Fintech Security

Fintech industry’s response to likely funding drop mixed, BFSI News, ET BFSI

Fintech industry's response to likely funding drop mixed

Fintech has become a key and strong pillar of the Indian economy with most of the financial arrangements shifting towards the tech setup. Financial Technology aka Finetch refers to the integration of technology into offerings by financial services easing the customer experience.

Amid the rising stream 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 work around the RBI circulars, their funding is likely to be hit further.

As per a Bain report, Fintech funding is likely to be lower than in 2021, which saw a huge $10 billion in funding across more than 580 deals in FY21. It was three times the $3.5 billion received in 2020. The first half of 2022 has seen conservative funding of $4.2 billion, which is lower than H1 FY21, but twice the funding received in H1 FY20.

‘Could force fintechs to revisit business and operating model’

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

“The ongoing war and the current inflationary trends, tightening of monetary policy, the underlying weakness of the US public market, decrease in tech stock valuations and some underwhelming financial performance of some established and new-age startups have automatically led to the drying up of funds,” he said.

Yashoraj further believed that the ‘RBI’s crackdown’ could be another reason for the decline.

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

“For instance, the recent guidelines on credit card licensing, and digital lending could force fintech companies, especially loan service providers and non-regulated loan originators to revisit their business and operating models. All these would in a way be frowned upon by institutional investors who see these factors as roadblocks to growth and operational agility,” he added.

On the same line, 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 could force many fintech companies especially loan service providers and non-regulated loan originators to revisit their business and operating model.

‘Imperative for regulator to lay down much-needed guidelines’

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

“As the country is undergoing digital transformation and experiencing huge fintech services adoption among customers, it has become imperative for the regulator to lay down the much-needed guidelines ensuring data protection and curbing the increasing rate of cyber frauds,” he said.

He maintained that while the tighter regulatory reforms may propel several fintech businesses to relook at their existing business framework, it will give positive results in the near future.

However, he said the “macroeconomic factors” are affecting the overall funding ecosystem with Fintechs witnessing a sharp downfall by 48% month-on-month and an enormous drop by 93% since October 2021.

Regulation, wide internet connectivity, talent, Security: Factors affected by RBI circulars

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

Internet services is another challenge, he believed, as Indian internet service providers are still having trouble offering more bandwidth and quicker speeds for safe and efficient data transport.

“With regards to India, the country’s diversified topography and sizable

population make it difficult to reach practically every corner of the country. These fundamental flaws must be corrected in order to write a good fintech story,” he said.

Yashoraj further believed 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 believed that fintechs need to invest heavily in cybersecurity and even tout that as a differentiating feature while marketing their products since data breaches are on the rise and several companies in India have been noted to have a relaxed approach to these leaks.

There has been some ups and downs in the Fintech space in terms of 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 down the changes it brings to the sector.

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