Chander Mohan Gupta

Gagandeep Kaur Editors

E-banking,
Fintech, &
Financial
Crimes
The Current Economic and Regulatory
Landscape
E-banking, Fintech, & Financial Crimes
Chander Mohan Gupta • Gagandeep Kaur
Editors

E-banking, Fintech,
& Financial Crimes
The Current Economic and Regulatory
Landscape
Editors
Chander Mohan Gupta Gagandeep Kaur
Faculty of Management Sciences School of Law
Shoolini University of Biotechnology University of Petroleum and Energy
and Management Sciences Studies (UPES)
Solan, Himachal Pradesh, India Dehradun, Uttarakhand, India

ISBN 978-3-031-67852-3    ISBN 978-3-031-67853-0 (eBook)

https://doi.org/10.1007/978-3-031-67853-0

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Preface

The financial sector is now experiencing a significant and fundamental change,

mostly due to the continuous advancement of technology and innovation. The
advent of e-banking and Fintech has fundamentally transformed the delivery of
financial services, enhancing its accessibility, efficiency, and consumer focus.
Nevertheless, these technological improvements bring forth fresh obstacles and vul-
nerabilities, especially in the domain of financial illicit activities. As technology
advances, criminals also develop new ways, which require a strong and flexible
regulatory framework to protect the integrity of the financial system.
E-banking, Fintech, & Financial Crimes: The Current Economic and Regulatory
Landscape is a curated collection of chapters that aim to examine the many aspects
of this rapidly evolving landscape. This book consolidates the knowledge and pro-
ficiency of prominent academics, professionals in the industry, and regulatory bod-
ies to provide a thorough analysis of the economic and regulatory consequences of
e-banking and Fintech advancements, as well as the increasing risks associated with
financial crimes.
Our writers explore a diverse range of subjects, including the complex workings
of e-banking systems and the disruptive possibilities of Fintech businesses, as well
as the intricate nature of cybercrimes and frauds. The text examines the impact of
digital technology on conventional banking paradigms and the subsequent response
of regulators to maintain stability, security, and consumer protection in this rapidly
changing environment.
The contents of this book are organised into three primary sections:
E-banking: This section discusses the progression of electronic banking, its influ-
ence on conventional banking models, and the prospects and difficulties it poses
for both customers and financial institutions.
Fintech: In this discussion, we examine the cutting-edge field of financial technol-
ogy, focusing on its ability to bring about significant changes in areas like pay-
ments, lending, investing, and financial inclusion. We also analyse the regulatory
measures taken in reaction to these new technologies.

v
vi Preface

The last half of the book delves into the negative consequences of technological
progress, specifically investigating the increase in financial crimes during the era
of digitalisation. These crimes include cyber-attacks, money laundering, and
fraud. Additionally, it explores the tactics and regulatory actions being taken to
address these challenges.
This book seeks to function as a beneficial resource for scholars, politicians,
industry professionals, and others with an interest in comprehending the conver-
gence of technology, finance, and regulation. Our aim is to contribute to the continu-
ing discussion on how to effectively utilise e-banking and Fintech while minimising
the dangers, by offering a comprehensive understanding of the present economic
and legal environment.
We express our gratitude to our writers for their unwavering commitment and
perceptive contributions, and to our readers for their keen interest in this crucial and
ever-changing domain. We anticipate that this publication will not only provide
information but also stimulate more investigation and creativity in the quest for a
stable and all-encompassing financial future.

Solan, Himachal Pradesh, India Chander Mohan Gupta

Dehradun, Uttarakhand, India Gagandeep Kaur
Contents

1 
Fintech Revolution: Navigating Consumer Privacy Concerns
and Cybersecurity Challenges����������������������������������������������������������������    1
Sahil Bhalla, Chander Mohan Gupta, and Palak Dewan
2 Fintech Landscape ����������������������������������������������������������������������������������   11
Vaibhav R. Ashar
3 
Fintech in International Relations: Some Reflections
on Globalisation and Transnational Governance����������������������������������   27
R. Radhakrishnan and Shreya Jha
4 
Theoretical Perspective of Fintech ��������������������������������������������������������   35
Monika Thakur and Chander Mohan Gupta
5 
The Role of Fintech on Creative Accounting and Companies’
Performance���������������������������������������������������������������������������������������������   47
Yana I. Ustinova
6 
Demystifying the Demand and Supply of Money in India ������������������   65
Shatakshi Johri
7 
Financial Crimes Through Fintech by Political Leaders:
The Experience of Select South Asian States����������������������������������������   79
Debasish Nandy and Abdullah Al Mamun
8 
Financial Crimes and Fintech in India��������������������������������������������������   97
Shah Ali Adnan and Pramod Kumar
9 
Financial Crimes in Fintech: An Evidence from Cryptocurrency
Market������������������������������������������������������������������������������������������������������ 111
Megha Rewal and Parminder Singh
10 
Compliance Related to Fintech: An Overview of
the Indian Legal System�������������������������������������������������������������������������� 121
Monika Thakur

vii
viii Contents

11 Optimizing the Role of Indonesian Fintech and Legal Protection

Efforts for Fintech Users by the Indonesian Financial Services
Authority (OJK) in Financial Services�������������������������������������������������� 133
Sulistyandari, Ulil Afwa, Tri Lisiani Prihatinah,
Aryuni Yuliantiningsih, and Ari Tri Wibowo
12 
Legal Implications of Fintech ���������������������������������������������������������������� 143
Srinivas Subbarao Pasumarti
13 Decentralized Finance (DeFi) and Legal Challenges:
Navigating the Intersection of Innovation and Regulation
in the Fintech Revolution������������������������������������������������������������������������ 155
K. Bharanitharan and Gagandeep Kaur

Index������������������������������������������������������������������������������������������������������������������ 169
Chapter 1
Fintech Revolution: Navigating Consumer
Privacy Concerns and Cybersecurity
Challenges

Sahil Bhalla, Chander Mohan Gupta, and Palak Dewan

Introduction

In the quick landscape of finance, a noteworthy combination of money and innova-

tion has birthed what is presently ordinarily known as fintech. This combination, set
apart by creative models and state-of-the-art innovations, has ignited a transforma-
tion ready to reshape economies around the world. The expression “fintech” itself,
a portmanteau of “money” and “technology”, epitomizes the essential job innova-
tion plays in present monetary frameworks. Fintech remains as a problematic power,
spanning the gap between conventional financial practices and the consistently pro-
pelling domain of money. Its development proclaims a change in outlook, promis-
ing to reform the monetary business as well as the essential designs supporting
financial frameworks universally. This part dives into the beginning and direction of
fintech, investigating its extraordinary effect on crucial monetary capabilities like
instalments, credit, loaning, protection, and venture administrations. Starting from
the cauldron of mechanical development, fintech has arisen as a catalyst for change,
pushing economies towards phenomenal degrees of productivity and openness.

S. Bhalla (*)
Shoolini University, Solan, Himachal Pradesh, India
C. M. Gupta
Faculty of Management Sciences, Shoolini University of Biotechnology
and Management Sciences, Solan, Himachal Pradesh, India
P. Dewan
PCTE Group of Institutes, Ludhiana, Punjab, India

© The Author(s), under exclusive license to Springer Nature 1

Switzerland AG 2024
C. M. Gupta, G. Kaur (eds.), E-banking, Fintech, & Financial Crimes,
https://doi.org/10.1007/978-3-031-67853-0_1
2 S. Bhalla et al.

The Evolution of Fintech in India

The seeds of fintech’s development in India were planted in the midst of the scenery
of the 2016 demonetization, a turning point that catalysed the country’s change
towards a computerized economy. Before this groundbreaking occasion, India’s
financial scene was overwhelmingly cash-driven. Notwithstanding, the resulting
years saw a brilliant ascent in the reception of computerized instalment arrange-
ments, denoting a vital change in customer conduct. Throughout the last half-­
decade, fintech has blossomed, testing dug-in standards and reclassifying the shapes
of India’s monetary environment. Key drivers powering this development incorpo-
rate improved admittance to capital, proactive administrative help, vital industry
coordinated efforts, unavoidable tech reception, a blossoming pool of gifted experts,
and the basics of information sharing. As validated by the Reserve Bank of India,
the flood in computerized instalments has been completely brilliant, with a stunning
216% expansion kept in 2022 alone. Such remarkable development highlights the
significant effect fintech has applied on India’s monetary scene, proclaiming another
time of monetary inclusivity and advancement.

Unveiling the Ghost of Cybercrime

Amid the background of fintech’s transient ascent hides an imposing enemy—.

Characterized as crime executed through PCs and organizations, it includes a heap
of odious exercises going from crypto-jacking to fraud, monetary misrepresenta-
tion, digital surveillance, and ransomware assaults. The approach of the computer-
ized age has worked with the multiplication, empowering pernicious entertainers to
execute wrongdoings without any potential repercussions and take advantage of
weaknesses in the advanced foundation. In India, crimes has arisen as an unavoid-
able danger, with the Public Network Protection Center featuring ransomware as the
most common type. Alarmingly, statista.com announced north of 65,000 cases in
India in 2022 alone, highlighting the extent of the test. Despite its universality,
cybercrime stays a misnomer in regulative speech, without an extensive legal defini-
tion. Regardless, its effect is much the same as customary wrongdoing, inciting
breaks of lawful standards and risking the structure holding the system together.
Ordered into target, device, and PC coincidentally, presents multilayered difficul-
ties that request earnest redressal.
In general, it has three categories:
1. Target—using a computer is the target of the offense.
2. Tool—computer is used as a tool in committing the offense.
3. Computer incidental—the role of the computer is minor in committing the
offense.
1 Fintech Revolution: Navigating Consumer Privacy Concerns and Cybersecurity… 3

Against the backdrop of fintech’s ascendancy and the specter of crime looms a
pressing imperative—the safeguarding of user security. In light of this imperative,
this chapter sets forth two overarching objectives:
1. To get knowledge about user privacy concerns with fintech companies.
2. To understand the privacy concerns of people associated with fintech companies.
In pursuit of these objectives, this chapter embarks on a comprehensive exploration
of the interplay between technological innovation, regulatory oversight, and ethical
considerations, with a view towards charting a course for navigating the complex
terrain of fintech’s transformative journey.

