Have the disruptors been disrupted?
Change is the only constant in life. For the last few years, "Disruption" has been the buzz word in every business, more so, in financial services. Armed with the new age technologies like Blockchain and Artificial Intelligence (AI), the tech savvy new generation of entrepreneurs, who are ready to think out of the box and take bold initiatives, suddenly changed the rules of the game. A spurt in "fintech" companies, engaged in providing online financial services, has ensured easy accessibility, greater customisation and reduced cost of operations. However, with the regulatory framework not being able to cope up with the fast-changing new business models, there has been a raging debate on how to bring these activities under the preview of financial regulation. A classic example has been the business of peer-to-peer lending. It took two years for regulator Reserve Bank of India to come up with a regulatory structure for P2P lenders. Some of the prescribed norms took the participants by surprise and seemed imprudent and irrelevant to them. But with the regulator showing willingness to discuss, debate and evolve the regulations, it seems to have found general acceptance. In order to ensure compliance to Prevention of Money Laundering Act 2002, all fintech players have been using the "e-KYC" route, which is based on online authentication and verification of their customers based on his/her aadhaar. These fintech players have been using aadhaar number of their customers to electronically verify the customer details with the biometric verification available with UIDAI. September 26, 2018 was the day when the fintech companies faced perhaps their biggest challenge. In a landmark judgment on the legality of Aadhaar and its use, the Supreme Court ruled that private companies are prohibited from asking and storing the aadhaar details of any individual. This means that the entire practice of "e-KYC" using the customers' aadhaar has been prohibited by the Supreme Court. This order will have a great impact on all services being provided by private companies which had been using customer's aadhaar as the basis for customer identification/ verification. This order has also addressed fears that such use of individual's aadhaar by private entities has the potential to compromise on individual's privacy and also exposes an individual to a greater risk. As things stand today, all fintech players, who have been the flag bearers of "disruption", have themselves been disrupted. One court order seems to have dealt a big shock and highlighted their over dependence on one single parameter i.e Aadhar. With access to Aadhar taken away, this is a true litmus test for these technology-based business models. If they are able to take this challenge head on and quickly find alternatives (which do not violate the Supreme Court Order) without compromising majorly on their strengths (easy reach and low cost), it shall be a watershed moment for the fintech sector and shall give a huge impetus to their growth. The ball is now in their court and they need to act and act quickly, otherwise, they themselves shall become victims of what they stand for i.e Disruption.