Banks and other Financial Institutions have always been at the forefront of technology used for their business purposes. The term “FinTech” is short for “Financial Technology” and could apply to any kind of technology that is used to drive a financial transaction or service, offered by any entity. However, in business and regulatory jargon, FinTech has come to mean the technology used by financial service providers that disrupt the traditional way of providing such services. Thus, companies such as PayTM, PhonePe, among others are classified as FinTech companies
The Payment and Settlement Systems Act, 2007 is the principal legislation prevailing over the payment systems in India. Nevertheless, the RBI also issues rules and regulations pertaining to diverse facets of the payments network occasionally.
WHAT IS FINTECH LAW
FinTech is used to describe new technology that seeks to improve and automate the delivery and use of financial services. At its core, FinTech is utilized to help companies, business owners and consumers better manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones.
The FinTech industry is primarily regulated by existing regulators such as the RBI or other regulators such as CCI, FIU, IBBI, SEBI, or the IRDAI. Even though there have been multiple applications for the institution of an independent authority to oversee the payments industry, all such applications have been rejected.
There are over 100+ FinTech-related Acts, Rules, Regulations, Circulars & Guidelines including those relating to debt, equity & hybrid securities, and derivatives.
FinTech cases include retail payments, money transfer services, marketplace lending, digital onboarding and KYC, financial advisory services, wealth management services, digital identification services, smart contracts, financial inclusion products, and cyber security.
The Tribunals dealing with these cases is NCLT, NCALT, or SAT among others. It is enforced by CBI, CBDT, and ED.
The momentum has shifted towards FinTech concepts in recent times. One of the most important developments in the FinTech world is the advent of cryptocurrencies. Post the Aadhaar Case, FinTech companies have been developing innovative methods for onboarding new customers without Aadhaar based authentication.
Financial services have seen growth in the recent past for the need for financial inclusion rather than for the want of convenience. Despite the fact that the total penetration of financial services is still low, the adoption rates are much higher, making available attractive business opportunities. Furthermore, low data costs in India and the ever-diminishing cost of smartphones greatly assist in amplifying the success of Fintech companies.
With rapid development in mobile and telecommunications technology coupled with governmental support for digital payments, there has been tremendous innovation in FinTech. Some of the significant contributions to the FinTech world are as follows;
- Regulation of Prepaid Payment Instruments
Prepaid Payment Instruments (PPI) are instruments that facilitate the purchase of goods and services, including financial services, remittance facilities, etc., against the value stored on such instruments.
- Regulation of Payment Intermediaries
Payment intermediaries include all entities which collect monies received from customers for payment to merchants using any electronic/online payment mode, for goods and services availed by them and thereafter facilitate the transfer of these monies to the merchants in final settlement of the obligations of the paying customers.
When technology is used to provide a disruptive insurance-related service, it is called InsurTech. Some of the leading InsurTech players in India are Acko, Policy Bazaar, and Digit Insurance. The Insurance Regulatory and Development Authority of India (“IRDA”), the insurance regulator in India, has issued a set of guidelines and policies to regulate InsurTech in India.
- UPI and BHIM
Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile application. Bharat Interface for Money (BHIM) is a payment application that facilitates simple, easy, and quick transactions using UPI. A person may request money through the app from a UPI ID or QR.
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology; a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation. The RBI has always taken a dim view of cryptocurrencies, termed “virtual currencies” in their circulars.
A cryptocurrency is a digital form of currency that is secured by cryptography; most being on A crucial trait of cryptocurrencies is that they aren’t issued by any central authority, making them – in theory – immune to government interference.
- P2P Lending Platforms
P2P lending is a type of crowd-funding wherein people who want to borrow money can raise funds through loans from people who want to invest. It may be done through online platforms that match lenders with borrowers to provide unsecured loans. Such a form of lending eliminates the need to have financial institutions as intermediaries and provides recourse to borrowers who are unable to obtain credit from financial institutions.
- Regulatory Sandbox
A sandbox is a safe environment where parents let their children play without the fear of them getting hurt. In order to encourage innovation in FinTech, the RBI has facilitated the establishment of a FinTech sandbox.
The sheer size of the market and multiple lacunas in the current laws make this sector a highly viable opportunity. One can only imagine how the industry will develop with the extension of indigenous services. Needless to say, it is a rather exciting time for the FinTech space and the legislation revolving around the same.