Investigating Fintech Advancements and Their Suggestions

In the dynamic landscape of monetary (fintech), a heap of developments has arisen,

each with its one-of-a-kind arrangement of implications and challenges. This part
digs into a complex examination of select fintech developments and their sweeping
effects across different areas.

ChatGPT: Balancing Pros and Cons

Dwivedi et al. (2023) directed an extensive examination of the ChatGPT revolution,

investigating its impact across different spaces including banking, marketing, soft-
ware engineering, hospitality, nursing, education, and management. Their review
highlights both the positive and negative repercussions of ChatGPT organization,
provoking considerations on the need for administrative measures to administer
its use.
Across areas like banking, money, insurance, and education, ChatGPT has been
hailed for its groundbreaking potential, working with upgraded effectiveness and
customized administrations. In any case, concerns about its affinity for spreading
counterfeit data, empowering cheating in exams, executing literary theft, and under-
mining transparency and explainability. This polarity requires a nuanced approach
towards administrative systems to bridle its advantages while relieving its traps.

Digitization in Banking: Exploring Functional Dangers

Uddin et al. (2023) dig into the functional dangers intrinsic to the computerized
change of banking foundations, driven by the basic to adjust to developing pur-
chaser requests and mechanical headways. As banks progressively embrace
4 S. Bhalla et al.

digitization to stay cutthroat in the fintech scene, they wrestle with elevated func-
tional dangers and related costs.
Employing operational risk (OPR) intermediaries inside Basel structures, the
review clarifies the relationship between expanded digitization and intensified func-
tional dangers. While digitization offers roads for development and proficiency
gains, it likewise opens banks to a heap of functional weaknesses (Gupta & Kumar
2020b). Thus, banks are constrained to proceed circumspectly, gauging the dangers
against the likely rewards and selecting vital speculations or re-evaluating attempts
given their gamble hunger.

 ntrepreneurial Ecosystems: Catalysts for Financial Turn

E
of Events

Gomez et al. (2023) shed light on the crucial job of entrepreneurial ecosystems
(EEs) in encouraging financial development and advancement. Through an observa-
tional review led in Yaba, Lagos, Nigeria, the creators clarify the complex elements
supporting the advancement of EEs, portrayed by assorted partners, common trust,
and resilience.
Entrepreneurial ecosystems act as incubators for new companies, working with
advantageous connections among firms and catalysing financial turn of events. Key
parts including markets, government strategies, foundation, money, culture, and
human resources combine to make prolific ground for enterprising endeavours. In
any case, understanding the maximum capacity of EEs requires purposeful endeav-
ours to prepare assets, give satisfactory compensation, and encourage inspiration
among partners.

Blockchain Innovation: Transforming Business Models

Tandon et al. (2021) investigate the groundbreaking capability of blockchain tech-

nology in reforming traditional plans of action. Beginning from the domain of cryp-
tographic money, blockchain has arisen as a problematic power, empowering
straightforward and decentralized computerized transactions sans intermediaries.
Through a broad bibliometric investigation, the review highlights the flexibility
of blockchain revolution and its combination with the Internet of things to drive
development. By encouraging transparency, proficiency, and confidence in business
processes, blockchain holds massive potential to reshape the monetary framework
and advantage assorted areas including financial markets. Be that as it may, further
exploration is justified to explain the bunch of factors affecting its reception and
enhance its use in business settings.
1 Fintech Revolution: Navigating Consumer Privacy Concerns and Cybersecurity… 5

 lockchain in Public Service Organizations: Enhancing

B
Operational Efficiency

Shahaab et al. (2023) look at the effect of blockchain revolution on open assistance
associations, explaining its capability to improve transparency, security, and perma-
nence. Amid the scenery of prospering adoption, the review features difficulties in
information sharing and socio-specialized interfaces between government sub-
stances and the public.
Embracing a systematic approach, the creators advocate for utilizing inventive
changes to smooth out functional cycles and address administrative compliance
requirements. By embracing blockchain, public help associations can open efficien-
cies while protecting information respectability and upgrading partner trust
(Aldboush & Ferdous 2023).
In outline, the investigation of these Fintech developments highlights the require-
ment for a fair methodology that expands benefits while moderating dangers and
difficulties. Administrative systems, strategic investments, and cooperative endeav-
ours are basic to exploring the developing fintech scene and saddle its extraordi-
nary potential responsibly.

 afeguarding Fintech: Addressing Concerns

S
and Security Challenges

In the always-advancing scene of monetary changes (fintech), the fast expansion of

cutting-edge developments, for example, data innovation, artificial intelligence
(AI), cloud computing, Internet of things, chatbots, and ChatGPT, has changed the
functional ideal models of the financial ecosystem (Blumenstock & Kohli 2023).
These innovative headways have become characteristic of the activities of fintech
organizations, empowering advanced changes that upgrade business volumes and
drive benefits across different areas of the financial industry, including banks,
investment houses, insurance agencies, moneylenders, and land venture trusts.
In any case, as fintech organizations embrace computerized developments, they
are confronted with a bunch of network protection challenges that compromise both
their functional respectability and the trust of their customer base. Cybercrime rep-
resents a huge gamble, with potential repercussions going from reputational harm to
cross-country information breaks. The deficiency of public confidence following
digital episodes can be devastating for fintech organizations, featuring the basic
significance of powerful online protection measures.
The heightening speed of mechanical developments requires consistent variation
by fintech organizations, which can disturb ordinary activities and present new
weaknesses. While interests in network safety are basic, an unnecessary spotlight on
digital transformation might redirect assets from centre business capabilities,
prompting functional shortcomings and expanded gambles.
6 S. Bhalla et al.

Security concerns pose a potential threat in the digitized scene of fintech, with
the gathering of huge measures of delicate information presenting organizations
with likely breaks and administrative examinations. Shielding information respect-
ability and guaranteeing consistency with guidelines like the General Data Protection
Regulation (GDPR) in Europe and the California Consumer Privacy Act (CCPA) is
paramount for fintech firms. Encryption, confirmation protocols, and watchful
observing are fundamental parts of network safety structures intended to safeguard
against digital dangers.
Beyond specialized shields, fintech organizations should address concerns con-
nected with information abuse and algorithmic bias. Transparent information
rehearses and express client consent components are essential for safeguarding pur-
chaser trust and relieving the gamble of information abuse. Administrative consis-
tency is a significant challenge, requiring fintech associations to explore a complex
scene of regulations and guidelines overseeing information security.
The ascent of algorithmic decision-making presents new components of worry,
as biases encoded in calculations can sustain imbalances and compound social dis-
parities. Accomplishing harmony among development and moral contemplations is
basic for building a future where monetary information is not just secure yet in addi-
tion ethically managed for the aggregate advantage of society.
All in all, the security of protection and network safety in fintech associations is
principal in an undeniably digitized monetary scene. A comprehensive methodol-
ogy that coordinates mechanical development, administrative consistency, moral
contemplations, and customer strengthening is fundamental for protecting mone-
tary information and cultivating trust in fintech administrations. By tending to these
worries proactively, fintech organizations can explore the difficulties of the advanced
age and add to the manageable improvement of the monetary business.

Conclusion

In the consistently developing scene of monetary transformation (fintech), the issues

of consumer security and online protection stand as huge difficulties. As fintech
organizations tackle the force of creative advances to reshape financial administra-
tions, they simultaneously aggregate tremendous measures of delicate buyer infor-
mation (Gupta & Kumar 2020a). Nonetheless, this collection raises serious worries
concerning the security and privacy of such data. Customers dread potential infor-
mation breaks, unapproved access, and the abuse of their information for designated
promotion without express assent. Besides, the quick speed of fintech advancement
frequently dominates administrative structures, leaving holes in oversight and
responsibility.
The issue of data misuse is a basic one. Fintech firms might be enticed to abuse
client information by reusing it without assent, offering it to outsiders, or utilizing it
for designated publicizing without sufficient exposure. This absence of straightfor-
wardness dissolves trust and subverts the actual groundwork of the fintech
1 Fintech Revolution: Navigating Consumer Privacy Concerns and Cybersecurity… 7

environment, possibly making purchasers accidentally give up command over their

monetary information. Administrative consistency further entangles matters, with a
horde of regulations and guidelines overseeing information security, like the General
Data Protection Regulation (GDPR) in Europe and the California Consumer Privacy
Act (CCPA). Exploring this complex administrative scene requires cautious regard
for deflect legitimate repercussions and moderate consistency gambles.
In addition, the development of algorithmic direction presents one more layer of
concern: algorithmic bias. Notwithstanding their implied objectivity, calculations
may coincidentally propagate biases innate in the information they dissect, prompt-
ing one-sided results, especially in credit appraisals and chance assessments. This
predisposition disregards standards of reasonableness and value as well as worsens
existing inconsistencies, propagating monetary rejection and social disparities.
Tending to these security concerns is vital as fintech keeps on reshaping the mone-
tary scene.
Accomplishing harmony between development and security requires a compre-
hensive methodology incorporating mechanical progression, administrative consis-
tency, moral contemplations, and buyer strengthening. Fintech organizations should
put resources into hearty information safety efforts, embrace straightforward infor-
mation rehearses, and stick to rigid administrative guidelines to keep up with trust
and validity. Besides, they should focus on moral contemplations in calculation plan
and sending, guaranteeing reasonableness, straightforwardness, and responsibility
in dynamic cycles. Coordinated efforts with controllers, policymakers, and common
society are fundamental to laying out clear administrative structures that advance
development while shielding customer interests.
Engaging shoppers with more prominent command over their monetary informa-
tion is urgent. Fintech organizations ought to give clear data about information
assortment, stockpiling, and utilization, alongside amazing open doors for clients to
quit or agree to explicit practices. This requires vigorous protection approaches,
easy-to-understand assent components, and devices to oversee security inclinations.
Furthermore, training and mindfulness drives can assist customers in coming to
informed conclusions about information sharing and security.
In summary, protection worries in fintech are complex and require purposeful
endeavours from all partners. By focusing on information security, transparency,
administrative consistency, and moral contemplations, fintech organizations can
construct trust, cultivate development, and advance monetary incorporation.
Enabling buyers with command over their information is crucial for addressing pro-
tection concerns and guaranteeing even-handed admittance to fintech benefits.
Through cooperative endeavours and capable practices, the fintech business can
outfit the huge capability of advanced money to drive feasible financial develop-
ment and cultural advancement.
The assortment of information by fintech organizations addresses a critical secu-
rity worry for their clients, as it includes the collection of delicate monetary data
that people might be reluctant to share. Fintech organizations frequently assemble
information connected with banking exchanges, speculation history, credit scores,
and more, to offer custom-fitted monetary types of assistance and customized
8 S. Bhalla et al.

