As India’s fintech ecosystem expands every year, there is periodic talk about regulating the industry. Given the significance of constant innovation in the segment, however, overbearing regulations could stifle innovative initiatives. Accordingly, the Reserve Bank of India has realised that self-regulation is a better option.
To ensure innovation is unhindered, the RBI has come up with a draft framework for Self-Regulatory Organisations (SROs) in the fintech segment. As constant innovations are necessary to provide novel products and services, self-regulation will allow a flexible approach to oversee the functioning of fintech firms. The draft framework outlines the characteristics, eligibility, operations, functions, criteria and governance norms for fintech self-regulatory organisations (SRO-FTs). Herein, SRO-FTs are envisioned as representatives of the fintech segment, mandated to undertake liaising work on behalf of its members with the RBI. However, SRO-FTs are expected to work independently.
The Fintech Landscape
India has the world’s third-largest fintech ecosystem. In FY2024, the domestic fintech market size was estimated to be $64.18 billion. By FY2032, the projected market size is anticipated to reach $223.06 billion, recording a CAGR of 16.85% between 2025 and 2032. During the past five years, the country’s fintech segment has seen funding and investments of more than $20 billion.
The fintech growth has been driven by the accelerating adoption of digital financial services alongside a favourable regulatory environment that has encouraged innovation. As per information quoted by the RBI, there are approximately 11,000 fintech entities in India. The industry has seen steady growth due to multiple innovations facilitated by the RBI’s conducive regulations. These include UPI (Unified Payments Interface), CBDC (Central Bank Digital Currency) and the regulatory sandbox framework.
Key Innovations
UPI’s interoperability across banks, user-friendly interface and QR code-based payments have created a truly unified and popular payment ecosystem.
Facilitating digital payments for street vendors and small enterprises, UPI has even led to greater financial inclusion. Encouraged by the robust response to UPI even from overseas jurisdictions, RBI aims to make UPI global. The system is already operational in Nepal, Bhutan, Sri Lanka, Singapore, France, the UAE, Namibia, Mauritius, Peru and other countries.
Coming to CBDC, though in the pilot stage, it presents unique opportunities to scale new milestones in the payment ecosystem. Also termed the ‘e-Rupee’, RBI is testing the CBDC for both wholesale and retail segment use cases. The wholesale pilot is under use to settle secondary market transactions in government securities with plans for other use cases. The retail pilot is under use to test P2P (person-to-person) and P2M (person-to-merchant) transactions. The testing aims to check the vibrancy of the entire process entailing digital rupee creation and distribution along with real-time retail usage.
Similarly, the RBI’s regulatory sandbox is another interesting innovation that allows fintech firms to undertake live tests of their products and services within a controlled environment. The regulatory sandbox can ensure responsible financial services innovation that enhances efficiency and ensures greater benefits for consumers.
Attracting More FDI
Backed by liberal FDI norms, India has emerged as a hot destination for fintech investments, ensuring ongoing expansion in the industry. This is particularly heartening as all segments in India had faced a funding winter earlier. In the last 10 financial years, FDI inflows in India rose 119% to touch $667 billion versus $304 billion during the previous 10 years between 2005 and 2015. Significantly, more than 90% of the overall FDI came via the automatic route.
To attract more FDI, the Centre has taken multiple measures like lowering the compliance burden for industry and simplifying procedures to enhance the ease of doing business. Additionally, it has rolled out the PLI (production-linked incentive) scheme for various domains. Yet, more must be done to incentivise start-ups and other fintech entities, which could even help offshore firms relocate to India.
The Future Fintech Roadmap
Be it digital payment service providers or online lending platforms, greater convenience, accessibility and highly personalised services have ensured these fintech firms have disrupted traditional financial services. Consequently, consumers have quickly embraced online lending platforms, digital payment systems, mobile wallets and allied offerings. As a result, India has seen the highest fintech adoption rate of 87%, much higher than the universal average of 64%.
Since the Indian fintech industry is attracting additional investments every year even as it expands its portfolio of products, it is only a question of time before other innovative offerings become a global success story, just like UPI. Thanks in some measure to the RBI’s enabling regulatory environment.
Views expressed by Rohit Arora, CEO & Co-founder, Biz2X
Reference:
- https://www.indiabusinesstrade.in/blogs/regulatory-conundrum-how-rbis-recent-measures-impact-indias-fintech-sector/
- https://scoreme.in/fintech-market-size-in-india
- https://www.pwc.in/assets/pdfs/investing-in-indias-fintech-disruption.pdf
- https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/04SP20092024655CB04E0EA44E0799C140095FB4CCC3.PDF
- https://www.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1383
- https://economictimes.indiatimes.com/news/economy/policy/govt-considering-foreign-investment-regulatory-mechanism-for-fdi-supervision/articleshow/113785163.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
- https://www.investindia.gov.in/team-india-blogs/fdi-fintech
