Restrictions on FinTech Companies in India: Best Corporate Lawyer Advice in Delhi NCR
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Financial technology (“FinTech”) companies provide financial aid, planning, and management services to other businesses and individuals replacing the traditional method of providing financial services and banking. The FinTech companies in India are growing rapidly, and it is expected to reach phenomenal growth in the upcoming years but there are some restrictions too that are becoming an obstacle to FinTech company’s growth.
Restrictions on FinTech Companies in India
Starting with the fact that there are too many regulations and that too is fragmented, there is no single legislation for Fintech companies to resort to. These regulations in a way put restrictions on these start-ups or companies. These restrictions are elaborated as under-
Pre-Paid Wallet Issuers– Pre-paid instruments (PPIs) facilitating FinTech services are regulated by the Reserve Bank of Bank (RBI). As said earlier too many restrictions become a restriction on the entity. As per the new Master Direction of RBI on Pre-paid issuers, for issuing PPIs in India, there are the eligibility criteria that need to be followed by the FinTech companies. First, the FinTech company needs to obtain a certificate of authorisation from RBI to issue PPIs in India, and the condition to obtain this certificate of authorisation is-
– A minimum positive net worth of rupees 50 million and by the end of the third financial year before receiving the final certificate of authorisation, such entity must have a minimum positive net worth of rupees 150 million.
This regulation must be complied with by the FinTech company. Only after achieving the prescribed net worth, the FinTech company will get the certificate of authorisation from RBI and then will be able to issue PPIs.
Payment Aggregators– According to Payment Intermediary Guidelines, the entity will only be able to obtain a certificate of authorisation from the RBI if the entity at the time of applying for such authorisation certificate has a minimum net worth of rupees 150 million. Not only that but the final certificate of authorisation will be received when after the end of 3 financial years the entity must have a minimum positive net worth of rupees 250 million. This regulation must be complied with by the FinTech company. Only after achieving the prescribed net worth, the FinTech company will get the certificate of authorisation from RBI and it shall also be maintained at all times thereafter (after achieving a minimum positive net worth of rupees 250 million).
Non-Banking Financial Companies (NBFCs)– Any entity which carries out FinTech business that falls within the prescribed eligibility criteria must register itself with RBI as NBFC. The point to be noted is that no NBFC can commence or carries out the business without obtaining the certificate of registration for RBI and without having a net owned fund of Rs. 25 lakh and not exceeding Rs.1 billion as given under the section 45-IA of the RBI Act. It is further clarified by the RBI that a company is said to be engaged in the principal business of non- banking financial institution if having financial assets which amount to more than 50% of its total assets and income generated from such financial assets amounting to more than 50% of gross income.
Cap on Transaction UPI- Volume- based transactions cap on UPI payments or transaction is also a kind of restriction of FinTech companies. On November 5, 2020, the National Payments Corporations of India (NPCI) issued a circular. As per this circular, service providers bank and third- party app providers (TPAPs) are to ensure the volume of UPI transactions processed by these TPAPs does not exceed more than 30% of total transaction volume in the UPI network during the preceding 3 months on a rolling basis.
Compliances or regulations like these although regulating the FinTech industry in India discourage the FinTech Start- ups as they are first of all fragmented and then too much hard to follow up with. And also, the non-compliance results in disrupting business activities, tarnishing the reputation, dissipating the trust of customers in the company and heavy penalties.
Conclusion
Too many restrictions discourage the new Start- ups as well as slow down the growth of that sector resulting in inconvenience and people opting for the traditional methods of providing financial services but it at the same time tries to safeguard the interest of individuals and businesses. Therefore, restrictions in face of regulations are also important and shall be abided by.
Authored By: Adv. Anant Sharma & Anjali Swami
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