{"id":30079,"date":"2021-05-11T14:08:25","date_gmt":"2021-05-11T08:38:25","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=30079"},"modified":"2021-10-19T16:11:43","modified_gmt":"2021-10-19T10:41:43","slug":"fintech-startups-aiming-for-nbfc-license-despite-several-challenges","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/fintech-startups-aiming-for-nbfc-license-despite-several-challenges\/","title":{"rendered":"Fintech Startups Aiming for NBFC License Despite Several Challenges"},"content":{"rendered":"\n<p class=\"has-drop-cap\">FinTech, aka financial technology, is that segment that deals with conventional finance business through the method of P2P model, crowdfunding, asset management, and mobile payments loans. Technically, these firms do not fit with the legal definition of a bank, as mentioned under the Companies Act 2013. Widespread internet penetration and the wave of digitization have led to the surge in Fintech sector funding from venture capitalists. The advent of the <strong>Unified Payment Interface (UPI)*<\/strong> platform has changed the way we looked at conventional finance and payment services. Complete Digitization of Banking services could be the next big in the Fintech Sector because it adheres to unprecedented growth. But could it be easy for Fintech Startups to stroll on that path with ease? Let&#8217;s find out.<\/p>\n\n\n\n<p><strong>Unified Payments Interface*<\/strong> (UPI) is a digitized payment system that facilitates\ninter-bank transactions. The National Payments Corporation of India developed\nthis system, and the Reserve Bank of India is the one that regulates\nit.&nbsp;&nbsp;<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/fintech-startups-aiming-for-nbfc-license-despite-several-challenges\/#Why_Several_Fintech_Startups_are_looking_for_an_NBFC_License\" >Why Several Fintech Startups are looking for an NBFC License?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/fintech-startups-aiming-for-nbfc-license-despite-several-challenges\/#Underlining_the_Potential_of_Fintech_firms_to_become_a_Full-Fledged_NBFC\" >Underlining the Potential\nof Fintech firms to become a Full-Fledged NBFC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/fintech-startups-aiming-for-nbfc-license-despite-several-challenges\/#Current_Challenges_for_Fintech_Startups_to_Work_as_a_full-fledged_NBFC\" >Current Challenges for Fintech Startups to Work as a\nfull-fledged NBFC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/fintech-startups-aiming-for-nbfc-license-despite-several-challenges\/#Inculcation_of_Robust_KYC_and_Consumer_Grievance_Mechanism\" >Inculcation of Robust KYC and Consumer Grievance Mechanism<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/fintech-startups-aiming-for-nbfc-license-despite-several-challenges\/#_Conclusion\" >&nbsp;Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_Several_Fintech_Startups_are_looking_for_an_NBFC_License\"><\/span>Why Several Fintech Startups are looking for an NBFC License?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There are many companies in India that are rapidly solidifying their presence in the Fintech business. All these firms in India are now approaching Reserve Bank to avail their <a href=\"https:\/\/corpbiz.io\/nbfc-registration\"><strong>NBFC license<\/strong><\/a>. According to many experts, the reason behind this is to maintain the loan books rather than sharing the profit with the partner.&nbsp;<\/p>\n\n\n\n<p>The grant of NBFC license to such companies will affect the loan disbursement process and cost of capital. Nevertheless, it will reduce the cost of capital and speed up the loan disbursal process. According to some industry experts, this will help to curb fraudulent activities using technology and scaling up operations.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/documents-required-for-nbfc-registration\/\">Documents Required for NBFC Registration<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Underlining_the_Potential_of_Fintech_firms_to_become_a_Full-Fledged_NBFC\"><\/span>Underlining the Potential\nof Fintech firms to become a Full-Fledged NBFC<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Fintech is the modern approach to financial services. Since these firms leverage the latest technology, they have more potential to deliver quality services to the users. Below are some pros of fintech firms that make them perfectly suitable to work as a full-fledged NBFC in India<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Potential to Rejuvenate Traditional Banking System&nbsp;<\/h3>\n\n\n\n<p>FinTech has been resonating\nstrongly in the Indian financial space since its inception. They have also\nbecome an integral part of the Government\u2019s mission regarding financial\ninclusion. Owing to its unparalleled potential to rejuvenate the traditional\nbanking system, the FinTech space is now garnering popularity in the areas of\nlending, deposits, asset management &amp; credit system.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Ability to Render Diverse Services&nbsp;<\/h3>\n\n\n\n<p>At present, these entities\nare taking full advantage of the latest-gen technologies to mitigate challenges\n&amp; build products such as enterprise automation for accounting, last-mile\nreach and delivery, fraud detection, alternative credit models, treasury and\nreconciliation for private lenders and, regulatory compliance.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Access to Alternative Data Sources&nbsp;and Latest Tech<\/h3>\n\n\n\n<p>Traditionally, lenders\nexcelled on the \u2018one size fits all approach, evaluating all types of clients\nagainst standard credit policy. Such an approach is excluding a large\npopulation of potential customers. With FinTechs adopting AI combined with ML,\nit becomes easier to render personalized services to the clients.&nbsp;<\/p>\n\n\n\n<p>Under the\ninfluence of alternative data sources, Fintech has the ability to take correct\nand swift decision, particularly in the case where the creditworthiness of the\ncustomers is in question.