FinTech’s legal regulations and how they want to change the industry

As one of the fastest growing sectors, India’s FinTech space has undergone a number of changes in recent years. While the segment has already integrated the latest technologies to increase operational efficiency and provide a superior customer experience, the onset of the pandemic further accelerated digitization. As of 2021, the Indian FinTech market stood at a colossal $ 31 billion and is ready to reach $ 150 billion by 2025.

With newer technologies emerging in the FinTech world, people’s perceptions of money, investment, savings, etc. have evolved. From chatbots to AI-enabled systems, Blockchain, cryptocurrencies and neo-banks, today’s Fintech landscape has brought seamlessness, reliability, efficiency and convenience to millions in the country. But alongside these, there has been a development on the legal front – a development that can change the sector in the short and long term. Here are some of them and how they will change the industry.

The growing importance of regulation and compliance

With technological advancement comes convenience as well as risk. In June 2021, India produced 16 Fintech Unicorns, with several other FinTech startups emerging. As the number of organizations in the area continues to grow, bringing in solutions driven by cutting-edge technologies, regulators must keep pace with developments. To do this, the authorities will continue to focus their attention on enacting new laws and compliance actions to prevent fraud and other cyber threats, and the importance of following these will continue to increase.

UPI payment regulations

NCPI (National Payment Corporation of India) has encouraged people to use digital payment solutions in the midst of the pandemic to increase digitization and ensure security by minimizing cash handling. Between February 2020 and October 2020, the transaction volume of digital payments on UPI platforms increased by approximately 58%, passing 2 billion transactions by October ’20. Overall, India’s digital payments market is estimated to reach $ 1 trillion by 2023.

However, the governing body has also put certain laws in place to regulate UPI payments in the country and avoid fraudulent activities. According to NCPI’s UPI procedural guidelines, money transfer services through UPI platforms must be generated by authorized banks. Banks can use the technology providers’ services to enable UPI payments, but only under the qualification criteria and supervisory standards prescribed by NCPI. Enforcement of this type of law will allow banks and end customers to avoid falling victim to cyber threats and attacks.

Developing KYC guidelines

Recently, there have been several changes in the KYC (Know Your Customer) laws. Recognizing the operational challenges that exist, regulators have allowed Fintech players to use certain approved digital and video-based KYC modes for onboard customers. This facilitates more cost-effective customer acquisition strategies. Now these regulations only provide a clear advantage for FinTech players, while increasing the operating costs of non-FinTech organizations. Despite this, video KYC verification methods have been adopted by several banks and non-FinTech players.

The advent of the latest technologies has eased the burden of high boarding costs. According to some experts, the use of a digital KYC process can reduce boarding costs by 70% and processing time by up to 90%. Given the many benefits, more and more FinTech players are integrating digital processes powered by AI, ML, Blockchain, etc., to optimize costs, improve fraud detection and offer impeccable customer service.

Every law / regulation that comes from the governing bodies has significant implications, which indicates a paradigm shift in the FinTech area. The sector has taken rapid steps and is further ready for astronomical growth in the coming years. For now, we simply need to navigate the ever-evolving landscape, and the compliance orders and changes that may come as technology continues to evolve.

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