Regulation will provide a tailwind for fintechs: Elevation Cap

Mumbai: Elevation Capital (formerly SAIF Partners), which has sizeable investments in the fintech sector, said that regulation is positive for the fintech segment and prepares the ground for them to scale and sustain their business.

“We welcome regulation. While getting a regulatory blessing may make your task tougher and longer, it provides a nice runway to scale. We feel that regulators in India are very forward-looking. Sometimes, these feel like dislocation events. But these are necessary adjustments to the ecosystem,” said Mridul Arora, partner at Elevation Capital.

The venture capital firm has been an early investor in India’s fintech and financial services sector. Its investments in this segment totalled $ 500 million. The firm is the largest institutional investor in Paytm. Their portfolio includes companies such as Acko, NSE, axio, Dezerv, Karur Vysya Bank, Mintifi, and Muthoot Capital.

Although fintech’s started operations outside the ambit of regulation, the Reserve Bank of India (RBI) has started regulation of fintechs by starting to licence them as payment service providers and also bringing in rules for digital lending.

Arora was speaking at a roundtable to discuss the firm’s insights from a survey across the sector. According to the study, Fintechs will play an outsized role in the country’s economic and social aspirations for the next decade.

According to Arora, regulation is also a part of the evolution as fintechs achieve scale, and the boundaries between them and players in financial services are blurring. “The regulations are coming from the standpoint of customer protection, customer privacy and ensuring that the money flows are legitimate,” he said.

Bhaskar Vaas, principal at Elevation Capital, said that the regulatory developments in the last 18 months have been fairly nuanced, and they provide some tailwind for fintechs as many of the compliance and customer protection requirements can be achieved only through technology. “In the area of partnership between regulated entities and fintechs, directions make it clear what each of them can do,” Vaas said.

On the scaling up of fintechs, Arora said that it was unlikely that there would be very large monopolies as segments like lending, insurance, or wealth will not have a winner-take-all model. Still, players will find their niche in some businesses, which may be oligopolistic. “But the beautiful thing about fintech is that every five or ten years, there is an innovation,” said Arora.