FINTECH COMPANY REGISTRATION PROCESS IN INDIA

FINTECH COMPANY REGISTRATION PROCESS

A company providing financial services through the use of software or some other digital technology can be termed as a Fintech Company. Fintech has come from a combination of two words, Finance and Technology. So, when a company offers financial services using technology or technological devices such as the internet, mobile phones, cloud services, or software technologies are known are Fintech Companies.

The Finance and Technology combination has emerged as one of the largest business sectors in the Financial Industry. Fintech is used by Multi-National Companies, Small-scale business industries, and Individual consumers to manage their financial operations better. Earlier, technology was used in Financial Services for back-end services such as to organise day-to-day transactions and handle daily affairs of the company. But it has now evolved and has become a major part of the financial sector. Fintech Industry now operates in every major sector such as Education, Retail Banking, Fundraising, non-profit, etc.

 

WHERE IT ALL BEGAN

The Banking sector started using the Fintech Industry initially for its general operations but as time moved forward the industry saw a rapid change and developed majorly in its operations in different sectors such as the Insurance sector, asset management sector, payment gateway sector, etc. In India,the Fintech sector peeked after the demonetization. 

The major development in the Fintech sector has seen a huge wave of changes in the business dealings and the performance of monetary services. In the 1990s the Industry grew largely after the introduction of the software application PayPal, established in 1998. Likewise in India, the Introduction of PayTm, Google Pay, PhonePay, and other UPI services helped in the growth of this Industry.

However, the growth in Fintech Industry has made the payment experience easier for consumers worldwide. Whether a consumer is buying an online ticket or paying for the food ordered online or making payment after purchasing groceries online, the Fintech Industry has revolutionised the payment method. According to a report by NASSCOM, the Fintech Industry in India is expected to double from the current$1.2 Billion to $2.4 Billion by 2021.

 

FINTECH COMPANY SERVICES

1. CROWDFUNDING PLATFORMS

Entrepreneurs and early-stage business platforms useFintech Software to raise funds from all over the world that allows them to bypass the boundaries and reach the global market and global investors. Entrepreneurs can easily venture into new markets using Fintech Industry as it helps in proceeding funds easily from all over the globe.

 

 

 

2. PEER TO PEER LENDING

Peer to peer is an online platform that directly connectssuitable lenders and borrowers annihilating any kind of intermediates. Peer to Peer services is used for a faster and convenient way to access the required funds.

 

3. MOBILE PAYMENTS

One of the most popular services provided by the Fintech Industry is Mobile applications used for making payments. The applications allow the consumers to keep tap of and carry out all their banking activities without having to visit the bank personally. Some of such platforms popular in India are PayTm, PhonePay, etc.

 

4. RETAIL INVESTMENT

Fintech Companies provide customized financial services to individuals or companies. With an aim to ensure optimal use of finances Fintech Industry works in managing the funds as it is required by the customer. Some of those companies that operatein India are PolicyBazar, BankBazaar, etc.

 

5. INSURETECH

The term Insuretech has been coined from Insurance and technology. The Insurance model is tailored by Fintech software for the customers. It also helps in streamlining the insurance process through online claims filing and policy management.

 

6. REGULATORY TECHNOLOGY (REGTECH)

Regtech offers fast and coeffective management of large amounts of dataincluding transaction records and the required documents such as corporate tax returns.

 

FINTECH COMPANY REGULATIONS IN INDIA

The technological advancement in the Fintech Sector has increased the crime rate in Financial Sector in India. It has increased the responsibility of regulating the Fintech Sector or the Financial Sector. In India, the bodies governing the regulatory aspects of the Financial Industry are, RBI, SEBI, IRDAI, Ministry of Electronics and IT, and Ministry of Corporate Affairs. The Fintech Sector and other such sectors such as cryptocurrency or payments on the other hand are regulated by RBI.  

Some of the legislations are following:

1. REGULATORY SANDBOX

Regulatory sandbox or RS refers to an environment created by the regulatory bodies for live testing the benefits, safety, and viability of the new technology or products released. The companies participating in the RS release their innovation in the protected closed environment to a limited set of customers for a short span of time without worrying about certain constraints and liabilities.