recommendations. While this information-driven approach can improve effective-

ness and accommodation for customers, it likewise brings up significant issues
about information security, assent, and the potential for abuse or unapproved access.
Clients properly stress over the privacy and respectability of their monetary infor-
mation, as well as the ramifications of its abuse for designated promoting or differ-
ent purposes without their unequivocal assent. Tending to these worries requires a
multilayered approach including fintech organizations, controllers, policymakers,
and common society. Fintech organizations should focus on vigorous information
safety efforts, transparent information rehearses, and moral contemplations in their
activities to assemble trust and believability with customers. Administrative bodies
need to lay out clear rules and guidelines for information security in the fintech busi-
ness, guaranteeing consistency and responsibility. Besides, policymakers should
attempt to find some kind of harmony between encouraging advancement and
shielding purchaser protection through extensive regulation and oversight. Civil
society assumes an urgent part in bringing issues to light, pushing for purchaser
freedoms, and considering organizations and controllers responsible for their activi-
ties. Eventually, it is an aggregate liability to address the security concerns encom-
passing information assortment by fintech organizations and to guarantee that
customers’ privileges and interests are safeguarded in the digital age.

Future Directions

While our examination has revealed insight into the heightening cybercrime and
consumer privacy concerns in fintech organizations, it is vital to take note that our
review used a deliberate writing survey approach and lacked empirical data.
Additionally, research in this field stays restricted. Future examinations could focus
on analysing the pattern of cybercrime in fintech organizations utilizing real infor-
mation. Furthermore, it is imperative to consider theories published in different
sources like books, exchange magazines, and different mediums, rather than solely
relying on theories from academic journals.
Development and innovative headway cannot be ended. With the nonstop move-
ment of innovation, cybercrime is unavoidable. Cybercrime sabotages the interests of
all gatherings included. Thus, fintech organizations should foster complete proce-
dures for network protection. Existing network safety regulations have been indis-
tinct and immature. There is a squeezing need to lay out powerful network safety
regulations and guidelines at both the organization and administrative power levels.
Besides, administrative specialists should develop regulations to extensively
oversee every single mechanical device. The complexity of different tools, for
example, AI consciousness, AI, and the Internet of things, presents difficulties in
creating rigid regulations. As these instruments keep on developing, creating suc-
cessful regulations will be a difficult errand. Fintech organizations cannot stop digi-
tization to battle digital dangers; all things considered, they should participate in
upsetting further advancements and constantly refresh their network safety
measures.
1 Fintech Revolution: Navigating Consumer Privacy Concerns and Cybersecurity… 9

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Chapter 2
Fintech Landscape

Vaibhav R. Ashar

Introduction

The history of mankind has seen many ages which have gone through the tryst of
hardship as gold has to be steamed before the shine comes mankind has seen; the
history of mankind includes the evolution of humans as well as the formation of
societies, cultures and civilisations throughout millions of years. This history can be
categorised into several significant eras which are as follows:
The Paleolithic Age, which is also called the Stone Age, is the oldest and longest
period of human history, where the early humans started living in caves and used
stones as basic hunting tools.
The Mesolithic Age, sometimes known as the Middle Stone Age, occurred between
10,000 and 5000 years ago. It was a time period where humans started domesti-
cating the animals and basic agricultural activities started.
The Neolithic Age referred to a time period where humans made developments in
agricultural activities and sophisticated societies were formed.
The Copper Age was a time period where the basic hunting weapons and tools made
of stones were replaced with copper metal.
The Bronze Age was a time period where the tools and weapons made of copper
metal was replaced with bronze metal.
The Iron Age was a time period where the tools and weapons made of bronze metal
was replaced with iron metal.
The Renaissance Age was a time period described between the fourteenth century
and the seventeenth century. This age was known for the revival of classical
learning and wisdom in different fields such as arts, literature, etc.

V. R. Ashar (*)
Kes Shroff College of Arts and Commerce, Mumbai, Maharashtra, India
e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature 11

Switzerland AG 2024
C. M. Gupta, G. Kaur (eds.), E-banking, Fintech, & Financial Crimes,
https://doi.org/10.1007/978-3-031-67853-0_2
12 V. R. Ashar

The Industrial Age was a time period between 1760 and 1840, where the focus was
towards the mass production of goods and rise in manufacturing sector.
The Machine Age, which started from the late nineteenth to the mid-twentieth cen-
tury, was a time of tremendous industrialisation and technological development,
typified by the creation and pervasive application of automation and machinery.
Significant advancements in manufacturing, communication and transportation
during this time period contributed to higher production efficiency and the
expansion of metropolitan areas. The assembly line, powered machinery and
improvements in the manufacture of steel and electricity transformed industry
and daily life.
The Nuclear Age began with the detonation of the first atomic bomb in 1945, bring-
ing in a new era characterised by the creation and spread of nuclear energy and
weapons. Global politics were greatly impacted by this time, which resulted in
the Cold War and increased emphasis on arms control and nonproliferation ini-
tiatives. Nuclear technology advancements also benefited the scientific, medical
and energy domains by illuminating the potential benefits and drawbacks of
nuclear energy.
The Space Age began in 1957 with the launch of Sputnik 1, the first artificial satel-
lite, marking humanity’s venture into outer space. Space exploration made sig-
nificant strides during this era, with manned moon landings, space stations and
unmanned solar system exploration probes among them. The Space Age has
accelerated scientific and technological advancements that have an impact on
communication, navigation and our comprehension of the cosmos.
The Information Age (Internet Age), as it is envisaged with communication being
convenient in this age, has given rise not only to transformation from wired
phones to wireless communication but also to transformation from Qwerty key-
pad led mobile phones to touchscreen mobile phones and laptops.
The term ‘fintech’ has evolved in Information Age. In simple layman’s language,
the term ‘fintech’ is the marriage of finance with technology. Further, the simplified
word fintech is a combination of two words ‘financial’ and ‘technology’, i.e. the
term ‘fin’ comes from the word ‘financial’, which includes managing money, bank-
ing, investing and other financial service, and the term ‘tech’ is derived from the
word ‘technology’ which involves using digital tools and software so as to improve
efficiency and experience. Fintech, the application of technology and innovation in
the financial sector, has revolutionised traditional financial services by leveraging
advancements like artificial intelligence and blockchain. It has expanded access and
inclusion, empowering previously underserved populations with digital platforms
for banking, lending and payments. Fintech has improved efficiency by automating
processes, reducing costs and enhancing operational effectiveness. Through innova-
tion and customisation, it offers personalised solutions such as robo-advisors, while
data-driven insights enable better risk management and fraud detection. However,
challenges around privacy, regulation and inclusion must be addressed. Looking
ahead, fintech’s integration with emerging technologies like IoT and 5G, as well as
the potential for decentralised finance and digital currencies, will shape the future of
2 Fintech Landscape 13

finance, creating a more inclusive and efficient financial ecosystem. The revolution
of Internet has led to many inventions and innovations, and one such invention is the
emergence of fintech spearheading financial transactions. According to Gai et al.
(2018), ‘Fintech had brought in Novel technology from data security to Financial
service deliveries. The study focused on five technical aspects of Fintech, which
includes Data oriented techniques, facility and development of equipment, applica-
tion designs, service model placement – security and privacy protection. The study
also states that, development of the above mentioned area, leads to development of
overall term called as Fintech’.
The National Payments Corporation of India (NPCI), which was set up in April
2009, started a green initiative called UPI to reduce domestic paperwork. UPI stands
for Unified Payments Interface. It was in the year 2016 UPI was officially launched
for public. Today, as India leads the world in the Unified Payments Interface (UPI),
the so-called Jan Dhan-Aadhaar-Mobile (JAM) integration gave rise to a different
world where exchange of money from a fiat currency to a digital currency through
bank accounts has made transfer of funds more stress-free and less usage of paper.
The advent of World Wide Web and the dawn of Internet in the year 1991 and
later the propagation of smartphones have made it possible for India to catapult not
only in technology but also in the economy strata of people. The years of wired
telephone to an age of messaging through pagers to today where smartphones which
are not just handsets but a laptop which perform the tasks with ease and conve-
nience, we see an abundance of opportunities in the industry of banks, share market,
insurance and many payments laid transactions.
Imagine a world where in a 150-meter zone there is just one phone in neighbour-
hood and the owner of the phone will use his/her whims and fancies to allow only a
particular person to talk or not to talk at his/her advantage. Imagine a world where
opening a bank account took nearly 10–15 days and endless bank visits. Imagine a
world where in order for one to have a D-Mat account for trading in share markets,
one will have to go over more than 100 pages and put signature on more than 65
pages. Well, this is not a world of imagination; this is a real world where all the
above-mentioned actually existed.
In the late 1980s, the things took time cut to 2024 where we see an undeniably
different world which is quick and super-fast is due to emergence of Internet. It is
due to this fast Internet that telephone was replaced by smartphone, brick-and-­
mortar banking was replaced with branchless banking called neobanking, and trad-
ing on bourse has become as simple as having your snacks or lunch.
All this has been due to the combination of finance coming together with infor-
mation technology.

