LEGAL ASPECTS OF FINTECH IN INDIA

The financial technology, also known as FinTech, has boomed in the past few years. It elucidates the use of technology in providing financial services and products to the customers. It can be used in any field be it investing, banking, insurance or any field related to finance. There has been impressive upsurge in the fintech industry in the past few decades. This is because of amalgamation of certain factors such as government initiatives, technological advancements, rapid advancements and access to smartphones. Digital payments are considered to be a new age use of technology for advanced and user -friendly payment interface. This arena has seen the surge both in domestic and global market.

India has achieved a remarkable growth in the Fintech industry due to robust adoption of digital infrastructure and rapid increase in the internet access and usage in the past few years. for instance, the national payments corporation of India has played crucial role by creating a digital ecosystem so that people can trust such a space and can fearlessly be a part of this ecosystem.

KEY REGULATORS OF FINTECH IN INDIA

in India, there are several agencies that regulate the Fintech industry. As there are multiple authorities thus making it a complex space.This complex landscape often necessitates a comprehensive regulatory strategy that addresses requirements across multiple authorities based on the specific product offerings and business model. The principal regulators of Fintech in India are:

1. SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

   SEBI is one of the most important regulatory institution, it oversees and regulates the functioning of stock exchanges in the Indian capital market. its aim is to ensure transparency and fairness during the stock exchanges.

2. RESERVE BANK OF INDIA:

   It is the apex financial institution of india, RBI is reposed with the framing of the monetary policy  and keeping the financial system stable.The RBI supervises India’s financial sector through inspections, audits, and regulatory frameworks to make sure everything runs smoothly.

3. Insurance Regulatory and Development Authority of India (IRDAI):

   it is reposed with the responsibility to regulate insurance companies and intermediaries. It is tasked with regulating and licensing the insurance and re-insurance industries in India.

4. Financial Intelligence Unit:  

   This body is responsible for monitoring the money laundering  compliance of Fintech companies including virtual digital assets.

REGULATIONS BY THE RESERVE BANK OF INDIA

the RBI has set up the “payments system” under the Payment and Systems Act, 2007  to regulate and supervise this system. it can be elucidated as the mechanism between the person making the payment and the person receiving the payment. this process generally involves making of payments, receiving them and settling of payments.

In January 2022, the RBI established a FinTech department to identify innovation opportunities associated with the FinTech sector.  During the financial year 2023–24, the department: (a) conducted multiple pilot programmes involving various use cases of central bank digital currencies, India’s own digital currency;(b) organised several events under India’s G20 Initiative; and (c) set up more than 75 digital banking units in over 75 Indian districts.  Additionally, the department addresses emerging challenges such as cybersecurity threats and data privacy concerns, ensuring that technological progress aligns with robust regulatory standards.  RBI’s FinTech department has been praised for its efforts in fostering innovation and regulating the FinTech sector in India.

CHALLENGES IN THE FINTECH INDUSTRY

Although there is a sudden boom in this industry particularly after the covid wave, as it lead to a major upsurge in the digital payments and online transaction, it still strives with certain challenges.

1. DATA SECURITY : The first and foremost challenge, companies are not only at the risk to lose their reputation but money as well. With the rise in cyber crimes, the finch industry is at the sheer risk of it. in order to escape or reduce such risks, the Fintech app shall include two factor authentication, Biometric authentication, 256-bit AES encryption and notifications about all actions.
2. REGULATORY AND COMPLIANCE LAWS: there are several laws that limit the scope of Fintech companies.They make it strenuous for new players to enter as there are strict regulatory compliances to prevent fraud.
3. TRUST IN CASH : Although, India’s population has enthusiastically adopted mobile wallets and unified payments system, there’s still a chunk of population which still believes in cash payments. They have trusted cash as a medium since ages and continue to do so. Therefore, a plethora of people fail to comprehend the need of Fintech  and innovations is it offering.

CONCLUSION

The widespread acceptance of mobile wallets and unified payments interface has contributed to the boom of the Fintech industry in the past few years.  The governmental policy has focused on the digitisation in its DIGITAL INDIA PROGRAMME, 2015.  The government is proactively pushing the use of digital payments apps such as e-KYC, Aadhaar, and BHIM, etc. Post demonetization, the number of Fintech start-ups in India saw a sudden rise. These start-ups are working in various sub-sectors of the Fintech market, such as mobile POS (point of sale), peer-to-peer (P2P) transactions, lending, and insurance, among others. They initiate creative innovations in the fields of finances and technology. However, the challenges of Fintech in India deter its growth in the economy.

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