Fintech and Regulatory Unbundling

Sorry mate, you're badly mixing up fintech and financial services.

Financial Services is a highly regulated sector. Fintech is not.

The history of startups operating in regulated industries - including fintech in finserv - is full of unicorns and decacorns that leveraged regulatory gaps to become too big to comply instead of going out of the way to comply, then getting the regulation changed to fit their operating / business models. 

Fintechs Need Marketers And Lobbyists, Not Lawyers

Fintechs and Finservs are inseparable today. I have thereby added few more dimensions to clearly understand and regulate these entities given the 4 layers that are emerging.

Also, it is a myth that Fintech is not regulated. No regulation does not mean not regulated. In many cases regulators today are  watching and analysing how Innovations play out. There are also many instances where regulators are driving innovations.

Agree to the fact that we need Marketers. But lawyers and regulations are also needed to ensure privacy, security, business continuity, customer protection (against mis-selling, mispricing, profiteering, frauds etc).

As they say, in a democracy / capitalism, everything is allowed except that which is banned, and no regulation DOES mean not regulated.

Maybe you're stuck in the old authoritarian / commie era or whatever but startups in ecommerce, rideshare, and epharmacy began by doing stuff that was neither allowed nor banned by law a/k/a leveraged regulatory gap. They then became too big to have to comply and the rules changed to regularize their business models. Crypto did this with mixed success.

Time will tell whether fintechs can  pull off the same strategy - but I'm hopeful: The history of VC-backed industries has shown that, when you alleviate a compelling pain area of the market, you'll always find a way to succeed despite periodic PITA moves by the regulator. 

Hi Ketharaman,

I must clearly point out that you are being judgemental and resorting to personal remarks like "you are badly mixing up" "You're stuck in Authoritarian / Commie era". There is nothing remotely in my article or response that can make you conclude so, or respond in such inappropriate language.

Besides, most of your points are tangential ("Democracy / Capitalism" "Time will tell" "History of VC Backed Industries") and do not specifically relate to my post here. 

This is a professional forum. Hence, better stick to some specific points and have some meaningful counter (if any), rather than saying something for the sake of it or to prove self righteousness.

Your article opens with "Fintech is a highly regulated sector".

I made a specific comment that your premise is false. In fact, your premise goes against the founding principle of Fintech, which is that it can do what regulated entities can do but do it faster, better and cheaper than regulated entities because it is not regulated.  

Since I didn't see evidence that you got my specific comment, I gave additional context in my subsequent comment. 

Let me try with some more context.

According to the Indian banking regulator's recent mandate, "Loans must go directly from regulated entities to customer accounts. Loans cannot pass through fintechs."

It follows that fintechs are unregulated. 

QED.

#ProTip: You focus on what to write on a professional forum - Hint: No posts based on false premises - and I'll focus on what to comment on a professional forum.

I have already clarified that Fintech & Financial Services are interlinked and its is a myth that Fintechs are not regulated. Haven't got a clear reply (just some big idealistic big talk). In fact, the example you gave now, on direct transfer of funds to customers and not routing thru payments fintechs, actually proves my point that Fintechs are regulated. If not, why they are unable to conduct this activity as earlier. This is because payments and lending are getting bundled. In fact, most fintechs, operate under some regulatory framework. Sometimes some aspects are loosely defined or maybe not defined (as it may be a new area and regulators are watching, learning and making policies). But, that does not mean Fintechs are out of regulatory purview. 

Also, you have not got the crux of my article and going  round and round, picking some words, putting your context then arguing with some references.

This is what happens, when there is no substance, resort to personal attacks / remarks, Self Righteous and meaningless rant. Which you are clearly doing.

You can clarify all you want but the only thing that matters is what the regulator says and, as I mentioned, its latest announcement clearly implies that fintechs are unregulated entities.

Ok, unlike you (going round and round and arriving at your convinient conclusion, without any rationale / logic). Let me prove my point by being specific.

Give me a name of Fintech which is not regulated?

This was implicit in my previous reference to Indian regulator's recent mandate re. Loan flow. Anyway, to make it explicit: Slice & UNI. 

Again you are spinning your own story, by linking Loan issue of PPI (which RBI has stopped), to make your own conclusion that they are not regulated. 

