Fintech (compliance costs) to the moooon 🚀🚀🚀 | Edition #38 - 26th Sept, 2021

Evaluating the rising cost of compliance for fintech startups, India's Plaid for Mutual Funds moment, new SMB finance product launches and round up of SEA news.

Hi Insiders, Osborne here.

Welcome to the 38th edition of Fintech Inside. Fintech Inside is the front page of Fintech in emerging markets.

Compliances for fintech startups have been rising and associated costs have also been rising. Cost of compliances are only expected to rise. This is impacting founders and their startups. This week I take a look at compliance, costs, impact and future.

India’s Registrar and Transfer Agents (RTA’s) launched Plaid for Mutual Funds - MFCentral. New SMB finance products were launched. And a round up of all updates from South and South East Asia.

This was a bumper funding week for fintech startups in Asia. 10 Indian fintech startups announced raising $162mm (excluding two with undisclosed amounts). 9 fintech startups in Asia (ex. India) $716mm (excluding two with undisclosed amounts)!! A Pakistani fintech raised Pakistan’s largest seed round of $12mm.

In other news: NITI Aayog, an Indian think tank, released a report on urban planning. Per the report, more than 50% of Indians live in an urban setting but only 3% of India's landmass is occupied by cities. Further, cities contribute to 60% of India's GDP.

If you’re an early-stage fintech startup founder raising equity or debt, I may be able to help - reach out to

If you’re an early-stage fintech startup founder raising equity or debt, I may be able to help - reach out to

🤔 One Big Thought

Fintech (compliance costs) to the moooon 🚀🚀🚀

Crypto reference aside, cost of compliance - both time and money, seem to be on the rise! Fintech founders, especially early stage ones, put on a brave face when speaking externally but the burden of complying with the dozens of rules and regulations can be arduous. When I started to write this post, it was mainly out of empathy for founders. Little did I know that the size of the compliance systems market globally is $181-214bn and financial firms spend anywhere between 6-10% of their revenues on only managing compliance. Interestingly, 58% of the compliance cost is toward labour, the rest toward tech. The EU released a report stating that EU financial firms spend about 3-5% of revenue on compliance.

What is this compliance you speak of? At least in India, every startup has to comply with the bare minimum Companies Act of 2013, FEMA, Direct and Indirect Tax laws and more. Companies Act itself is a labyrinth that just keeps getting more complicated as the years pass. But if you're a fintech startup, you better learn to love regulations and responses to regulators. Worse if you're a licensed entity. KYC, AML, solvency, data privacy, data security, data localisation, NBFC regulations, SEBI RIA/broker regulations, IRDA broker/web aggregator regulations, taxation, legal and many, many more. Not forgetting the soon to be approved Personal Data Protection and Consent laws. Once you're done complying with all the regulations, there's audits and certifications to be done by everyone you can think of - regulators, card networks, payment security companies, bank and NBFC partners and more.

All this sounds like a drag and its intended to be this way. Regulation is a response to bad actors. Regulation exists to protect the consumer, to limit bad actors from damaging the financial lives of consumers. In India we've had our fair share of bad actors. Unfortunately, this also has an impact on the good actors and the cost (compliance time and money) of bad actors is shared by everyone in the ecosystem. Regulators don't dole out licenses easily because in the wrong hands it can be misused.

How does this impact fintech startups? If you're just starting up in fintech you can get away with non-compliance, but the problems for non-compliance from the start compound as you scale. Compliance doesn't come cheap. Legal fees to get opinions, alone can be crippling. This basically means, funding rounds need to account for these compliance costs. Getting licenses also have a huge cost of both time and money. Some fintech's I know have been waiting over 2 years to get an NBFC license! Other insurance company applicants have waited over 4 years (and now pivoted).

Second order effects of the burden of compliance is that consultants are being overworked. Tax and Legal consultants have for years been overworked - any one partner might be working on at least 3-5 deals concurrently. With increasing regulations, their workload is only going to increase. As the workload increases so does the margin for error. This increased error margin will be detrimental to fintech startups. Consultants typically take a Management Rights Letter which basically says that the consultant is depending on the information provided by the company. Eventually, the buck will stop at the founder.

Unsolicited advice: If you're a founder reading this, avoid using a "cheaper" consultant thinking it will save money. The risk and cost of non-compliance in the future is far greater than short term savings.

Are there any startups solving for compliance? If you're looking for a tech startup that solves compliance problems - I haven't come across any meaningful startups (I may be wrong here). It seems in India this will continue to be a problem solved by humans with some light tough SaaS platforms or internal tools. The reason why I don't think tech can really solve this is because each startup/case has a certain degree of permutation and combination. Documentation in India is non-standard as well. Further, filings with MCA or other regulators is also an offline process, there's no API you can use to integrate with MCA for example. So even if standardisation is brought in, there will continue to be an offline/manual process. This all, of course presents an opportunity - it's non-sexy and non-trivial.

