India Fintech Conclave | Transparency, easy access are positive consequences of regulations

Regulations have helped the number of demat accounts zoom from three crore to around 11 crore, the brokerage industry has penetrated to newer cities and millions of investors entered direct investment.

Regulations have made investment safer for customers, which has helped the fintech industry grow faster in recent years, experts said at Moneycontrol’s first India Fintech Conclave (IFC) on 7 March.

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 40 trillion industry Rs because we are the best regulated industry in the country.”

Regulations helped fintech players thrive

Responding to a question on the impact of regulations on fintech players, Prakarsh Gagdani, CEO of 5Paisa said, “The changes have been very good. Today, mostly 70-80 percent of the market is consolidated with big players and when you have big players , both on the banking and brokerage side, it brings credibility in. I think the regulations over the last three years have been phenomenal.”

Gagdani added that the brokerage industry was under-regulated in the past, which created many problems in recent years.

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“If you look at the brokerage industry in the last 20-30 years, there was no barrier to entry. What has happened now is that, due to technology, no one is categorized as a broker or stock exchange. Everybody is fintech, and that’s the catalyst for you seeing so many changes that have happened in the last two and a half or three years, because technology can enable all of that,” Gagdani said.

Driven by regulations over the last three years or so, the number of demat accounts in India has zoomed from three crore to around 11 crore currently, the brokerage industry has been able to penetrate the entire country and millions of new investors are entering direct investing.

Experts feel that the regulations have also made customers feel more confident about their investments. Even the companies listed on the stock exchanges are far more regulated, they said.

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How fintech is developing

On the question of increasing compliance for fintech players, Pravin Jadhav, founder and CEO, Raise Financial, said, “I think we overestimate a lot of technology and underestimate a lot of regulation. I think that’s changing today not by design, but because regulation is getting stricter across all domains. That’s good because today there is clarity among the new players.”

According to the expert, there are 5,000 different brokerage licenses in the market, of which around 900 are active.

Jadhav feels that most brokers may not survive the next set of regulations and these are very demanding on product, technology and infrastructure. “Obviously we don’t want a market of 1,000 brokers, we probably have a market of around 30-35 brokers in India,” he said.

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When asked what is more important for fintechs today, technology or financial advice, Subramanya SV, co-founder and CEO, Fisdom, said, “The key back in, let’s say, 2016 was about building fast and breaking things. Today, it was about being compliant.”

“Markets today are forcing fintechs to think about financial planning, helping clients achieve their bottom lines. I think there was very little work that was done because everyone was busy creating access. I think the next wave of opportunities completely clearly is in counseling, he added.

Focus on the bond markets

On the Securities and Exchange Board of India (SEBI) bringing in regulations for bond investment platforms, Nikhil Aggarwal, founder and CEO, Grip, said a large company cannot be built without keeping 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 there is the opportunity to create a great business. Otherwise, we only operate in the niche. The bond trading platform rules are an incredible step forward in that direction, he added.

According to Gupta, consumers in India do not understand bond risk. To make bond platforms safer, she proposed credit-based filters while selecting bond products, ensured liquidity and added transparency and a strong set of disclosures.