The Emergence

Necessity is the mother of all inventions—fintech was born out of the crisis of 2008
bubble burst and things changed.
14 V. R. Ashar

The crisis made the bank recognised the need of scale back, but the consolidation
to be continued. Banks tried to deliver value to shareholders, even though valuations
were in doldrums, but they could not see a way to reduce their costs by losing key
individuals without losing the ability to generate value, so the salaries of their
investment bankers and their staff stayed high, whereas the lower hung fruit was
asked to vacate to bring the costs down and people were rewarded for the same old
system of measurement.
The generations of the 1980s to 2010 have seen a world which was to shop for
your basic day to day supply which is like fruits, vegetables and other groceries it
used to be hardbound currencies stuffed into your wallet which we called it as fiat
currency. Today, India spearheads the payment revolution with its integration of
bank accounts, Aadhaar and Mobile smartphone. The word payments means differ-
ent to different people as per their convenience an organisation will use the same to
its benefit a central bank is the core to its transfer and a watchdog for its smooth and
without any hindrances caused to anyone. It is also the work of a regulator to ensure
that these payments are free of any sort of vices and are not hot money being pumped
into system to create a scenario which gives rise to terrorism, militant activities and
any sort of antisocial elements which can be antistate of any country.
We are still interacting with the deep-rooted organisations, supported by high-­
tech groups that have been built over the last five decades based on centuries-old
process of regulatory trusted organisations. Clients and traders exchange money for
goods and services, facilitated by card networks, and banks extend credit and recon-
cile balances between themselves, ultimately being settled at the centralised bank or
using counterparty process via outdated global messaging systems between global
commercial banks. There are many independent actors in an ecosystem with many
mediators, all of whom are profiting from the movement of the value in payment.
The world of payments is not as complicated as it is looked upon, and this chapter
will try to unearth as why to understand fintech understanding the payment system
is the key as it’s the most important ingredient to our story of fintech landscape.
So, to begin with, our story starts with the ancient times where there used to be a
barter exchange of goods and services. In simple words, a dairy owner will produce
milk and will hand it over to the farmer producing rice and vice versa. This gave rise
to an inequality-based society as it was impossible to understand and bring equiva-
lency in the payment system. So, the next era brought in gold, silver, bronze and
other metals as mode of payment for goods and services. But as these were metals
and trade and transfers of goods flourished a more sophisticated payment system
was the need of the hour so came, printed notes came to the fore and were our main
actors and have occupied a dominant place for past 200 years. But imagine a farmer
of who has a rubber tree removes its raw material in Thailand sends the same to a
factory in India to convert it into a finished product, the Indian manufacturer con-
verts it in to a tyre and sends it to an automobile factory in Germany.
Just imagine how they transacted this money in the Old World. So there came the
internationalisation and a common ground required for transfer of money not just
from one place to another but from one continent to another continent. These trans-
actions need to be quick and fast and should be settled as quick as possible.
2 Fintech Landscape 15

Hence, the whole gamut of fintech will revolve around the term payments and the
payment systems.

Payment System

Payment systems are a set of common rules and procedures, which support the
transfer of funds between people, business and financial institutions. Most payment
systems are managed by operators and supported by one or more infrastructure
providers of hardware, software and communication networks. Some financial insti-
tutions have direct access to each payment system and provide payment services to
their customers. As per Kumar (2019), for growth of any economy, the financial
system has to act as a pillar for it. The study further states that reliability and trans-
parency act as two keys behind any financial system of the economy. The study
concluded that applicability, ease of use, security, reliability, trust, convertibility,
scalability, efficiency, anonymity, traceability and authorisation type act as the basic
fundamental characteristics of the e-payment system. The researcher also states
about ideal e-payment service as reversal, immediate, compliant, freely accessible
and transparency.
Many payment systems employ a two-stage deferred net settlement process.
Payments are initially made in commercial bank money, often between different
banks; this creates net obligations between these banks, which are settled in central
bank money at a later point in time. Features such as the netting of payments can
have liquidity-saving benefits in systems where participants make multiple offset-
ting payments between each other in a space of time (e.g. payments between banks).

Payment Instruments

Payment instruments are the things that end users of payment systems use to trans-
fer funds between accounts at banks or other financial institutions. Cards, credit
transfers, direct debits and e-money are examples of noncash payment instruments.

Payment Schemes

A payment scheme is a professional body that sets the rules and technical standards
for the execution of payment transactions using the underlying payment systems.
Payment schemes manage the day-to-day operations of the payment systems and
processes and ensure any regulatory requirements associated with the processing of
payment are met.
16 V. R. Ashar

Characteristics of a payment schemes (based on the UK payments definition) are

as follows:
• Offers a service to move money between parties.
• Has a governance structure that includes independent directors with a mandate to
represent the views of all service users, together with directors appointed from
the members of the scheme.
• Custodians of the payment scheme rules and technical standards for operation of
the payment scheme.
• Responsible for the operation of the underlying payment systems.
• Complies with regulatory aspects governing payment schemes and systems.
• Has access criteria and an application process for joining.

The Movement of Money?

As described above with payments of money, the accounting of the same is as

important as its usage so as in above example of farmer of rubber plantation and its
subsequent movement to different countries, their accounting is also of utmost
importance so as the faith of the company, and a complete audit is possible so that
no leakages are there in the system which leads to any kind of doubts in the minds
of the stakeholders of large corporations; regulatory bodies and governments are
also equally responsible for due diligence of these corporations.
In today’s world, balances in bank accounts are no longer based on units of cur-
rency, and fractional reserve lending has abstracted value from ‘real money’, with
significant implications for a move towards ownership-based units such as crypto-
currency. However, there are many risks to individuals and businesses in moving to
payments outside of the traditional banking system: from the heavily regulated
world in which consumers are protected to the Wild West where there is scant
protection.
P. Krishna Priya and K. Anusha (2019) in their papers have covered a plethora of
benefits that fintech has to offer with a wide range of making payments for a P2P
transaction or raising money from crowdfunding and crowd investing. It also refers
to various other challenges to cater to asset management where it addresses the
issues of social trading, robo-advice, personal finance management and many other
things. The paper highlighted that 72% of the digitally active consumers in India
have used the fintech platform for money transfer and payment, whereas the global
average is 50% as per the 2017 EY fintech adoption index.
Venkatachalam (2020) in its paper brought to the fore that, globally, there is a
disruption in the financial sector due to the emergence of fintech companies. The
industry is changing in the way it functions. Hence, it is important to understand the
changing landscape in the Indian context. The key players identified in the land-
scape are regulators, traditional banks and fintech companies. The objective of the
study is to understand in Indian context:
2 Fintech Landscape 17

1. Role of key players in the changing landscape.

2. Influence of fintech companies on the ecosystem.
This study observes that there will be an emergence of the multidimensional
relationship among the participants in the ecosystem and the scope of regulation
will widen. This paper also observes that fintech has a positive influence on meeting
Sustainable Development Goals and the challenges of regulation considering this
larger goal will vary based on the risk involved in business models and products,
with technology playing a pivotal role.

 ear Future Trends: Exponential Payment Growth (Blakstad

N
& Allen, 2018)

According to the BNP Paribas and Capgemini World Payments Report for 2017,
global electronic transactions broke a decade-long record for growth in 2014–2015,
with volumes exceeding 11% growth to reach more than 433 billion. In 2017, they
estimate the global noncash transaction volumes will record a CAGR of 10.9% dur-
ing the period 2015–2020 reaching 725 billion in 2020. Developing markets are
expected to boost the global growth rate of transaction volumes with a sustained
CAGR of 19.6% during this period, while mature markets are expected to grow by
a modest 5.6% over the next 5 years.
Also as per Dubey (2018), fintech technologies, including artificial intelligence,
augmented reality and blockchain, are revolutionising digital banking worldwide.
AR is being used in healthcare, oil and gas construction, retail and manufacturing to
improve efficiency and reduce costs. Artificial intelligence is gaining popularity on
social media, and blockchain has become mainstream in industries like healthcare,
government, insurance, supply chain management and finance. In 2018, $1.3 billion
was invested in fintech projects based on blockchain innovation. Progressive finan-
cial organisations are also investing in internal bank technologies, particularly those
powered by permanent ledgers. The present study explores the role of AI, AR and
blockchain in digital banking.
There are several key convergent payment trends to watch which are as follows:
• Wearable payments: These are a type of contactless payment in which consum-
ers make payments with a wearable device such as a smartwatch or fitness
tracker. The wearable device functions as a digital wallet, storing the user’s pay-
ment information and allowing them to make purchases with a tap or wave of
their wrist.
Wearable payments make use of near-field communication (NFC) technology,
which allows two devices in close proximity to communicate wirelessly. Contactless
credit and debit cards also use this technology, but with wearable payments, the
device is always on the user’s wrist, making payments even more convenient.
18 V. R. Ashar

• IoT-based payment: As of update in January 2022, the IoT-based payments mar-

ket worldwide was experiencing steady growth, driven by increasing adoption of
connected devices, advancements in IoT technology and evolving consumer
preferences for convenient and secure payment methods. While specific market
size estimates may vary depending on the source and methodology, a general
overview of the market trends and potential valuation based on available data:
• Market Size and Growth.
• The IoT-based payments market encompasses a wide range of connected
devices and payment solutions, including smart wearables, connected cars,
smart home devices and IoT-enabled POS terminals.
• According to various industry reports and market research studies, the global
IoT payments market was estimated to be worth billions of dollars annually,
and it was projected to continue growing at a robust pace over the com-
ing years.
• Key Drivers and Trends.
• Increasing adoption of connected devices: The proliferation of IoT devices,
such as smartwatches, fitness trackers and connected appliances, has expanded
the potential for IoT-based payment solutions.
• Seamless and secure transactions: IoT technology enables frictionless pay-
ment experiences by allowing consumers to make transactions seamlessly
using connected devices, reducing the reliance on traditional payment
methods.
• Enhanced customer experience: IoT-based payment solutions offer person-
alised and convenient payment experiences tailored to individual preferences,
driving customer satisfaction and loyalty.
• Integration with emerging technologies: IoT payments are often integrated
with other emerging technologies, such as artificial intelligence, blockchain
and biometrics, to enhance security, scalability and functionality.
• Market Segmentation and Regional Trends.
• The IoT payments market is segmented based on the type of connected
devices, payment methods, industry verticals and geographic regions.
• North America, Europe and Asia-Pacific are among the leading regions driv-
ing the adoption of IoT-based payment solutions, with significant investments
and innovation in the fintech sector.
• Industry Players and Partnerships.
• Key stakeholders in the IoT payments ecosystem include technology compa-
nies, financial institutions, payment processors, device manufacturers and
software developers.
• Partnerships and collaborations between these stakeholders are essential for
driving innovation, expanding market reach and delivering integrated IoT
payment solutions to consumers and businesses.
2 Fintech Landscape 19

• Regulatory and Security Considerations.

