Fintech Verticals in India
Fintech in India encompasses various specialized verticals including lending technology, insurance technology (InsureTech), and wealth technology (WealthTech). Each vertical has unique regulatory requirements, business models, and compliance frameworks under RBI, SEBI, and IRDAI regulations.
Fintech Ecosystem Overview
- Lending Tech: P2P lending, digital lending, BNPL, supply chain finance
- InsureTech: Digital insurance distribution, claims tech, underwriting automation
- WealthTech: Robo-advisory, investment platforms, portfolio management
- Account Aggregators: Consent-based financial data sharing framework
- Regulatory Sandboxes: RBI, SEBI, IRDAI innovation frameworks
Fintech Sub-Sectors
Lending Tech
Digital lending platforms, P2P lending, BNPL solutions, invoice discounting, and credit scoring.
InsureTech
Digital insurance brokers, web aggregators, insurance marketing firms, TPA services.
WealthTech
Investment advisory, portfolio management, robo-advisory, mutual fund distribution.
Lending Tech: NBFC-P2P License
Peer-to-Peer (P2P) lending platforms require RBI approval as NBFC-P2P. This license allows platforms to connect lenders and borrowers without taking balance sheet risk.
NBFC-P2P Requirements
Capital Requirements
- • Net Owned Fund (NOF) of ₹2 crore minimum
- • Must be maintained at all times
- • Cannot accept deposits from public
- • Only facilitates lending between registered participants
Operational Restrictions
- • Leverage ratio capped at 2 (cannot exceed 2x NOF)
- • Maximum exposure per lender: ₹50 lakh
- • Maximum loan per borrower: ₹10 lakh
- • Maximum tenure: 36 months
- • Cannot provide guarantee or assure returns
Escrow Account Mechanism
- • Two escrow accounts mandatory (one for funds inflow, one for outflow)
- • Maintained with scheduled commercial bank
- • Trustee arrangement for fund security
- • Platform cannot touch customer funds
Application Process
Apply through RBI COSMOS portal. Requirements: Detailed business plan, IT infrastructure documentation, promoter background verification, risk management framework, cyber security policy. Processing time: 3-6 months. Physical presence not required.
InsureTech Licensing
Insurance technology companies require IRDAI licenses based on their business model. Different licenses apply for brokers, web aggregators, and marketing firms.
Types of InsureTech Licenses
| License Type | Deposit/Net Worth | Activities |
|---|---|---|
| Insurance Broker (Direct) | ₹50 lakh deposit | Sell insurance from multiple insurers |
| Insurance Broker (Composite) | ₹75 lakh deposit | Life + Non-life insurance |
| Web Aggregator | ₹25 lakh net worth | Compare and display insurance products |
| Insurance Marketing Firm | ₹10 lakh net worth | Act as corporate agent |
| TPA (Health Claims) | IRDAI approval | Process health insurance claims |
Compliance Requirements
For Brokers
- • Principal officer qualification (III exam)
- • Minimum 2 trained salespersons
- • Professional indemnity insurance
- • IRDAI registration renewal
For Web Aggregators
- • Display all insurers without bias
- • Customer consent for data sharing
- • Transparent comparison parameters
- • Grievance handling mechanism
WealthTech & Investment Advisory
WealthTech platforms dealing with investments require SEBI registration based on services offered. Different registrations apply for advisory, research, and portfolio management.
Investment Adviser (IA) Registration
- • Individual: ₹1 lakh net worth, NISM certification
- • Corporate: ₹50 lakh net worth, principal officer qualification
- • Fee-only model (no commission from products)
- • Fiduciary duty to clients
- • SEBI RIA regulations compliance
Research Analyst (RA) Registration
- • For providing research reports and recommendations
- • NISM Research Analyst certification required
- • Disclosure of holding and conflict of interest
- • Net worth: ₹1 lakh (individual), ₹25 lakh (corporate)
Portfolio Manager Registration
- • Minimum net worth: ₹5 crore
- • Minimum investment: ₹50 lakh per client
- • SEBI PMS regulations compliance
- • Separate custody of client assets
Mutual Fund Distribution
- • AMFI Registration Number (ARN) required
- • NISM Series V-A certification
- • KYD (Know Your Distributor) compliance
- • No net worth requirement
Account Aggregators (AA)
Account Aggregators are RBI-licensed NBFCs that enable consent-based financial data sharing between Financial Information Providers (FIPs) and Financial Information Users (FIUs).