RBI issued the regulatory sandbox framework on August 13, 2009. As per the regulation the companies eligible to participate in RS are Fintech companies, it also includes certain start-ups, banks, financial institutions. The RS is a medium through which it is tested whether an innovation is going to work in the Indian Market.

Some of the benefits of Regulatory Sandbox are that it boosts the Learning by Doing method, it facilitates the testing of products viability at less cost, it also provides a well-structured and institutionalised environment for evidence-based regulatory decision-making.

 

2. PAYMENTS AND SETTLEMENT SYSTEMS ACT, 2007.

This act regulates and supervisesfinancial institutions in India. Under this act, the RBI made two regulations, the Board for Regulation and Supervision of Payment and Settlement Systems Regulations, 2008 (BPSS regulations) and therefore the Payment and Settlement Systems Regulations, 2008 (PPS Regulations).

Under the BPSS regulation policies and settling, standards are prescribed. It also authorises the regulatory body to supervise all the payment and settlement systems in the country.

The PPS lays down the necessary requirements for carrying on a payment system.

 

3. NBFC REGULATION

If a proposed Fintech Company falls under the prescribed criteria by the RBI it will have to register itself for an NBFC license. Under section 45-IA of the RBI Act, it is stated that no NBFC licensed company can carry on their business of non-banking financial institutions without obtaining a registration certificate from RBI.

 

4. REGULATION OF PREPAID PAYMENT INSTRUMENTS

Prepaid payment instruments or PPIs are instruments that facilitate the acquisition of products and services that has financial services, remittance facilities, etc. against the value stored on such instruments.

 

5. REGULATION OF PAYMENT INTERMEDIATES

Under section 18 of the P&SS Act, the RBI issued directions regarding the opening and operation of accounts and settlements of payments for electronic payments transactions involving intermediates. This was regulated to protect the customer’s interest and ensure that the payments made by them are duly accounted for by the intermediaries receiving such payments.

 

 

 

STARTING A FINTECH COMPANY IN INDIA

1. CHOOSING A BUSINESS STRUCTURE

The initial step towards starting a Fintech Company is to decide the most accurate business structure. There are three suitable business structures for Fintech Company in India, Limited Liability Partnership, Private Limited Company, and Sole Proprietorship. It is recommended to chose Private Limited Company as the business structure. In a Private Limited Company, the directors and shareholders of the company have no personal liability towards the creditors of the company as after the registration of a private limited company it becomes an entity of its own with certain rights and liabilities.

2. REGISTERING FOR GST

A finance company is required to register for GST and obtain GSTIN for the business.

 

3. OBTAINING LEGAL DOCUMENTS AND AGREEMENTS

Following legal documents are important to be acquired before applying for registration of the Fintech Company:

1. Co-founders agreement
2. Intellectual Property Licensing agreement
3. Privacy Policy
4. Website User policy
5. Terms of use for mobile application users
6. Vendor agreement
7. Product development agreement
8. Employment agreements
9. The members and shareholders of the proposed company have to give an affidavit on stamp paper.
10. The proof of office address, rent agreement if the office is rented.
11. Passport size photo of the directors.
12. ID proof of the directors, i.e., Passport, Driver’s License or, Voter ID card.
13. Self-declaration of the proposed director of the company.
14. Aadhar Card.
15. PAN Card.

 

4. OBTAINING INTELLECTUAL PROPERTY

Intellectual Property Rights (IPR) includes copyrights, Trademark, Patent, anddesign. A Private Limited Company registering for a license has to protect its brand names, the company logo, website, etc. All these can be obtained after registering in their respective government offices.

 

5. LICENSING

The proposed company has to procure a license for the type of service it is going to provide. Following are the licenses required:

1. Payment Service: ‘Differentiated Banking License’ has been introduced by RBI to issue Tap-on for the businesses that want to start banking services. To procure a license for this the applicant can apply for registration with RBI.
2. Retail Service Providers: License to carry out lending and depositing services for all the micro, small or medium industries.
3. Financial Management: The RBI has regulated that fintech companies shall be registered as NBFCs.