The fintech sector has been growing rapidly in recent years with a significant increase in the number of start-ups. These companies are offering a wide range of innovative services across verticals such as payments, lending, insurance and wealth, in addition to several cross-industry offerings such as digital onboarding, identity management, marketing automation and fraud management.
With a dynamic customer base, evolving preferences and a rapidly changing technology landscape, continuous innovation is the basic need for survival and growth in this sector. In the next 12 months, we are likely to see large scale commercialisation of use cases across distributed ledgers, hyper personalization and central bank digital currencies which will help us broaden financial inclusion.
The government has played a major role in promoting innovation in the fintech sector by creating an environment that is conducive to experimentation, competition and growth.
With Union Budget 2023 round the corner, the fintech industry is looking at some simplification on tax regimes, policy clarifications around long standing industry issue of first loss default guarantee (FLDG) as well as data protection regulations. Some of key structural measures which can further boost the pace of innovation in the sector include:
- Providing a boost to digital financial infrastructure: Regulatory frameworks such as open credit enablement network (OCEN) and account aggregator (AA) along with RBI’s framework for regulatory sandboxes have been supporting the financial ecosystem. Further, regulators may explore providing centralised technical sandbox environments for fintechs to test and run new innovative solutions. These sandboxes may be offered centrally by the regulator, via IFSCs such as GIFT City or at a sectoral level.
- Secured access to financial data: Regulators have been working towards easing the access of consented credit and financial data of customers to create better and more affordable financial products and services through initiatives such as the account aggregator ecosystem, Digital Banking units, etc. Access to such data helps fintechs develop innovative customized products and service offerings across customer segments.
However, the usage of data needs to be well supported by robust cybersecurity frameworks to build cyber resilience in the ecosystem and protect customer data from the ever-increasing vulnerabilities and threats. Introduction and implementation of regulatory measures such as the Digital Personal Data Protection Bill is the need of the hour to boost cyber security and prevent data frauds.
- Global harmonisation: While regulatory policies thus far has helped in growing the sector within India, most of these players are ready to go global and compete in emerging economies. Favourable measures to help reduce the barriers to entry and create opportunity to promote Indian fintechs will offer greater access to global markets.
This will not only pave the way for cross-leveraging of innovative ideas but also open the door for investment opportunities to the fintech companies.
- Facilitating cross industry collaboration: Government-led initiatives to promote industry-wide collaboration will encourage the financial sector to keep innovating and explore adoption of technology for common purposes. Central repositories of customer information may help reduce the cost of innovation and bring in transparency and trust in the society.
Author is a partner with Deloitte India. Views expressed are personal.