• Regulatory compliance and data security are critical considerations for IoT-­
based payment solutions, given the sensitivity of financial transactions and
personal information involved.
• Regulatory frameworks, such as the General Data Protection Regulation
(GDPR) in Europe and the Payment Card Industry Data Security Standard
(PCI DSS), play a significant role in shaping the regulatory landscape for IoT
payments.
• Future Outlook.
• The IoT-based payments market is expected to continue evolving rapidly,
driven by advancements in technology, changing consumer behaviours and
emerging use cases across various industries.
• Opportunities for innovation and growth exist in areas such as contactless
payments, biometric authentication, subscription services and cross-border
transactions.
• As per Statista.com, the IoT market is expected to witness a significant surge
in revenue, reaching a staggering US$1387.00bn by 2024 worldwide
(Insights, 2023).
• Among various segments, automotive IoT is projected to dominate the mar-
ket, with a substantial market volume of US$494.20bn in the same year.
• Looking ahead, the market is anticipated to grow at an annual growth rate of
12.57% (CAGR 2024–2028), resulting in a remarkable market volume of
US$2227.00bn by 2028.
• In terms of global comparison, the USA is expected to lead the pack, generat-
ing the highest revenue of US$199.00bn in 2024.
• This showcases the country’s strong foothold and influence in the IoT market
segment.
• In the USA, the Internet of Things market is rapidly expanding, with compa-
nies investing heavily in smart home devices and connected cars.
• Micropayments: Today, we cannot make or receive micropayments (fractions of
pennies or cents) for tiny units of service, such as paying to read a single online
news page referred as pay-per-view or receiving a financial reward for clicking
on a website advert, mostly because in the earlier days such transactions would
cost too much. Money itself is divisible, but there is no point paying 0.05 of cent
for something if processing the payment costs many times more than that. Thanks
to emerging technology and new payment systems, this constraint has been elim-
inated, and today not only small or micropayments are used for goods and ser-
vices even for shares like in US bourse it’s possible to buy a fractional share of
Meta or Apple or Tesla at the accessibility by just click of button and not only for
a citizen of US but also for an Indian citizen who can buy the shares of foreign
company at ease by using apps such as INDmoney or Trendlyne and many others
who have allowed Indians to purchase fractional shares in many US-based
companies.
20 V. R. Ashar

• Peer-to-Peer and Social Payments: Roommates and colleagues are using social
media platforms to split bills, rent and utilities, supported by innovative peer-to-­
peer payments platforms such as Venmo and Braintree. Social context gives plat-
forms an opportunity to build on emotions and personal bonds and social
reinforcement to gain traction. In 2017, WeChat, China’s favourite messaging
app, had over 980 million monthly active users to 1.427 billion active users in
2024. There’s a Chinese tradition of exchanging packets of money among friends
and family members during holidays, and, in 2014, for Chinese New Year,
WeChat introduced a feature for distributing these virtual ‘red envelopes’, allow-
ing customers to send money to contacts and groups as gifts. A month after it was
launched, WeChat Pay’s customer numbers expanded from 30 million to 100
million. Two years later, in 2016, 3.2 billion red envelops were sent over the holi-
day period; in 2024, this stands at 5 billion sent across the globe.
• New Digital Payment Channels: Mobile payments have become ubiquitous; a
big driver of commerce lies in enabling consumers and merchants to connect at
new points of discovery. Businesses can reimagine business models and how
they interact with their customers, thanks to new technology, especially integra-
tion with social and lifestyle platforms. As the platforms provided by Meta,
WeChat, Amazon, Alphabet, Alibaba and others continue to lower the barriers of
participation, opportunities arise for payments providers to differentiate consum-
ers’ and merchants’ experience and allow select financial services to fit more
naturally into their customers’ lives. The key to success will be identifying which
account features are best handled through which channel, including voice, mes-
saging and even augmented reality. Augmented reality, for example, can provide
new payment channel opportunities through customers’ devices, such as select-
ing and paying for item from an in-app camera or reserving a seat in a cinema
while scanning the ‘Screening Now’ board in the street.
• India is seeing an exuberance of this new innovative change in payment system;
the inception of QR code and its scanning is an experience which has brought the
following into a reality: that there is no need of carrying any wallet and a smart-
phone device enabled with Internet is sufficient to make payments and receive
payments. Whether it is shopping for vegetables and fruits or even having coco-
nut water at a stall or buying an expensive Rado watch at a luxury showroom, the
QR code market is posing challenge to the debit and credit card market.
2 Fintech Landscape 21

The New Payments Landscape and Its Enablers

QR Code-Based Payments

The widespread use of QR codes in India’s transaction landscape is being mirrored

in Singapore and the Benelux countries. These regions recognise the ease of use and
accessibility of QR code-based transactions, making them appealing for both urban
and rural demographics.

Micropayment Solutions

India’s adept handling of micropayments caters to a market driven by small-value

transactions. This approach is being keenly observed by France and Malaysia,
where similar market dynamics exist, and there is a need for efficient handling of
low-value transactions.

Aadhaar-Enabled Payment Systems

The Aadhaar-enabled payment systems of India, leveraging biometric verification,

are influencing countries like the UAE and the UK. These nations are exploring
similar biometric systems to ensure secure and inclusive digital transactions.

Financial Inclusion Initiatives

Initiatives pioneered by India to foster financial inclusion through the adoption of

digital payments are finding resonance and being replicated in nations such as Nepal
and Malaysia. These nations are adopting India’s strategies to extend banking ser-
vices to the unbanked, leveraging technology to bridge financial divides.

Rural Digital Payment Adaptation

India’s strategies to penetrate rural markets with digital payments are a blueprint for
countries like Nepal and the Benelux region. These regions share similar rural
demographics and are implementing analogous strategies to extend digital payment
networks to remote areas.
22 V. R. Ashar

India’s regulatory framework for managing digital payments is emerging as a

model for nations like France and Singapore. These countries are developing their
digital economies and see value in India’s balanced approach to regulation and
innovation.
It is this UPI payment transaction which has been a great enabler for any indi-
vidual to sip coffee from the Eiffel Tower using UPI or to see the majestic view from
Burj Khalifa using UPI. UPI has become a huge exporter of currency services for
India, and its rise has been tremendous; as more and more countries will adapt, the
cost of transfer of funds will be lower, and it will lead to optimisation of revenues.

Innovative Payment Technologies

The innovative payment technologies embraced by India, including contactless pay-

ments and e-wallets, are influencing markets like the UK and the UAE. These
regions are adopting similar technologies to keep pace with global digital pay-
ment trends.

Cross-Border Payment Systems

Finally, India’s advancements in facilitating cross-border payments are being

closely studied by countries like Singapore and the Benelux nations. These coun-
tries see India’s model as a way to enhance their international trade and remittance
flows, ensuring smoother cross-border financial transactions.

Emerging Fintech Solutions

Solutions to the classification challenge, including definitions for green and climate
bonds, have already emerged, thanks to efforts by NGOs and big data analytics.
There are a small number of platforms already available that enable investors to
select their investment criteria and see a match, for example. If they favour projects
supporting gender equality or eradicating poverty, or for emission reductions, so
that investments can be tailored to the investor. These solutions enable a wider body
of investors to access a wider variety of sustainable investment, increasing the scope
of sustainable investments, although provenance and corruption may still be an
issue for riskier countries or industries.
Tokenisation of green initiatives using blockchain is also becoming more com-
mon, with a variety of initiatives involving tokenisation of renewable energy carbon
offset schemes emerging, enabling, community ownership of energy resources,
facilitating targeted investments in green projects. While tokenisation itself is
2 Fintech Landscape 23

effectively a type of securitisation giving confidence to purchasers that the underly-

ing asset is clean, these tokens are also easier to transact those traditional securities,
as they can be traded for other cryptocurrencies or for fiat currencies via cryptocur-
rency exchanges. As per Malamas et al. (2023), the process of issuing bonds is
intricate and fraught with technical problems, including unreliable stakeholders,
restricted traceability and regulatory frameworks. Issuing green bonds increases
administrative and compliance costs because they fund environmentally beneficial
projects that need to be verified by a third party. Through the development of impact
reporting green bond procedures that are trusted, blockchain technology can resolve
these problems. An architecture based on a proposed blockchain tokenises bonds
with an ERC-20 smart contract. The smart contracts take regulatory compliance
tools into consideration, manage validatory and regulatory approval requirements
and provide forensic-by-design services. Regulatory agencies’ access to issuance
records is also improved by the system.
Meanwhile, robo-advisors are starting to make it easier for normal people to
participate directly in green investments, via exchange-traded funds (ETFs), and we
have already seen the mainstream robo-advisor WealthSimple trading a green ETF
as part of its standard portfolio of products, among others.

