What Are The Major Regulatory Challenges Facing Fintech Startups?

Introduction

Digital developments and trends in financial technology, sometimes known as the fintech startups or Fintech sector, are changing how consumers, financial institutions, and banks handle their money. Modern technologies have radically altered how individuals interact with their money in the previous five years.

Early stage fintech startups are on the road to expanding and establishing a reputation in the market. Financial technology involves enhancing and automating business processes and services. However, these obstacles stretch our imaginations in new directions and foster extraordinary development, but there is always an opportunity for improvement.

According to Industry Screener, the FinTech market will be valued at $26.5 trillion by 2022, with a CAGR of 6%. The underlying cause for this expansion is the increased demand for loans and insurance and increased interest in investments.

Through their effective financial tactics, the quick emergence of several fintech startups in the finance industry has expanded many other sectors. The industry can develop and create more income with this scope. Continue reading our guide to know more…

Major Regulatory Challenges Facing Fintech Startups 

Early stage fintech startups often encounter challenges such as long fundraising cycles, missed objectives, and escalating losses. These challenges develop primarily as a result of poor loan lifecycle management. Every day, early-stage fintech startups in India encounter a slew of hurdles. We’ll go through a couple of them below:

1. Regulatory and compliance legislation

Many rules always contribute to the stifling of fintech startups in Indian financial markets. These restrictions are not only tough to comply with, but they also make it difficult for early-stage fintech startups in India to access Indian markets. To combat fraud, compliance regulations are put in place as a stringent regulatory framework. However, they, too, provide significant impediments to potential Fintech entrants. Fintech startups must complete a long number of requirements before they may begin operations.

2. Population of unbanked and underbanked people

To begin with, fintech startups in India had slow development due to weak infrastructures, such as low internet penetration and literacy levels. Although the Indian government is addressing these concerns with liberal policies, the advantages would be apparent only in the long term.

Even today, a considerable portion of the Indian population remains unbanked and prefers cash transactions over internet purchases.

Another barrier to Fintech development in India is the country’s poor financial literacy. For example, India created the Pradhan Mantri Jan Dhan Yojana to enhance financial inclusion in the nation. According to World Bank research, after making 180 billion bank accounts, more than 48% remained inactive without a single transaction in a year. Despite all of its endeavors, India is still far from financial inclusion.

3. Trust in cash most 

Indians are cautious about everyday transactions and prefer to use cash. They have relied on money as a means of exchange for centuries and need help to shift their routines and adapt to new opportunities. Financial services are challenging to provide in an unbanked market since they are often associated with digital fraud. Due to financial illiteracy, many Indians fail to see the value that fintech startups in India provide via their innovative products and services.

4. Cyberthreats

Fintech firms handle sensitive client information. During online purchases, several cybersecurity vulnerabilities cause enormous monetary losses. These are entirely unnecessary for consumers. Convenient technology also exposes people’s internet accounts to scammers aiming to steal their assets. It is a steady flow to the popularity of the best fintech companies. Fintech’s must harden themselves against any threat presented by hackers. 

5. A lack of government support

Fintechs confront a severe lack of government support and incentives to safeguard their interests in Indian financial markets. It may be discouraging for young Fintech players. Early-stage fintech startups in India are essential in promoting economic development and must be given every opportunity to succeed.

6. Industry-related difficulties

Fintechs build with a sophisticated business plan in mind. Maintaining good relationships with other financial organizations, such as banks, is challenging. Banks, on the other hand, are hesitant to collaborate with Fintechs for fear of losing their reputation.

Major Indian banks have increased their efforts to boost digital product offerings and battle the Fintech threat. 

Best fintech companies in India

Below are the best fintech companies of India in 2022:

1. Mintoak

Mintoak is one of the best Fintech businesses in India if you’re seeking one. Mintoak, a white-label merchant payment platform, enables merchants to take all digital payments, including cards and cash and creates a single transaction report. It allows merchants to concentrate on their core competencies. Mintoak collaborates with the State Bank of India and HDFC Bank Ltd. to generate revenue via subscription fees and a percentage of the banks’ product sales. HDFC Bank holds 5.2% of the business.

While traditional banks did not accept smartphone payments, Fintech firms in India took advantage of the rising demand for payment services and started targeting established financial institutions’ deposit-taking businesses.

2. BharatPe

BharatPe, a popular mobile wallet owned partly by a bank, attempts to persuade shops to migrate from current accounts to its payment service. Meanwhile, Alphabet Inc.’s Google Pay, India’s second-most popular consumer wallet, is promoting fixed deposits.

Aside from these new financial services, the Indian government has taken initiatives to encourage international investment in the Fintech sector. The Reserve Bank of India has liberalized the International Direct Investment (FDI) framework in financial services since 2016, making it more straightforward for businesses to attract foreign investors.

3. Incred

This firm is one of India’s top Fintech companies. Incred is a loan platform for both small businesses and individuals. The company’s headquarters are in Mumbai, Maharashtra. Incred employs around 600 people and has an annual revenue of 139 crores (2017-18). Incred is a privately held firm that was founded in 2016.

Incred’s founder and CEO are Bhupinder Singh. Incred debuted its first product in 2016 and raised 1352 crores in two investment rounds.

4. Lendingkart

Lendingkart provides operating and capital loans to medium and small enterprises. The company’s headquarters are in Ahmedabad, Gujarat. The firm employs over 600 people and generates $247 million in sales yearly (2017-18). 

Lendingkart was founded by Harshvardhan Lunia and Mukul Sachan. Lendingkart has raised 1545 crores in 10 fundraising rounds since its inception in 2014. Harshvardhan Lunia is the CEO of Lendingkart.

5. Coverfox

Coverfox’s CEO, Sanjib Jha, and the company’s senior management are continually looking for new opportunities in the Insurtech infrastructure industry. The company’s objective is to help offline agents transition to digital, obtain instant and smooth quotes from insurance providers, increase operational efficiency, grow their businesses, and minimize the amount of paperwork required to earn faster.

6. Toffee Insurance

Toffee Insurance provides relevant and contextual insurance choices to a rising youthful population in Gurugram. It was started in 2017 by Nishant Jain and Rohan Kumar. By developing creative single-event insurance solutions unique to new categories, the firm makes insurance more inexpensive and accessible.

According to the business, the platform takes less than 90 seconds to obtain insurance. Straightforward claims may be completed using the digital interface in less than two hours.

Bottom Line

Overall, Indian fintech startups are undergoing significant changes, such as transitioning to a paperless economy. The Indian government is aggressively encouraging the usage and use of technology to help India become a cashless society, such as UPI, digital wallets, e-KYC, Aadhaar, and BHIM. Following demonetization, the early stage fintech startups in India increased dramatically. These startups are active in various Fintech sub-sectors, including mobile POS (point of sale), peer-to-peer (P2P) transactions, lending, and insurance. They initiate innovative financial and technological advancements.