Fintech industry response to likely funding falls mixed, BFSI News, ET BFSI

Fintech has become a central and strong pillar of the Indian economy, with most of the financial arrangements moving towards the technical setup. Financial Technology aka Finetch refers to the integration of technology into the offering of financial services that facilitates the customer experience.

Amidst the rising tide of this new setup, there are some bumps hitting the smooth journey in the form of circulars and regulations.

Some recent reports have suggested that while the Fintech companies are looking to find ways to circumvent the RBI circulars, their funding is likely to be hit further.

According to a Bain report, Fintech funding is likely to be lower than in 2021, which generated a whopping $10 billion in funding across more than 580 deals in FY21. That was three times the $3.5 billion received in 2020. The first half of 2022 has seen a conservative funding of $4.2 billion, which is lower than H1 FY21 but double the funding received in H1 FY20.

“Can force fintechs to revise their business and operating model”

Yashoraj Tyagi, CTO & CBO, CASHe opined that the main reasons for the recent decline in funding could be attributed to macroeconomic and geopolitical factors.

“The ongoing war and current inflationary trends, monetary tightening, the underlying weakness of the US public market, decline in valuations of technology stocks and some underwhelming financial results of some established and new-age start-ups have automatically led to the drying up of funds,” said he.

Yashoraj further opined that “RBI’s crackdown” could be another reason for the decline.

“Another reason would be RBI’s crackdown on fintech companies and push for stronger regulations. Recent changes have had an impact on the operating and revenue model of fintech players, he said.

“For example, the recent guidelines for credit card licensing and digital lending may force fintech companies, particularly loan service providers and unregulated loan originators, to revise their business and operating models. All of these would be somewhat frowned upon by institutional investors who view these factors as roadblocks to growth and operational agility, he added.

On the same lines, Sanjay Doshi, Partner and Head, Financial Services Advisory, KPMG in India said that the Reserve Bank of India’s recent guidelines on credit card licensing, digital lending may compel many fintech companies, especially loan service providers and unregulated lenders. to revise their business and operating model.

“Imperative for regulator to set much-needed guidelines”

However, Gurjodhpal Singh, CEO, Tide India opined that the tighter regulatory reforms will enable compatible business models to make the fintech ecosystem robust and attract investors in the near future.

“As the country undergoes digital transformation and experiences huge adoption of fintech services among customers, it has become imperative for the regulator to lay down the much-needed guidelines that ensure data protection and curb the rising rate of cyber fraud,” he said.

He maintained that while the tighter regulatory reforms may prompt more fintech companies to re-examine their existing business frameworks, it will yield positive results in the near future.

However, he said that the “macroeconomic factors” are impacting the overall funding ecosystem, with Fintechs witnessing a sharp drop of 48% month-on-month and a whopping 93% drop since October 2021.

Regulation, Broad Internet Connectivity, Talent, Security: Factors Affected by RBI Circulars

The Cashe CTO believed that given how quickly the landscape is changing, Fintech companies are having a hard time responding to regulations as they begin to catch up with fintech operations.

Internet services are another challenge, he said, as Indian ISPs still struggle to offer more bandwidth and faster speeds for secure and efficient data transport.

“With respect to India, the country’s diversified topography and significant

population makes it difficult to reach practically every corner of the country. These fundamental mistakes must be corrected to write a good fintech story, he said.

Yashoraj further opined that companies that establish training and onboarding programs that equip candidates with the right tools to operate will thrive, as opposed to those that expect new hires to hit the ground running.

The Cashe CTO opined that fintechs need to invest heavily in cyber security and even highlight it as a differentiating feature while marketing their products as data breaches are on the rise and several companies in India have become known for taking a relaxed approach to these leaks.

There have been some ups and downs in the Fintech space when it comes to funding, the need is to maintain a balance. This balance can be brought by a window that the RBI can provide to the industry to digest the changes it brings to the sector.