The fintech industry is bracing for consolidation in the coming months owing to higher compliance costs across the board and as some smaller players are still struggling to meet the Reserve Bank of India’s digital lending norms, which will come into effect from Thursday.

While larger, more established fintechs — especially those with an NBFC licence — have had it relatively easier in terms of complying with the guidelines, the smaller and newer technology-led players are struggling with compliance.

“Players whose business models called for prepaid cards are trying to disburse loans straight into customers’ bank accounts, but with limited success. Overall, the companies in the fintech space, which are looking to operate in the ‘gray area’, have been significantly impacted,” said Avinash Godkhindi, MD and CEO of Zaggle.

The RBI framework, centered around customer protection and data security, mandates norms pertaining to onboarding of customer, KYC compliance, grievance redressal mechanism, demarcation of the lender of record, and data storage, among others.

With the central bank having put the onus on the NBFCs or the ‘regulated entities’, for a majority of the players, major changes have centred around creation of a standardised key fact statement, co-lending norms, cautious underwriting, back-end and other technological changes, and collection and recoveries.

On the other hand, fintechs that were working exclusively with other NBFCs, or had subsidiary NBFCs, required a complete reconfiguration. Further, despite most of them having now been classiifed as unregulated lending service providers (LSPs) the onus will still be on them to comply with these norms as NBFCs will be wary of partnering with them, industry players said.

“NBFC licenced and fully compliant fintechs have an edge over those with other NBFC partnerships. The readiness also depends on the maturity of the company. Larger fintechs have definitely caught up and invested in compliance to get ready but for less mature and relatively new companies, the compliance burden becomes much more,” said Anil Pinapala, CEO and Founder of Vivifi Finance.

Owing to this caution and expectation of some amount of consolidation in the coming months, industry players expect some amount of easing in growth, especially in segments where demand was being artifically inflated.

“Industry has already seen volumes drop in certain segments over the last couple of months, but we might see another round of downturn,” said Ankit Mehra, CEO and co-founder of GyanDhan.

He added that even though consolidation is expected, the better-placed players have adapted to the new norms and once growth rebounds business will get redistributed and the “ones left standing will share the spoils”.

As such, fintechs are optimistic that as the ‘fly-by-night’ players get weeded out of the system, and as demand continues to remain robust, the negative impact of implementation of these norms will be short-lived and be replaced with more customer-centricity, stability and transparency in the long-run.

Anshika Kayastha

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