&nbsp;&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Current_Challenges_for_Fintech_Startups_to_Work_as_a_full-fledged_NBFC\"><\/span>Current Challenges for Fintech Startups to Work as a\nfull-fledged NBFC<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The list below consolidates the potential loopholes that are considered as the biggest obstacle for the growth of new Fintech entrants.  <\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Current-Challenges-for-Fintech-Startups-to-Work-as-a-full-fledged-NBFC.png\" alt=\"Current Challenges for Fintech Startups to Work as a full-fledged NBFC\" class=\"wp-image-30120\" width=\"532\" height=\"415\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Current-Challenges-for-Fintech-Startups-to-Work-as-a-full-fledged-NBFC.png 997w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Current-Challenges-for-Fintech-Startups-to-Work-as-a-full-fledged-NBFC-300x234.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Current-Challenges-for-Fintech-Startups-to-Work-as-a-full-fledged-NBFC-768x599.png 768w\" sizes=\"(max-width: 532px) 100vw, 532px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Presence of Strict Compliances&nbsp;<\/h3>\n\n\n\n<p>Many laws and regulations in\nIndia contribute to the slow-down of Fintech startups in the financial markets.\nNot only these laws are stringent, but they have also discouraging Fintech\nplayers from making their way into the Indian market.<\/p>\n\n\n\n<p>Compliance laws exist as a\nrestrictive regulatory framework to mitigate fraudulent activities. But, sadly,\nnew Fintech entrants are finding them as the biggest obstacle in the path of\ngrowth. Practically, there is an extensive list of compliances that Fintech\nstartups need to meet before starting their operation.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Fragile Recovery Protocol<\/h3>\n\n\n\n<p>Most Fintech startups might\nfind it hard to build a robust management for credit recovery. Maintaining a\ncontinual connection with credit seekers for outstanding payment seeks raw\nprofessionalism and a good code of conduct, which is something quite daunting\nto maintain. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Presence of a Large Unbanked Population&nbsp;<\/h3>\n\n\n\n<p>Even today the large portion of\nIndian population lack access to proper banking services that makes them\ndepends on cash transaction instead of online purchases. A government\ninitiative like Pradhan Mantri Jan Dhan Yojana has tried to fix that loophole to\nsome extent, but that too remained largely ineffective owing to low internet\npenetration and literacy levels. Catering to such a section of the population\nwill be a daunting task for the Banks and new Fintech entrants.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Date Breaching<\/h3>\n\n\n\n<p>Most Fintech companies have an\nabundance of customer data to deal with. Constantly monitoring and securing\nsuch data against a possible cyber threat is a paramount challenge for these\nfirms. Any loophole in this regard could result in massive financial losses\nduring web-based transactions. Therefore, ensuring end-to-end encryption to\ncustomer&#8217;s data is a fundamental concern for the new Fintech entrants.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Inculcation_of_Robust_KYC_and_Consumer_Grievance_Mechanism\"><\/span>Inculcation of Robust KYC and Consumer Grievance Mechanism<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Setting up a Know Your Customer\n(KYC) and consumer grievance mechanism would add to the hardship of these\nfirms. Also, it seems that these firms would have no control over the\ncustomer&#8217;s bank account, fees, and charges that the bank administers. Since\nthese firms will operate as a technology player, they might not have access to\nall banking services.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"_Conclusion\"><\/span>&nbsp;Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There is no denying that\nFintech startups are playing an essential role in revolutionizing India&#8217;s\nfinancial services. At present, there are several Fintech startups that have\npartnered with Banks and leveraging their Application Programming Interface\n(APIs).<\/p>\n\n\n\n<p>While performing such actions, these firms are under obligation to stay in line with existing regulations.&nbsp;In light of the ease of doing business, the Indian <strong><em>government<\/em><\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Government\"><strong><em>[1]<\/em><\/strong><\/a><\/sup> may sooner or later decide to speed up the digitization of banking services. And that\u2019s the only thing that keeps the hope of many distressed Fintech entrants alive.&nbsp; <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/step-by-step-nbfc-registration-procedure\/\">NBFC Registration: Step by Step Procedure<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>FinTech, aka financial technology, is that segment that deals with conventional finance business through the method of P2P model, crowdfunding, asset management, and mobile payments loans. Technically, these firms do not fit with the legal definition of a bank, as mentioned under the Companies Act 2013. Widespread internet penetration and the wave of digitization have [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":30119,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[91],"tags":[1733],"acf":{"service_id":"8"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":5149,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/30079"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=30079"}],"version-history":[{"count":30,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/30079\/revisions"}],"predecessor-version":[{"id":36786,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/30079\/revisions\/36786"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/30119"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=30079"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=30079"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=30079"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}