India’s FinTech sector is in needed of regulation to truly flourish according to a new report commissioned by Yes Bank.
Based on a survey of hundreds of local and international FinTech firms, the Yes Bank-commissioned India FinTech Opportunities Review, examined the future of the industry and its potential going forward.
Over the last few years FinTech has made a significant impact on the financial services sector. While the industry is still young, Indian FinTech is not just about payments, with the survey showing digital wealth management, lending and robotics process automation solution are all gaining momentum.
The Indian economy has taken well to the opportunities arising from FinTech, primarily triggered by a surge in e-commerce, and smartphone penetration. The Indian Fintech market is forecast to touch $2.4bn by 2020 from a current $1.2bn, as per NASSCOM according to the report. The transaction value for the Indian FinTech sector was estimated to be approximately $33bn in 2016 and is forecast to reach $73bn in 2020 growing at a five-year CAGR of 22%, the report added.
However, in order for the market to continue to grow, the survey suggests more needs to be done in terms of regulation. According to the survey, 87% of respondents suggested the need of a regulatory sandbox.
The likes of Abu Dhabi, Hong Kong, Australia & UK, among others, have established a regulatory sandbox, or an equivalent system to provide an ecosystem wherein the regulator and innovators can jointly study emerging technologies. This will also help the regulator to stay ahead on the innovation curve and test the disruptive innovations in a controlled environment, encouraging innovation along with proactive regulation.
The majority of its survey respondents (87%) state that a regulatory sandbox or some form of exceptions would be highly relevant for India. This was re-iterated almost unanimously by 99 participants in the three focused group discussions and the IFOR advisory council.
The respondents also suggested ‘flexible regulations and policies in emerging FinTech domains. With the Government and several regulators including RBI, NPCI having taken several steps to create an enabling ecosystem for startups, the group made recommendations for future steps.
These include the need for flexible regulations or exceptions in ‘emerging’ areas like blockchain, alternative lending, database management and scoring models, outsourcing of core operations of Banks within the restricted experimental phase with adequate information security measures in place. The respondents also suggested relaxation in regulations under Shops and Establishments Act.
Richard Teng CEO, Financial Services Regulatory Authority, ADGM, said: “A Government champion to promote FinTech; a robust regulatory policy that enables Fintech growth; crossborder partnerships and FinTech bridges with other Governments; an open-minded and collaborative regulatory approach are key enablers of a FinTech ecosystem.”
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