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Fintech is a portmanteau of ‘Financial’ and ‘Technology’. It refers to innovative digital solutions that automate, improve and provide financial services, such as digital payment apps, mobile banking apps, crypto trading apps, robo advisors and automated insurance services. The fintech sector is the backbone of India’s digital economy. It is one of the largest fintech hubs in the entire world and includes thousands of startups.
If you want to build something in this sector, you can consider starting a fintech startup company. In this blog post, we shall discuss the major legal requirements for starting a fintech startup company in India.
A fintech startup company is one that relies on technology in order to create scalable and innovative solutions for delivering, improving or disrupting financial services. This type of company focuses on making the financial services easily accessible and faster for the users. The fintech startups often tend to operate in areas like digital payments, investment, insurance and lending.
The fintech startups in India mainly provide the following services:-
Digital payment solutions:- It includes mobile wallets, UPI payment apps and payment gateways that allow for cashless transactions.
Online-only banking/Neo-banking services:- It includes providing digital banking alternatives that focus on user experience often in collaboration with traditional banks.
Peer-to-Peer lending (P2P lending):- P2P lending platforms provide a medium where borrowers can connect directly with the lenders. Such platforms are regulated by the RBI.
Alternative credit lending:- It includes using Artificial Intelligence/Machine Learning to provide personal, business and microloans based on alternative credit scoring.
Some of the major legal requirements for starting a fintech startup company in India are described below. In addition to the below-mentioned requirements, there are various other legal requirements, regulatory compliances and approvals that must also be considered depending on the nature of the business. :-
(i) Choosing the business structure:- Before you start your fintech startup journey, you must first select the business structure. There are various structures to choose from. If you want to be the sole shareholder of the startup, you can establish a One Person Company. If you want to operate the fintech startup with two or more shareholders with limited liability, you can go for the Private Limited Company model.
You can also choose Limited Liability Partnership business model if you want to run the startup with two or more partners with limited liability but with much lower compliance compared to a Pvt ltd co.
(ii) Legal Documents:- Every business entity requires certain legal and business documents, depending on the exact business structure. For private limited companies, one person companies and other companies registered under the Companies Act, the important documents include Memorandum of Association, Articles of Association and Certificate of Incorporation. For Limited Liability Partnerships registered under the LLP Act 2008, key documents include LLP agreement and Certificate of Incorporation.
Additionally, businesses require other documents like Privacy Policy, Cookie Policy, Terms and Conditions, User Policy, Employment Agreement, Intellectual Property Licensing Agreement, Vendor Agreement, Product Development Agreement, Non-Disclosure Agreement, etc.
(iii) Licensing Requirements:- The exact licensing norms and regulations totally depend on the exact category of services the fintech startup wants to provide. For providing payment services, the fintech startup must mandatorily register with the Reserve Bank of India. For financial and management services, the fintech must secure NBFC registration from Central Bank.
Fintech companies may also provide insurance related services by acting as Insurance Web Aggregators to compare or sell insurance policies. Doing this requires IRDAI registration.
In addition to the above, approvals from other regulatory bodies like SEBI may be required. Along with this, compliance with KYC, anti-money laundering and data protection regulations will be required as well.
(iv) Registration under GST System:- GST registration is mandatory for businesses if their annual turnover exceeds threshold limits, i.e., Rs. 40 lakhs for goods or Rs. 20 lakhs for services. So, the startup must apply for this registration if its annual turnover exceeds those limits.
Even if the annual turnover doesn’t exceed the threshold limits, it is still recommended to go for voluntary registration to avail benefits like availing input tax credit, easy registration on e-commerce platforms, competitive advantages over other unregistered businesses, etc.
After successful registration, the startup will receive a goods and services tax identification number. This no. serves as an official proof that the business is registered under the GST system.
(v) Trademark Registration:- By law, trademark registration is not compulsory at all. It is completely optional. Even then, it is very important for businesses, especially startups as they deal with innovative ideas and build a unique brand identity. To avoid infringement/misuse by competitors, protecting the brand becomes paramount. Therefore, it is advisable to secure intellectual property protection for elements like website content, app/web design, brand name, logo, brochures, etc., of the fintech startup.
Proper IP registration not only helps in brand protection but also creates a distinct identity in the market. It gives the business the right to take legal action in case of any violation by third parties. Startups with DPIIT registration receive a 50% concession on statutory trademark filing fees. This concession reduces the cost to Rs. 4,500 (e-filing) compared to the standard Rs. 9,000 usually paid by other businesses.
(vi) Certification under Shop and Establishment Act:- Certification under Shop and Establishment Act isn’t an optional certification but rather a mandatory one. It is required by startups operating as commercial entities.
Obtaining the shop and establishment certificate showcases labor compliance and is essential for building the brand reputation. It is also required while opening a bank account for the startup.
Also Read:- Top 10 Fintech Companies in India
Just a great idea or innovative technology isn’t enough to establish a startup. There are many legal requirements that must be fulfilled. After going through this blog post, we hope you’re now aware of some of the most crucial legal requirements for fintech startups in India. Apart from the stated requirements, there are several other requirements depending on the fintech startup’s exact nature of business. The fintech sector is a highly regulated sector. In order to open and then operate a startup smoothly, it is quite necessary that you ensure proper legal compliance, obtain all required registrations/licenses and adhere to applicable regulatory framework from the very beginning.
If you need professional assistance in starting a fintech startup company, you can get in touch with Registrationwala’s experienced company registration consultants. We’ll guide you through the major legal and regulatory formalities and offer full-fledged assistance in obtaining some of the most crucial licenses/registrations.
Q1. What is a startup company?
A. A startup company is an innovative business that usually focuses on scalable solutions’ development.
Q2. What are the examples of fintech companies in India?
A. The examples of some of the leading fintech companies in India are:- (i) Paytm, (ii) PhonePe, (iii) Razorpay, (iv) Groww, (v) CRED and (vi) Zerodha. These companies are quite popular in the fintech sector.
Q3. What is fintech lending?
A. Fintech lending means using financial technology to provide loans to borrowers efficiently.
Q4. Does a fintech startup company need to register with the RBI?
A. Yes. If the fintech startup wants to engage in regulated financial activities, it certainly needs to register with the RBI.
Hi, I'm Sachin Chawla. I’m a commerce graduate from Agra University and a Chartered Accountant (2015) with DISA certification. I focus on helping businesses with formation, management, tax and FEMA matters, business licenses and regulatory compliance, IP advisory, risk management and auditing among others. Through my articles, I aim to share my expertise and provide practical guidance in these areas.
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