NBFC-AA License Requirements
- • Net Owned Fund of ₹2 crore minimum
- • Cannot undertake any other financial activity
- • Consent-based data sharing only
- • Cannot store or use data for other purposes
- • Must connect to FIPs (banks, NBFCs, etc.)
- • Serve FIUs (lenders, wealth managers, etc.)
AA Ecosystem Participants
- • FIPs: Banks, NBFCs, insurers, mutual funds
- • FIUs: Lenders, advisors, analytics companies
- • AAs: Licensed account aggregators
- • Sahamati: Industry alliance managing AA
Use Cases
- • Digital loan processing
- • Personal finance management
- • Wealth advisory
- • Cash flow-based lending
- • Financial data analytics
Common Fintech Compliance
All fintech companies must comply with various regulations regardless of their specific vertical.
Cyber Security Framework
- • RBI cyber security framework for NBFCs
- • SEBI cyber security guidelines
- • ISO 27001 certification recommended
- • Regular security audits mandatory
- • Incident reporting to regulators
Data Localization
- • Payment data must be stored in India
- • Mirror copies allowed abroad
- • Personal financial data protection
- • Cross-border transfer restrictions
KYC/AML Compliance
- • Customer due diligence mandatory
- • Video KYC for remote onboarding
- • Transaction monitoring systems
- • Suspicious transaction reporting
Business Continuity
- • Disaster recovery planning
- • Service level agreements
- • Backup and recovery procedures
- • Crisis management protocols
Costs and Investment
Fintech licensing and operations require significant capital investment, particularly for regulated entities.
Capital Requirements
- • NBFC-P2P: ₹2 crore NOF
- • NBFC-AA: ₹2 crore NOF
- • Insurance Broker: ₹50-75 lakh deposit
- • SEBI RIA (Corp): ₹50 lakh net worth
- • PMS License: ₹5 crore net worth
Setup Costs
- • Company incorporation: ₹15,000-25,000
- • License application fees: ₹1-5 lakhs
- • Professional fees: ₹5-20 lakhs
- • Technology platform: ₹1-10 crores
- • Compliance setup: ₹10-50 lakhs
Annual Compliance Costs
Regulated fintechs typically spend ₹50 lakhs to ₹2 crores annually on compliance including: Regulatory reporting, audits (statutory, internal, cyber), legal retainers, compliance personnel, technology security updates, and professional fees.
Frequently Asked Questions
What is the difference between NBFC and NBFC-P2P?
NBFCs lend from their own balance sheet while NBFC-P2P only facilitates lending between registered lenders and borrowers. P2P platforms cannot take balance sheet risk, guarantee returns, or lend their own funds. Capital requirement for NBFC-P2P is ₹2 crore vs ₹10 crore for regular NBFC.
Can foreign fintechs operate in India?
Foreign fintech options: 1) Liaison Office (no commercial activity), 2) Branch Office (with RBI approval for NBFC activities), 3) Indian subsidiary (most common - incorporate company and get licenses), 4) Investment in existing Indian fintech (FDI allowed up to 100% in most fintech), 5) Partnership with Indian licensed entity.
What is the RBI Regulatory Sandbox?
RBI Regulatory Sandbox allows fintechs to test innovative products in a live environment with relaxed regulations. Duration: 6-12 months. Eligibility: Entities must meet fit and proper criteria. Focus areas: Retail payments, digital KYC, wealth management, etc. Applications accepted through RBI portal.
How long does it take to get NBFC-P2P license?
Typical timeline: Application preparation (1-2 months), RBI review (3-4 months), Clarifications and additional information (1-2 months), In-principle approval (1 month), Compliance and final approval (1 month). Total: 6-9 months depending on application quality and RBI queries.
Key Takeaways for Fintech Business
Licensing Essentials
- ✓ NBFC-P2P: ₹2 crore NOF, RBI license
- ✓ Insurance: IRDAI broker/aggregator
- ✓ Investment: SEBI RIA/PMS
- ✓ Account Aggregator: RBI NBFC-AA
Compliance Priorities
- ✓ Cyber security framework
- ✓ Data localization
- ✓ KYC/AML procedures
- ✓ Regular regulatory reporting