India breaks unprepared fintechs in weeks

Growth means taking risks, but they should be thought out. And it’s kind of surprising that people don’t talk more about the connection between growth and risk.

Especially in high-pressure industries like fintech. It’s important to know the difference between making informed choices and just winging it.

One big mistake I often see in fintech is thinking that if a company does well in one area, it’ll do just as well somewhere else.

For example, a company that’s doing great in Europe, making solid money and has a well-developed product, might think, “Let’s just expand to India."

But going international is way more than just setting up a business, hiring a team, and changing the platform for the Indian Rupee (INR).

A major thing that often gets overlooked is the legal side of things.

Getting a Grip on Regional Differences

India’s regulations are pretty different from what you’d find in Europe. What’s okay legally in one place could be a total headache in another.

Here are some key points to keep in mind:

- Local Data Storage Rules: Regulations often require that data about Indian customers needs to be stored in India.

- Getting RBI Approvals: Before you can work as a payment aggregator or dive into other financial services, you need the green light from the Reserve Bank of India (RBI).

- KYC and AML Compliance: The rules around Know Your Customer and Anti-Money Laundering can be tougher than in many Western countries, meaning you’ll need to verify customer identities thoroughly and keep a close watch on financial transactions.

- Licensing for Payment Aggregators: You need to meet specific licensing requirements to operate legally.

- Currency Rules: Get familiar with the laws around currency exchange and transactions in India.

- Who Owns Customer Data: It’s important to know who legally owns customer data and what the privacy laws actually mean.

These are crucial factors that can seriously impact how your business runs.

The Goal: Smart Risk Management, Not Just Playing It Safe

The focus shouldn’t just be on avoiding risk; it should be about making smart choices.

So, what are some practical steps to ensure you execute well when moving into a complicated market like India? There's a few that I suggest.

1) Know the Rules Before You Jump In

First off, dive into the rules set by the RBI, especially those about payment aggregators. These guidelines cover key points, like licensing, required capital, and ongoing compliance.

Make sure you get a good grasp on KYC (Know Your Customer) and AML (Anti-Money Laundering) rules, as they tend to be stricter than what you might find in many Western countries.

Check if your current business model fits within what's allowed in India, noting that some services - like wallet-based ones or cross-border transactions - might face extra hurdles.

2) Figure Out Your Strengths and Weaknesses

Take a good look at your compliance capabilities. For instance, if your business is already GDPR compliant or has PCI DSS certification, see how you can use those advantages to meet Indian regulations.

At the same time, identify where you might be lacking. Ask yourself some key questions:

Do you have the setup for local data storage? Can you meet the RBI's minimum net worth requirements? Is there a local compliance officer on your team?

It’s a smart idea to do a “regulatory gap analysis” with an experienced local legal or compliance expert before moving forward.

3) Build Local Partnerships Early

Get in touch with Indian banks or Non-Banking Financial Companies (NBFCs) sooner rather than later.

These partnerships can really help with settlement and compliance needs, which are often crucial for getting the licenses you need and speeding up the approval process.

You can also hire local legal and regulatory consultants who really know their stuff about RBI, SEBI (Securities and Exchange Board of India), and relevant data protection laws.

Their insight can be invaluable in helping you navigate the compliance maze.

4) Localize Your Operations and Contracts

Make sure to implement local data storage and ensure that your tech setup meets India’s data localization requirements.

Also, don’t overlook the importance of drafting contracts that fit India’s legal landscape with banks, merchants, and customers.

These contracts should cover important topics like liability, dispute resolution, and data privacy according to Indian law.

5) Test the Waters Before Going Big

Before you dive into a full-on launch, think about running some pilot programs or limited launches.

These will give you the chance to gather feedback from Indian users and merchants, helping you tweak your product and pricing strategies as well as improve your compliance processes based on real-life experiences.

6) Stay Informed and Flexible

India's regulatory landscape can change a lot, so it’s essential to stay updated.

Sign up for RBI circulars and any news about fintech regulations. Make compliance reviews a regular part of your quarterly planning, so you’re always ready for new rules that might come up.

Final Thoughts

Taking smart risks doesn’t mean being slow. But you have to make informed choices. Before taking any important steps, be sure to:

- Understand the regulatory landscape.

- Evaluate the risks involved.

- Know the operational rules.

Being bold doesn’t mean being reckless, and rushing in the wrong direction won’t get you any closer to success.

Instead, approach new markets carefully, with a clear plan for where you want to go.