Hello everyone,

Welcome to the 112th edition of The Pattern, a weekly newsletter where we dive into the latest from the world of finance, economy and technology. Let’s get started.

Late last week, RBI released the final the framework for self-regulatory organisations in the fintech sector (SFO-FT). It's great news for the booming fintech space, no doubt. For one, it can provide players with concrete, regulator-backed governance that encourages industry best practices. It could also equip fintechs with a robust roadmap to navigate their ultimate goal of sustainable profits — something that several players have struggled with in the past. (I’d written about it at length in a previous newsletter ).

All in all, the final framework seems solid. Here are a few pointers that stood out for me:

• Recognising that the fintech space is vast with players spanning services, functions, and niches, RBI allows fintechs membership in more than one SRO.

• RBI acknowledges the dynamic nature of the business. As such, it notes that the framework must be "imaginative, adaptive, flexible, and proportionate to the perceived risks” and “activity-based, risk-based, scale-based and phased-in".

• The self-regulatory bodies are encouraged to foster an environment of compliance by bridging the gap between their member fintechs and the RBI. The apex bank notes that SRO should have “adequate powers to investigate and take disciplinary action against its members for non-adherence to codes / standards / rules”.

• The role of SRO-FTs is manifold. They can arbitrate disputes, bridge skill gaps, guide early-stage entities, and facilitate forward-looking policy building, and more. The report also notes that the SROs should contribute to “a more robust, competent, and mature FinTech ecosystem”.

The last point, to me, was especially noteworthy. More so because another piece of news from the RBI annual report caught my eye recently. The number of bank frauds in FY 24 rose by 166% to 36,075 from 13564 the previous year. As alarming as this sounds, the value amount involved gives us some respite. It fell by 46.7% from INR 26,127 crore to Rs 13,930 crore. Meaning that the volume of frauds continues to be on the rise, albeit of smaller value.

Indian Banks' Association chairman M V Rao had an interesting point to highlight in this regard. Here’s what Mr. Rao had to say:

"When you look into the root cause of these frauds, it's not that they are committed by breaching bank systems, but rather someone has perpetrated the fraud on the bank's customers. So, at the end of the day, my customer has lost. Ultimately, it is up to the bankers and the industry to ow we can protect the customer's interests."

To me, this sounds like a fintech opportunity. Mitigating fraud at a customer level is the need of the hour, after all. While fintechs have been taking a crack at tackling fraud risks within banking systems, there’s not as much being done when it comes to preventing customer fraud. Sure, it’s a complex and nuanced problem, but that hasn’t stopped fintechs from finding solutions before.

For starters, solving the customer-fraud problem will require collaborative effort across tech, policy building, and institutions. And SRO-FTs seems to be at the perfect intersection of all three. With RBI looking at these bodies as a conduit for innovation and a facilitator of specialised knowledge and expertise, can they be the answer?

The customer fraud piece aside, these self-regulatory bodies are sure to bring the fintech industries much-needed structure. But can they also serve as incubators of innovation and address crucial problems that plague the industry? Time will tell. And I, for one, will be watching closely!

Thats's all from me this week — leaving you with some numbers and reading recommendations.

Between the digits:

• INR 13,930 crore: The total amount involved in frauds in 2023-24

• USD 90 million: Funds raised by Fibe in their series E round

• 39%: Increase in year-on-year net profit in the banking sector

Reading list:

• Binance Discontinues Cash Payment For P2P Trades In India: Report

• What does the new government have in store for fintechs?

• RBI pushes asset reconstruction companies to strengthen KYC compliance

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on Twitter here and follow FinBox on LinkedIn to always get all updates.

Cheers,

Mayank