Both Slice & UNI are regulated entities under PPI (Prepaid Instruments) Guidelines by RBI. So, you are wrong to say they are unregulated. 

My article starts with fintechs being regulated (by creating a background), as that is the reality. It then moves on to recent measures by regulators against certain innovations and grey areas. The article infact provides a solution by having 4 way classification of entities and in a way, this will address many issues and realities of ecosystem, whilst not curbing innovation. One thing regulators are most concerned about is risk. This 4 way classification also classifies key risks between entities. That's why I say, that you have not got the logical flow and crux of the article. Again held on to certain words driven your own conclusion.

As mentioned, healthy counters giving related and specific points are welcome. Not the kind of unwanted / rants, tangential arguments (by linking one issue with another based on your false conclusions) & personal remarks that you resorted to in your arguments. This is unprofessional.

As I said earlier, RBI recently mandated that loan should go directly from regulated entities to borrower and should not pass through loan  provider fintechs slice UNI et al. That shows that slice UNI are not regulated. 

RBI statement is in context of PPI's like Slice & UNI's who are authorized and regulated only for payment purposes. They are regulated entities, but not authorized to lend. They were trying to extend their luck (or say innovate) by trying out BNPL type products, because there is convergence happening between payments and lending. This led to reporting and risk related issues (and many other) for which RBI has clarified that only entities like Banks (as need to be routed thru bank accounts) can lend, as they are monitored for credit risk. This is how regulations evolve.

The use of word regulated entity is in context of the activity they are authorized to do. So, more of tweak in process. This does not imply that Fintechs (like Slice and UNI) are unregulated, as you wrongly understand, interpret and continue to parrot.

Evolve. Tweak in progress. All future tense terms.

So you accept that slice and UNI are *currently unregulated* for their activity of lending. Good. That's what I've been saying all this while.

Moving on, try Neobanks like Jupiter in India, Chime in USA. I contend that they're unregulated fintechs.

Do you still contend that all fintechs are regulated?

Jupiter operates as an NBFC again partnering with banks for Bank accounts. So, it is also regulated.

Chime operates as partner to Stride Bank and Bancorp Bank. Something like a Sales Agent, DSA or BC arrangement in India. Last year it was stopped from using the work "bank" by regulators as it is just an agent of the Bank and not a bank itself. Why did the regulator stop them from using the word bank, if they were not regulated?

Moneycontrol also offered account aggregation services on its site few years back. This was using API's from Yodlee / Intuit. This makes them more of front end providers and that is one classification I have suggested in my article, in order to accomodate and manage such developments with use of Embedded API's in Fintech.

As I said, you are sticking to one word, going round and round by twisting them to your own context, despite being proven wrong everytime. This is what is called being rigid and commie like. 

You've answered your own question: The regulator stopped said fintech from using the term "bank" because the term can only be used by regulated entities, which the said fintech is not.

Moving on to Automated Savings fintechs like Jar in India and Acorn in USA. I contend that they're unregulated. 

My company partners with banks but it is not regulated. Jupiter and Chime partner with banks but that does not make them regulated.

But let that not stop you from claiming that they're all regulated and saying something in support that  eventually contradicts your claim.

You are frequently ending with foot in mouth.

Exactly, your company cannot be a Fintech as your arrangement is not under any structure which is authorized or regulated to offer Financial services related solutions directly to customers, using tech. That is the difference. Fintechs need to be under some form of regulatory arrangement / structure and authorized to conduct that activity. Even Jar in India needs to be either an IFA or RIA (Regulated entities). So they are thereby regulated.

Your shallow logic of how chime has been  stopped, does not mean that they were unregulated earlier. They were trying to be over smart and it has come to notice of regulators, so they are being stopped. There are many informal investment collectives and lending firms operating, that makes them more illegal than unregulated. 

I am not claiming anything unlike you. I am infact suggesting an progressive approach, given the problem arising out of frequent regulatory tweaks and needs, due to evolving ecosystem, where fintechs are regulated but there is still no clarity on many aspects. Thus, a 4 way classification will help.

Your continued mention of so called twisted interpretations, does not prove your point. Rather, it hints to a lack of understanding and appreciation of the topic involved.