Case Study

This is the case study of a company named BigOHtech (https://bigohtech.com,

2024) which solved the problem of handling a large number of loan applications
from manual to automation which increased the human productivity as well as the
disbursal of loans quickly.

Project Details

The client was seeking a solution to handle a high volume of loan applications and
help with the loan processing time and efficiency of the process. Furthermore, the
company’s existing processing system was prone to errors and needed some fixing.

Problem

The customer was experiencing a high volume of loan applications and lacked the
mechanism to handle such overloads. This resulted in long processing times and
delays in loan approvals.
The company’s loan officers received an average of 50 loan applications per day,
which proved to be an overwhelming number and led to processing delays. The high
24 V. R. Ashar

volume of loan applications led to processing times of up to 2 weeks, which is much

longer than industry standards. This, in turn, resulted in decreased customer satis-
faction and loss of business.
The company’s customer satisfaction rating had dropped by 15% over 6 months
due to delays in the loan processing process. A total of 10% of the company’s busi-
ness was lost to competitors who offered faster loan processing times. The compa-
ny’s existing loan processing system was prone to errors. This could have resulted
in incorrect loan decisions for up to 50 loan applications per day. The company
realised that a way must be found to improve the loan processing time and enhance
the customer experience.

Company’s Approach

On average, loan applications processed manually could take up to 10 business

days, while automated loan processing systems can process loan applications in
under 24 h. With an automated loan processing system, the loan approval rate is
expected to increase by up to 10%, as the machine learning algorithms will be able
to identify patterns in successful loan applications and make more accurate deci-
sions. The implementation of an automated loan processing system can save the
company up to $500,000 per year in employee salaries and benefits, as fewer loan
officers will be required to handle loan applications.
The customer-facing portal is expected to reduce the time required for loan appli-
cation completion by up to 50%, as customers will no longer be needed to visit the
company’s physical locations or wait on hold for customer service support. An auto-
mated loan processing system can reduce the overall loan processing time by up to
90%, as loan officers will only need to review and manually process complex loan
applications that cannot be handled by the automated system. The implementation
of an automated loan processing system would reduce the overall loan processing
cost by up to 30%, as fewer loan officers will be required to process loan applica-
tions, and the risk of errors and legal issues will be significantly reduced. An auto-
mated loan processing system would improve the company’s loan approval speed
and accuracy, leading to increased customer satisfaction and retention rates.

Benefits Due to the Adoption of Fintech

Sun Ryu (2018) The study proposes a benefit-risk framework to understand users’
willingness to adopt fintech. Based on data from 244 fintech users, it was found that
perceived benefit and risk significantly impact adoption intention. Legal risk had the
biggest negative effect, while convenience had the strongest positive effect. Early
and late adopters’ adoption decisions are influenced by different factors. The
research stated that there are two perceived factors responsible for adoption of
2 Fintech Landscape 25

fintech which are (a) perceived benefit and (b) perceived risk; under perceived ben-
efit, the researcher has identified three factors which are economic benefit, conve-
nience and transaction process, whereas perceived risk consists of four factors
which are financial risk, legal risk, security risk and operational risk.
The new automated loan processing system reduced the average loan processing
time from several days to under 24 hours, resulting in an 80% improvement in pro-
cessing time. The improved loan processing time resulted in a 50% increase in loan
approvals, reducing the number of loan rejections and resulting in more revenue for
the company.
The new system also reduced the risk of errors in loan decisions by implement-
ing advanced machine learning algorithms, resulting in a 40% reduction in the num-
ber of inaccurate loan decisions. The customer-facing portal provided customers
with real-time access to their loan application status, reducing the need for customer
support inquiries and improving customer satisfaction by up to 90%. The portal also
allowed customers to upload required documents and e-sign loan agreements,
reducing the need for manual paperwork and improving the efficiency of the loan
processing process. Also the new automated loan processing system was fully scal-
able, allowing the company to handle increased loan volumes without any addi-
tional infrastructure investment, resulting in a 60% reduction in operational costs.
Fintech has not just energised the payments market but has given a boost to even
the savings and investment basket. Today, mutual funds are seeing more than 18,000
crore inflows month on month, and the amount is going to grow exponentially. This
has fulfilled the long-drawn dream of ex-SEBI governor to have a marketplace like
Amazon and Flipkart which are increasing the consumerism buying and on the
other hand companies like Groww, Zerodha and Upstox which have been a huge
beneficiary for increasing the investment culture not only among Gen Z but also
among the millennials and baby boomers.

References

Blakstad, S., & Allen, R. (2018). FinTech revolution (Vol. 121, p. 132). Springer.
Dubey, V. (2018). Fintech innovations in digital banking. International Journal of Engineering
Research & Technology, 8(10), 597–601.
Gai, K., Qiu, M., & Sun, X. (2018). Survey on fintech. Journal of Network and computer applica-
tion, 103, 262–273.
https://bigohtech.com. (2024, January). Retrieved from https://bigohtech.com/portfolio/
fintech-­case-­study/
Insights, S. M. (2023). Internet of things – Worldwide. Statista. Retrieved from https://www.
statista.com/outlook/tmo/internet-­of-­things/worldwide
Kumar, A. (2019). A significant characteristic of E- payment regime in India. MERC Global’s
International Journal of Management, 7(1), 109–113.
Malamas, V., Dasaklis, T., Arakelian, V., & Chondrokoukis, G. (2023). A block chain frame work
for digitizing securities issuance: The case of green bonds. Journal of Sustainable Finance and
Investment, 1, 1–27.
26 V. R. Ashar

Priya, P. K., & Anusha, K. (2019). Fintech issues and challenges in India. International Journal of
Recent Technology and Engineering, 8(3), 904–908.
Rubini, A. (2017). Fintech in a flash: Financial technology made easy (2nd ed.). De Gruyter.
Ryu, H. (2018). Understanding benefit and risk framework of Fintech adoption comparison
of early adopters and late adopters. In Hawaii international conference on system sciences
(pp. 3864–3873).
Venkatachalan, P. (2020). Influence of fintech companies on Banking landscape an explor-
atory study in Indian context. Re-imagining diffusion and adoption of information technol-
ogy and systems: A continuing conversation. TDIT 2020. IFIP Advances in Information and
Communication Technology, 617, 523–528.
Chapter 3
Fintech in International Relations: Some
Reflections on Globalisation
and Transnational Governance

R. Radhakrishnan and Shreya Jha

Introduction

Today, we are witnessing the advent of new technologies that go beyond the euphe-
mism of global village, a term popularised by Marshall McLuhan, the late Canadian
communication scholar. This observation can be juxtaposed by the recent state-
ments from the Indian government that Indians could use the UPI services to carry
out transactions in Sri Lanka, Mauritius, Bhutan, Nepal, Oman, UAE, France and
Southeast Asian countries which support UPI. Moreover, there are plans to intro-
duce UPI services in major powers like the UK, Australia and the USA (Goldstein
et al., 2019). These developments go beyond transborder and highlight the strides
made in the globalised world economy while also raising questions about the
authority of the nation-states albeit getting diminished as a result of significant
changes in technology and finance due to the integration of national economies into
a global world economy (Walker, 2017).
In the Indian context, the future prospects of fintech seem to be very promising
with a growing middle class in the world’s most populous nation, wherein its overall
fintech market potentiality is estimated to be around $1.3 trillion by 2025 (Laboure
& Deffrennes 2022). This assumes more importance given India’s unique position
in the comity of nations. It is a subcontinental country, with enormous diversity with
most of its population having a polyglot features and carrying multiple identities. Its
reliance on social justice and an inclusive, secular and democratic nation-building is
in contrast to the general discourse on modern nation-state system as witnessed in
other parts of the world (Haddad & Hornuf 2019).
In this context, the advent of fintech merits all the more attention given its adher-
ence to decentralisation, fiscal discipline and governance which is an integral part of
good governance. Fintech when in force in its totality will also regulate the

R. Radhakrishnan (*) · S. Jha

Symbiosis Law School, Hyderabad, Telangana, India

© The Author(s), under exclusive license to Springer Nature 27

Switzerland AG 2024
C. M. Gupta, G. Kaur (eds.), E-banking, Fintech, & Financial Crimes,
https://doi.org/10.1007/978-3-031-67853-0_3
28 R. Radhakrishnan and S. Jha

municipal and panchayat targets for fund disbursement through the existing banking
system. This aspect endorses the inevitability of fintech in our day-to-day life and
highlights the centrality of the state especially in the formulation of discourse on
financial governance and security. In recent times, fintech has claimed spotlight due
to various factors. Some of them are a booming economy and a tech-savvy, youthful
population, i.e. the demography dividend. The meteoric rise of India’s fintech land-
scape can be traced back to multiple factors, chief among them the government’s
drive for a cashless economy, which has accelerated the adoption of digital payment
methods and stoked the demand for fintech offerings.
Financial technology can be comprehended as the ‘electronification’ or ‘digitali-
sation’ of the services provided by the banking sector to utilise them in ingenious or
unconventional ways. Financial technology can be explained in terms of the market
and its functions, its establishment, its technological mechanisms, its layout, its
consequences and its retardation and the aftermath. Fintech, for instance, has been
elucidated as ‘to technology enabled financial solutions’ or ‘to the use of technol-
ogy to deliver financial solutions’. Universally, the expansion of fintech has been
remarkable and significant. Earlier investment institutions have used fintech to grow
over and develop initial forms of algorithmic trading, high-frequency trading (HFT)
and off-market dark and grey pools. The growth of fintech has been very substantial
and reflects potential to the core of the future growth of all market sector areas.
Keeping the consideration and in the present scenario fintech is being used in secu-
rity areas to create fintech being used in security areas to creating an indiscernible
traverse among traditional stock markets and exchanges and then the development
of new electronic markets.
The system of financial technology consists of deposits, withdrawals, lending,
credits, payments, investment and its risks and management of losses. One of many
definitions defines fintech as concerning the company rather than concerning the
market. Referring to the reports of UK fintech financed by HM treasury and pre-
pared by Ernst & Young in March 2015 espoused an entity-based approach;
According to them fintech are ‘high-growth organizations combining innovative
business models and technology to enable, enhance and disrupt financial services’.
There are many other components identified by Ernst & Young which is centred
around the experiences of consumers and simple and low-cost modelling. The
reports and studies embrace a ‘classic’ (Ernst & Young, 2014). With constant stud-
ies on financial technology, many scholars adopt specific technical approach to
comprehend the effects, aftermath and working of fintech. The UK government
Chief Scientific Advisor, Sir Mark Walport, elucidates fintech as ‘financial tech-
nologies that integrate finance and technology in ways that disrupt traditional finan-
cial models and businesses and provide an array of new services to businesses and
consumers’ (Ernst & Young, 2016). Separate UK government commissioned offi-
cial reports define fintech in generic sense as ‘technology applied to financial ser-
vices’ or ‘the use of financial technology to provide financial services’. Both
meanings conferred by the authorities refer to ‘Amalgamation of technology with
the orthodox method of financing in all dimensions’ (Chen et al., 2019).
3 Fintech in International Relations: Some Reflections on Globalisation… 29

