Following the Reserve Bank of India’s (RBI’s) action against Paytm Payments Bank, participants in the fintech ecosystem have turned their attention to giving priority to compliance with regulatory norms.
Fintech industry players say the episode will ensure adherence to such measures.
Executives Business Standard spoke to said companies should have clarity on their requirements.
“The RBI has been a progressive regulator, but we see frequent action in the fintech space.
"Sentiment takes a hit in the short term due to this. We see a lot of consolidation happening in the space this year.
"Many smaller players will die and others will be acquired,” said a senior executive.
Another senior executive from the investment community said the RBI’s decision to suspend most of Paytm Payments Bank’s operations hurt the ecosystem and customers at large.
“The decision can have a cascading effect on users and the company separately.
"Users will be affected first since many in Tier-II and -III cities may not understand the scale of impact on them, and the nitty-gritty of the regulator’s decision.
"The company has to scramble and will have less than a month to mitigate any substantial impact,” the person said.
An immediate impact could be the listing attempts of a few of them.
An investment banking source quoted above said: “There are some fintech initial public offerings (IPOs) in the pipeline.
"Based on our discussion, we expect it to be a difficult year for those IPOs.”
The person said investors too would ensure caution before investing in any fintech company.
“Fintech founders are entrepreneurs and product people.
"They are driven more by the product, and the way it solves real problems and may lack sufficient legal and regulatory knowledge.
"As investors, we study how a certain regulation may affect companies in the longer term based on risks associated with the business model,” the person added.
With this incident, compliance takes centre stage.
“This shows one should be serious about compliance.
"I think this is how players look at the episode at Paytm Payments Bank,” a fintech industry executive said.
Fintech participants added venture-capital (VC) companies and other investment firms were keen on having people skilled on regulatory themes before making an investment.
“It is necessary to not just objectively look at compliance but also follow it in the spirit of the law,” an industry executive said.
The RBI had cited “persistent non-compliances” and “continued material supervisory concerns” in the payments bank which led the regulator to place restrictions on the platform from accepting new deposits and carrying out transactions.
While some are worried about the impact on Paytm, many are of the opinion that with the fintech industry becoming such an important part of the economy they can no longer avoid compliance.
In March 2022, the regulator barred Paytm Payments Bank from taking on new customers.
Meanwhile, Growthpal, a merger and acquisition-deal sourcing platform, in a report said there has been a decline in fintech startups amid regulatory complexities.