Fintech Newsletter: Recent Legal Developments and Market Updates in India-Technology

The Indian fintech market continues to grow and evolve, with the Covid-19 pandemic for consumers, micros, small businesses (“MSME”), banks, and other financial institutions, including rural and remote areas of India. We are accelerating digitization among them. -A time user cohort that was forced to trade digitally during a government-imposed blockade earlier last year has posted a blockade easing and has begun to use digital payment options extensively. In fact, over 2 billion transactions were recorded through the Unified Payments Interface (“UPI”) in October 2020. 1 Growth in the e-commerce sector, teleconsultation, online streaming and distance learning could continue to drive the growing adoption of digital payments in India in the long run.

In addition to the overall goals of a cashless economy by adopting digital payment methods, contactless payments, payment system interoperability, tokenization, cross-border digital payment infrastructure development, India’s global outreach Attention is increasing to such aspects. Domestic payment systems, consumer protection, increasing roles of artificial intelligence and machine learning, and data governance.

This newsletter focuses on key developments in the FinTech sector in India from October 16, 2020 to December 31, 2020.

Recent legislation RBI regulatory sandbox

Product testing at the Reserve Bank of India (“RBI”) Regulatory Sandbox (“RS”) announced last year began with two entities that began product testing on November 16, 2020, with four more entities. The first cohort of products that have begun testing include: (I) eRupaya? , Near Field Communication (“NFC”)-based prepaid cards and point-of-sale (“POS”) device sets Remote offline individuals-merchant (“P2M”) transactions and offline digital products. (Ii) PaySe? An offline digital cash product that helps digitize payments in rural areas through the self-help group ecosystem. (Iii) CityCash? A set of NFC-based prepaid cards and POS devices that facilitate offline P2M transactions, including purchasing bus tickets. (Iv) ToneTag? An offline phone-based UPI payment solution for P2M transactions based on interactive voice responses between devices. (V) A voice-based UPI payment solution by Ubona Technologies that facilitates offline interpersonal (“P2P”) and P2M transactions. (Vi) A product of Eroute Technologies that facilitates offline P2P or P2M transactions using the menu-based user interface of the SIM toolkit. 2

The RBI announced the opening of a second cohort under the RS on the theme of “cross-border payments” through a notice dated 16 December 2020. This is to facilitate technology-driven innovation in cross-border payment situations at low cost. Fast, safe, convenient and transparent system. The RBI has also announced “MSME Lending” as the theme for the third cohort under RS, details of which will be announced at a later date.

The RBI further relaxes eligibility criteria under the Regulatory Sandbox Activation Framework 4 by lowering the net worth requirement from the existing 25 rupees to 10 rupees and allowing partnership companies and limited liability partnerships to participate in RS. did. Interested applicants can apply to the second RS-based cohort from December 21, 2020 to February 15, 2021.

SEBI amends eligibility criteria to allow fintech companies to sponsor AMC.

The Securities and Exchange Commission of India (“SEBI”) decided at its board of directors meeting on December 16, 20205 to relax the eligibility criteria applicable to sponsors of investment trusts (“MF”). This will allow venture-backed fintech companies and other unprofitable tech startups to sponsor and launch mutual funds6. Equivalent to 50 rupees. According to SEBI’s recent decision, sponsors who do not meet the profitability criteria at the time of application are also considered eligible to sponsor an investment trust, provided that their net worth is at least Rs 100. The purpose of contributing to the net assets of the asset management company (“AMC”). It needs to be maintained until AMC is profitable for the fifth consecutive year.

Discussion paper on NBFC scale-based regulatory framework

RBI is currently reviewing the regulatory framework of the NBFC sector, noting the risk profile that changes as a result of the contributions of non-bank financial institutions (“NBFC”) and improved interoperability as a supplementary channel for credit brokerage alongside banks. I will. As a future direction, the RBI pointed out a scale-based regulatory approach related to NBFC’s systematic risk contribution, and a discussion paper was published by the RBI for consultation with stakeholders, 2021. Comments were received by the 22nd of March.

Reserve Bank Innovation Hub

Following the Financial Statement on Development and Regulatory Policy dated August 6, 2020, RBI announced the establishment of a Reserve Bank Innovation Hub (“RBIH”) to promote financial innovation and inclusion.

Through Press Release 8 dated 17 November 2020, the RBI formed a board of directors to guide and manage the RBIH, led by the Chair. RBI has clarified that RBIH will work with financial sector institutions, technology industry and academic institutions to exchange ideas and develop prototypes.

footnote

1.https: //economictimes.indiatimes.com/tech/technology/upi-breaches-2-billion-transactions-mark-inoctober/articleshow/78980584.cms

2.https: //rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR638EE786E4BD1BA41398F49E1E5A3AAE9CA.PDF; https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR829C10F132493024BD197A74FC

3. https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR78734D60FBDEC4B4664B01BD258A1B38BCF.PDF

4. https://rbidocs.rbi.org.in/rdocs//PublicationReport/Pdfs/REGULATORYSANDBOX2333CA3224ED4B7991A2B55DBEFDA 745.PDF

5. https://www.sebi.gov.in/media/press-releases/dec-2020/sebi-board-meeting_48451.html

6.https: //www.business-standard.com/article/markets/sebi-tweaks-eligibility-norms-paves-way-for-fintech-firms-to-set-upamcs-120121601052_1.html

7.https: //rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR72151BDEC79C76948C68A6DE914991CC848.PDF

8.https: //rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR639055B4B014A214E0BB0175390403AF2A6.PDF

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