With an average estimate of 4000 start-ups of financial technology by the end of

2015, among them 12 start-ups were considered as ‘unicorns’, meaning those start-
ups have an average net worth of over 81 billion. The most remarkable innovations
have been noticed in the retail payments sector, which have led to the unbundling of
different traditional financial services and led to a shift to low-cost foreign exchange
(FX) services (Chiu & Koeppl, 2019). Recently, we have seen advances in the pay-
ments sector with the introduction of integrated payment systems, contactless pay-
ments and peer-to-peer system, among many others. The paramount consideration
for these innovations is the overall welfare of society, not just the health of the
financial sector. But it is difficult considering the vast majority of parties involved—
the solution to this: thorough research of the market. For example, if the banks and
fintech lenders are competing on provisioning of credit, they will take into account
the implications to both the final consumers and the investors. Questions like the
following will all need to be considered because one of the key promises of fintech
is its potential for greater financial inclusion: ‘How will credit provision be affected?’
‘How will the provision of liquidity be affected?’ ‘How will the effects translate to
welfare?’ Worldwide estimates show that over 2 billion people around the globe are
unbanked; their inclusion into the fintech ecosystem could provide them with wel-
fare improvements. A modelling system which is accompanied with empirical evi-
dence can help us shed light on these issues. Ample of studies on fintech has invited
many worldwide associations in various other disciplines. The term ‘fintech’ itself
elucidates an amalgamation of finance and technology. Few significant studies on
issues pertaining to fintech are taken up by many scholars in finance, but the research
dwells deep into the territory of technology, and the scholars are not necessarily
equipped with the knowledge to combat these issues. This is where collaborations
with experts of technological sector can be fruitful (Cong & He, 2019). For instance,
the blockchain infrastructure is based on technological innovation which has been
achieved after in-depth research into computer sciences. Understanding the impact
of blockchain on the financial market can allow us to develop beneficial insights
which present the need of the collaboration of finance and technology. Numerous
studies on blockchain demonstrate the potential for such synergy. Another such
impactful synergy can be anticipated with legal scholars, considering that financial
technology indulges many issues pertaining to law, such as issues related to the
accessibility of available data to the lenders without them being in violation to the
privacy or anti-discrimination laws (D’Acunto et al., 2019). These are some of the
issues that the experts of the field have been exploring; these issues pose several
opportunities to collaborate. The fintech includes neophyte small-scale business,
start-ups and scale-ups, full-fledged companies out of them many company had
expertise on telecommunication services and e-retail. The classification of fintech
has always been a very far-fetched subject. The classification of fintech had many
characteristics to be considered before subjecting them to a particular spectrum like
classifying them on subject of being customer-centric, legacy-­free, scalability, inno-
vations and in accordance of the compliance. The classification of fintech is inspired
by principles given by David Chuen and Ernie Teo. While consideration of
30 R. Radhakrishnan and S. Jha

classification adopts a very foundational approach, it also highlights many features

and effects in terms of impact, expansion and repercussions.
Fintech’s growth has been very subsequent and has shown a large scale of prog-
ress and development in the sense of proficiency as well as productivity. Surveys
conducted by mega companies like Capgemini and LinkedIn facilitated the use of
fintech by a large scale of companies with an average of 50.2% companies world-
wide are embracing fintech while they do their business. Investment in the sector of
fintech may take a leap in the future expansion as predicted by some scholars and
market watchers. Numerous financial establishments have been already been invest-
ing from a long due time, internally into fintech. With the predictions of the experts
and constant market watchers, fintech-related investments have witnessed a steep
rise. The UK’s fintech global reports, October 2018, emphasised on year-to-year
growth on capital raised by the fintech establishments, and they were seen to reach
$54.4 billion in 2018. The rate of declined offers and deals has dropped down from
peak of 2291 in 2015 to 1187 in 2018.
The regulation of fintech in financial institutions has always faced grave chal-
lenges, making it a centre of topic in worldwide financial sector and infrastructure.
Fintech has an edgy technological spectrum which makes it difficult to comprehend,
utilise and make it work in the day-to-day professional work. Though fintech offers
lot of potentialities in making any traditional financial services easy and prompt, its
regulation is quite a difficult task. Many regulatory circles in the USA and around
the world have made this subject a rampant central matter of talk these days. In
many instances, banks are put up in a disadvantageous situation in coordination
with the technological companies, in terms of its regulation, wherein the banks are
not regulated as tightly. One of the many challenges pertaining to fintech is how to
regulate new fintech into the traditional, orthodox financial establishments.
Maintaining financial stability and consumer welfare while boosting innovation
is an intricate equilibrium that must be struck while negotiating the complicated
regulatory landscape of fintech. The traditional regulatory framework, which is
based on classifying businesses according to their kind, has substantial difficulties
in the ever-changing fintech environment, where a variety of actors participate in
comparable activities. Activity-based regulation proponents call for a paradigm
change and stress the significance of regulating based on actions as opposed to
entity type. They contend that this strategy promotes fair competition, reduces regu-
latory arbitrage and strengthens transparency. The adaptation of conventional regu-
latory frameworks to the innovative financial modalities inherent in fintech raises a
fundamental concern. Because market-based lending, for example, differs from tra-
ditional bank lending, it is questionable whether the present regulatory frameworks
intended for traditional financial institutions still apply. This disparity highlights the
need to adjust legislation, but care must be taken to avoid strangling creativity.
There are worries about the potential consequences of insufficient screening in
some fintech endeavours, especially when it comes to large-scale investment distri-
bution to individual investors, which brings to mind the flaws found in the financial
crisis of 2008. It is crucial to take a balanced strategy that embraces activity-based
regulation and is adaptable to the changing fintech scene. Regularly updating and
3 Fintech in International Relations: Some Reflections on Globalisation… 31

adjusting regulatory frameworks to keep pace with evolving risks and technological
advancements in the financial sector is essential. This requires concerted collabora-
tion among policymakers, regulators, industry figures and the public. Through col-
lective efforts, these stakeholders can uphold consumer protection, preserve
financial stability and cultivate an enabling atmosphere for fintech advancement.
Regulators can effectively traverse the complexities of fintech regulation by fos-
tering open conversation and adopting creative tactics.
In recent times, a new risk that is on the rise is the risk from the technologies
itself. A system glitch, any problems in the market-based lending method or a mere
breach of security of the cloud system where all the essential financial data is being
kept could cause detrimental damage to the financial industry, so severe that only a
few have even begun to imagine it. These are all issues which should be evaluated
in any future researches.
The advent of fintech companies has resulted in the creation of new financial
consumer-oriented services that offer faster, cheaper and more accessible digital-­
financial user experiences across the world. So it now invariably has a geopolitical
dimension as firstly it has generated an economic competitiveness along with grow-
ing innovations. Secondly, it seeks to usher in a sense of economic and social stabil-
ity along with promotion of inclusion of various sections of people from across the
world. In this context, the role of regulators and governments around the globe
seeks to now adopt a forward-looking progressive stance to nurture future opportu-
nities which could emerge from a radically different new economic order and
decentralised applications and services system. Such a scenario has created a decen-
tralised finance (DeFi) as financial power and wealth have always been closely
related to geopolitics and foreign influence. The rise of fintech has revolutionised
the prevailing transaction system among the masses by providing cheaper credit and
access to financial services leading to the dismantling of the influence of large
monopolistic financial institutions. This at the same time raises concerns about the
giving space to the nontraditional threats such as money laundering and tax evasion,
leading to bringing new risks that seek to disrupt the existing global financial and
economic order. In a globalised world, the rises of fintech with technological inno-
vations seek to confront and replace the existing global institutions of financial gov-
ernance. These companies have an enormous potential to influence the general
behaviour as they have the potentiality to disrupt the traditional financial companies
by seeking to acquire companies around the world and seeking to acquire them or
their ideas by trying to copy their ideas within their centralised ecosystems (Foley
et al., 2019).
Modern technology is making huge transformations to the financial services in
the present era; along with that, it has also led to the formation of competitors which
fall outside the traditional sectors of finance. After a thorough research of four aca-
demic papers by scholars Fuster et al., D’Acunto, Prabhala and Rossi, Tang and
Vallee and Zeng, different perspectives of the technological disruption of the market
can be formed. These articles discuss about technological lending of money as well
as technology-based investment advice services.
32 R. Radhakrishnan and S. Jha