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3️⃣ Fintech Top Three

1️⃣ KFintech and CAMS India launched MFCentral for mutual fund investors

KFintech and CAMS, the only Registrar and Transfer Agents (RTA), launched MFCentral - SEBI-mandated, common platform for mutual fund investor services. Earlier in July, 2021, SEBI asked these RTA's to form a joint platform to enable seamless flow of mutual fund investment data as a service to investors.

Takeaways: Well, that was fast. Two months to launch a platform? When SEBI made the announcement in Jul, 21, Fintech Inside covered its implications. For the uninformed, a mutual fund will typically work with one of the two RTA's and all data would be shared with that one RTA. If a user wanted to access its investment data, they would have to pull this data by visiting KFintech or CAMS individually. With MFCentral a user can manage their entire investment information in one place.

MFCentral today has limited features including see full MF portfolio, change email/mobile details, consolidate folios, change nomination and correct any folio details. By 31st Dec, 2021 the full platform with transactions will go live. With MFCentral, no more forwarding MF statements to your wealth apps. All of that data is now consolidated in one place. MFCentral is effectively India's Plaid for Mutual Funds.

2️⃣ New SMB loan products launched in India

Zomato partnered with InCred to launch zero fee, working capital loans for its restaurant partners. Flipkart Wholesale partnered with Davinta Financial to launch BNPL for its SMB merchants.

Takeaways: Both these are embedded/pre-approved financial products available with a few clicks. It's great to see big brands embedding financial services as part of their core offering. As we near festive season in India, we can expect more such partnerships to drive SMB productivity. Zomato's offering will be available to 50,000 restaurant partners that face working capital issues. Flipkart's offering will be available to 1.5mm SMB's that purchase in bulk from Flipkart.

SMB finance has been relatively contained despite worse Covid 2nd wave in Apr-Jun 2021. Public sector banks reported Gross NPA's of 7.3% and private sector banks reported 3.3% during the Apr-Jun quarter this year.

3️⃣ South and South East Asia Fintech round up

  1. China's regulators banned all crypto trading and mining.

  2. Singapore is expected to launch new licensing regime for cyber security providers by 2022.

  3. Fraction, a Thai fractional real estate investment platform, received its final regulatory approval to launch its service.

  4. PayMaya, a Philippine, Tencent-backed payments platform, received its digital bank license in the Philippines.

  5. Report suggests that embedded wealth opportunity in APAC is ~$32bn.

  6. Bhutan is expected to pilot its carbon-neutral CBDC with Ripple.

  7. InvestaX launched a Securities Token Exchange as part of Singapore's MAS Fintech Sandbox.

  8. 9 fintech startups in Asia (ex. India) $716mm (excluding two with undisclosed amounts).

Takeaways: China's actions to ban cryptocurrency are surprising - never (that I know of) has a financial security been banned. But it seems to be abundantly clear that governments and central banks want to centralise cryptocurrency. Almost every central bank, now including Bhutan, is working on testing its own version of a CBDC. What's more is Singapore seems to be the only country that wants to regulate crypto platforms in the same way they do a stock exchange. They've been proactive about launching Crypto Exchange licenses and have a few platforms as part of their regulatory sandbox as well. Singapore is clearly showing the way for crypto regulation. Fraction, the Thai blockchain startup for fractional real estate investment, getting its license from the Thai regulator also signals regulators warming up to differentiated use cases of blockchain.

Singapore is also being proactive when it comes to cybersecurity. They plan to launch a cyber security license by 2022 enabling only licensed entities to offer cyber security services. I don't know all the details here but I think this may be a good thing, given Singapore is the hub for financial services. Financial services, especially payments is becoming instant and directly from the bank and the need for cybersecurity will only be more pronounced in the future.

Lastly, What an incredible week for fintech startups in Asia (ex. India). 9 startups announced raising $716mm. Even if you remove the one startup that raised $400mm, $316mm is massive. A fintech raised Pakistan’s largest seed round of $12mm. In India, 10 fintech startups announced raising $162mm (excluding two with undisclosed amounts).

Looking for the news digest? Read all the week’s fintech news and updates in India and SEA over at This Week in Fintech - India and SEA Edition. You can also find our US, Global and European coverage.

🏷️ Notable Nuggets

  1. Decentralised freedom fighters🕊

  2. Wall Street Influencers Are Making $500,000, Topping Even Bankers

  3. Coatue: The cub on the prowl

  4. Ransomware payments made in half of global attacks; 87% of U.S. targets paid up, against 33% in Japan, survey finds

  5. 6 thoughts on India’s Gen Z from 2am VC

  6. The Fintech Cauldron- Loan Risk Calculation in SME Lending

  7. What is a Managing General Agent (MGA) in insurance parlance?

👋🏾 That's all Folks

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