the operation of FinTech specifically in the retail sphere

The Government has set up a committee to devise a framework for regulating non-personal data which has recently released its Report on Governance of Non-Personal Data, proposing a legislation for regulating non-personal data and creation of a separate statutory authority. It is intriguing to know that one of the key propositions of the report is to mandate the sharing of non-personal data for sovereign, public interest and economic purposes.

In addition to this parallelly, India's first comprehensive data protection framework under the Personal Data Protection Bill 2019 is also under pen of the legislature Since financial information is currently within the scope of the Bill, FinTech companies and financial institutions are likely to be imposed with more stringent obligations in relation to data protection once the Bill is in force.