As India experiences a digital revolution, new fintech start-ups are developing services to revolutionize the financial industry. This innovative and futuristic spirit of the fintech industry is unfortunately plagued by a myriad of problems. Even though fintech start-ups excel in the fields of customer service and user satisfaction, they are twice more likely to fail than normal start-ups. Some start-ups have satisfactory financial backing and immense potential but still experience failure while others seem to have cracked some magical code to success. A huge fragment of this code contains good legal expertise and seamless legal solutions. To understand this further, let’s look at some of the good and bad legal decisions made by start-ups in the fintech industry.
Legally Cautious Designs
Fintech start-ups exist in a highly legally oriented environment and have to adhere to several regulations to minimize risk for users and to maintain the sanctity of the financial ecosystem. Some of these start ups set themselves up for legal failure by ignoring legal compliance while laying down the foundation of their business. FinTech are impacted by several compliance regulations that include privacy laws, securities laws, money laundering laws, consumer protection and transparency laws. Start ups that survive heavy legal regulation are the ones that have efficient legal strategies from their genesis instead of leaving them as an afterthought in their business plans. These start-up survive the failure plague of the industry by meticulously designing themselves from the grassroots to integrate within the law.
Transparent Customer Data-usage
FinTech also have the responsibility of handling enormous amounts of sensitive data as they deal with the personal and financial data of a large user base. Successful fintech start-ups know how to manage this data as an important resource while abiding with stringent privacy and securities laws. These start-ups have transparent contracts (including terms and conditions) that clearly state the fate of customer data to avoid any legal issues. Transparent contracts about data privacy and usage shows their legal foresight and preparedness which helps them focus on the growth of their business rather than legal discourse.
Navigating Volatile Legal Challenges
The ever changing nature of Indian laws and regulations makes it difficult for fintech start-ups to bloom as this industry has to deal with heftier legalities. That being said, an ignorance of these legalities can lead to severe consequences. FinTech that deal with cryptocurrency have bared the brunt of this problem as they existed in a legal limbo from 2018-2020. In 2018, RBI banned cryptocurrencies stating that it was a high risk investment with no regulations. After a long battle of 22 months, the Supreme Court of India decided to lift the ban as there was insufficient evidence of cryptocurrencies being risky and unregulated. In these two years many crypto start-ups disappeared as they had no legal footing but a few remained. This volatile nature of the law shows us that fintech need precise guidance as they march through legal battles.
The fintech sphere of the financial industry is particularly affected by cybersecurity laws. This exposes vulnerable start-ups to heavy fines and costly legal battles if they don’t possess the legal guidance required to set up good cyber security practices and policies. The presence of legal guidance helps fintech start-ups to have internal policies that navigate and eliminate the legal risk of data breaches. It is important for fresh fintech start-ups to invest in legal expertise from a cybersecurity point of view as it better than getting involved in several lawsuits and acts as a preventative measure.
Good contracting habits and behaviors are the bread and butter of any organization's legal strategy, but these habits are an especially important asset in the fintech world. Fintech companies deal with several types of customers that require different services, and therefore require very different types of contracting strategies. FinTech that possess well-thought-out contracts have an easier time navigating legal rights and liabilities. Conflicts and negotiations that would take several months or even years to be resolved would only take a few days.
Many believe that the financial-tech industry is only1% done and much more is yet to be innovated. As this industry expands, so will the number of newcomers and start-ups. Proper legal guidance will become crucial to support these companies and their revolutionary ideas. Legex can help you navigate the legal path of the fintech world by becoming a vital asset to your legal strategy with their new Online Dispute Resolution platform called RESOLVE. This online platform is the first of it’s kind and helps companies seamlessly resolve legal issues, learn from them and streamline their operational efficiency. Choose Legex for a faster and better legal experience.