Fuster et al., in their paper, noted that the fintech lenders, in comparison to banks,
had increased their share in the mortgage lending market in the USA to 8% in 2016
from the previous 2% in 2010 (Fuster et al., 2019). They analysed various loan-level
databases and concluded that fintech lenders process the applications at a 20% faster
rate than traditional lenders. Plus, they are less likely to incur any bottlenecks upon
demand shocks. A surprising thing to note by the authors was that fintech did not
target people with less access to traditional finance methods, which suggests that
they are not increasing access for people but instead competing with the existing
finance methods. Vallee and Zeng and Tang in their scholarly articles further
expanded on this view by providing a theoretical analysis on this topic further sup-
ported by empirical research on the interactions between banks and peer-to-peer
(P2P) lending services (Tang, 2019). The authors found that P2P lending is becom-
ing a substitute for bank lending concerning infra-marginal bank borrowings but
acts as a complement in instances of small loans of money. The authors also focused
on the fundamental issue of joint information production by investors and plat-
forms, which directly challenged the bank’s role as the sole information provider on
the investor’s behalf. Their concern is the trade-off between unfavourable investor
selection and more thorough screening by knowledgeable investors. Their empirical
testing and theoretical model both demonstrate that as platforms advance (Vallee &
Zeng, 2019). They reduce investor information provision while optimally increas-
ing platform pre-screening intensity. The authors D’Acunto, Prabhala and Rossi
analysed whether virtual advisors improve investors’ performance. With a sample
based in the Indian market, in the prior stages, adopters of a virtual assistant per-
formed similarly to non-adopters who preferred human advisors. However, most
became better diversified to reduce portfolio volatility after adopting robo-advising.
Although robo-advisory is an effective tool in tackling some significant behavioural
biases like disposition effect and momentum chasing, it is essential to note that it is
not a ready-made solution. The way robo-advising succeeds or faces challenges is
primarily determined by the degree of personalisation in the interventions designed
to meet the varying needs of the diverse investor classes. Moreover, the authors
underline that robo-advisory has unique benefits that should not be perceived as a
panacea in investment-related matters. Even in the aftermath of the global financial
crisis that swept from 2007 to 2008, international financial hubs are under a heavy
burden as the expenses and the effects remain to be seen. More recent large-scale
successful technological innovations in financial technologies and the development
of various fintech service platforms and models gave impetus to the growth and vis-
ible improvement of the efficiency and profitability of economic systems after the
crisis. On the other hand, this has seen the development of new and equally danger-
ous risks, mainly in market and counterpart fragmentation. This has hindered regu-
latory institutions and supervisory authorities, resulting in disorganisation,
disintegration, disconnection, depletion and distraction. Consequently, there is a
preference for essential materials and skills in manoeuvring in these contemporary
terrains (Zhu, 2019).
Internationally it can be observed that a lot of the fintech advancements are hap-
pening outside the USA, with China leading at the forefront of financial technology.
3 Fintech in International Relations: Some Reflections on Globalisation… 33

Other nations which have less developed financial markets are also noticing consid-
erable activity in their markets. This does not come as a surprise since the financial
industry of the USA has always been among the most developed ones and has been
at the forefront for decades, being home to many well-established players. This
results into much fewer opportunities for innovation and growth since anything that
will cause disturbance to the financial equilibrium will be faced with a lot of resis-
tance. The same cannot be said for other emerging economies like China as they
have less developed finance sectors; they provide a lot of scope for innovation, stage
skipping and disruption to the equilibrium in general. This has presented numerous
opportunities for researchers in the finance sector, since, for many years, finance
research has been restricted to the USA only. This growing interest in fintech in
other emerging economies opens up paths to expand the target of research at a
global stage.

References

Chen, M., Wu, Q., & Yang, B. (2019). How valuable is FinTech innovation? Review of Financial
Studies, 32, 2062–2106.
Chiu, J., & Koeppl, T. (2019). Blockchain-based settlement for asset trading. Review of Financial
Studies, 32, 1716–1753.
Cong, L. W., & He, Z. (2019). Blockchain disruption and smart contracts. Review of Financial
Studies, 32, 1754–1797.
D’Acunto, F., Prabhala, N., & Rossi, A. (2019). The promises and pitfalls of robo-advising. Review
of Financial Studies, 32, 1983–2020.
Ernst & Young. (2014). Mobile money – The next wave of growth. Available at: http://www.
ey.com/Publication/vwLUAssets/EY_-­_Mobile_money_-­_the_next_wave_of_growth_in_
telecoms/$FILE/EY-­mobile-­moneythe-­next-­wave.pdf.
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On-­the-­cutting-­edge/%24FILE/EY-­UK-­FinTech-­On-­the-­cutting-­edge.pdf.
Foley, S., Karlsen, J., & Putnins, T. (2019). Sex, drugs, and bitcoin: How much illegal activity is
financed through cryptocurrencies? Review of Financial Studies, 32, 1798–1853.
Fuster, A., Plosser, M., Schnabl, P., & Vickery, J. (2019). The role of technology in mortgage lend-
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technological determinants. Small Business Economics, 53(1), 81–105.
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Chapter 4
Theoretical Perspective of Fintech

Monika Thakur and Chander Mohan Gupta

Introduction

Fintech, short for financial technology, is a relatively new concept that has been get-
ting a lot of attention lately but has not gotten much attention in research area and
publication. This chapter delves into the origins of fintech by reading widely and
analysing the already published articles and chapters. There are many different
ways in which fintech might show itself. No universally accepted meaning of the
word “fintech” has been settled upon, and its use could vary depending on the sur-
rounding circumstances. Innovation in the financial technology sector is complex
and dynamic. Additionally, the way it spreads, its widespread acceptance and the
amount of people it manages to attract are all quite unique. Companies operating
outside of fintech’s jurisdictional constraints are particularly caught in the middle of
the heated debate over the regulatory ramifications of fintech. Financial technology
(fintech) poses problems for established banks and financial services while opening
up opportunities for nimble and creative entrepreneurs to shake up the industry and
take charge.

M. Thakur (*)
Faculty of Law, Shoolini University of Biotechnology and Management Sciences,
Solan, Himachal Pradesh, India
C. M. Gupta
Faculty of Management Sciences, Shoolini University of Biotechnology and Management
Sciences, Solan, Himachal Pradesh, India

© The Author(s), under exclusive license to Springer Nature 35

Switzerland AG 2024
C. M. Gupta, G. Kaur (eds.), E-banking, Fintech, & Financial Crimes,
https://doi.org/10.1007/978-3-031-67853-0_4
36 M. Thakur and C. M. Gupta

Background and Reasoning

More than 70% of millennials would rather go to the dentist than go to their bank,
according to Arslanian (2016). Even if there are differing opinions on this, it does
bring up an important point about how the banking and financial industries will be
involved in the Industry 4.0 age (Gabor & Brooks, 2017; Jakšič & Marinč, 2019).
Technology, consumer habits, ecosystems, businesses and even governments have
all been impacted by the emergence of fintech.
The assumption that money and technology were closely related—and some-
times the same—was shattered by a single comment on this major change. When
compared to other service industries, the financial services sector is frequently con-
sidered to make the most comprehensive use of information technology, and its
pioneering role in technical breakthroughs has earned it widespread fame (Iman,
2014). The interplay between service providers, customers, technology and laws is
complicated and dynamic, and it may be difficult to keep up with all the mov-
ing parts.
Sadly, this line of inquiry has received very little funding (Ozili, 2018).
Notwithstanding the wealth of information on the subject, there are few fintech
studies; a basic search for “fintech” on Google Scholar should provide the same
results. The majority of the findings are often presented in policy studies and con-
sultancy reports. The following questions are foundational for this purpose. What is
fintech? What are the most prevalent themes covered in fintech research?

Technique and Strategy

The fintech study drew from a wide range of credible sources, including those in the
fields of law, computer science, business, management, information systems and
technology management. We searched the Web of Science database for each publi-
cation separately to find chapters that have the words “fintech” and “financial tech-
nology” anywhere in the title, abstract or keywords. The increasing use of the words
“fintech” and “financial technology” has led to some uncertainty and misunder-
standing over their precise meaning, which is why this limitation was put in place
(Milian et al., 2019). The goal of this study is to get back to the fundamentals of
the idea.
Using this methodology, a total of 228 chapters were generated, with a focus on
the theoretical or empirical discourse surrounding “fintech” or “financial technol-
ogy”. Later, in order to make them more manageable for human evaluation, the
chapters were condensed by removing any unnecessary or tangential references.
4 Theoretical Perspective of Fintech 37

Table 4.1 No of articles reviewed to write this paper (by Authors)

Year Journal papers Conference papers Articles Review papers Total
2014 6 4 3 2 15
2015 9 6 4 3 22
2016 11 7 5 3 26
2017 14 8 5 3 30
2018 13 7 4 2 26
2019 12 6 5 3 26
2020 10 5 4 3 22
2021 8 4 5 2 19
2022 9 5 5 2 21
2023 10 6 4 1 21
Total 102 58 44 24 228

Several chapters that fulfilled the inclusion criteria were found by the researcher
during the literature study. Journal and year were used to classify 61 publications
that fulfilled the requirements.
The first step in the coding process is for the author to go through a stack of these
chapters to compile a detailed list of categories. At the same time, two research
assistants used these criteria to evaluate each paper separately. After reviewing the
findings, the author fixes any coding issues and makes adjustments to the codes until
everyone is satisfied. Instead of doing a thorough literature study, this approach
aims to highlight key themes and trends discovered in fintech empirical research.
In order to determine the presence and frequency of ideas in the data, the research
used conceptual analysis, particularly content analysis (Creswell, 2003). In this
step, the frequency of an idea—implied or explicit—in the selected literature for
study is quantified. This inquiry calls for a qualitative approach, and that method is
both appropriate and sensitive enough to provide light on what happened.
According to the methods put out by Miles and Huberman (1994), each and
every item was recognised, evaluated, categorised and arranged into primary
themes. In addition, we reviewed other significant papers that came to light through-
out the course of the research but were not originally part of the dataset. After reach-
ing data saturation, certain publications were removed from the research. A practical
task was then used to combine the identified ideas (Table 4.1). Analysis, processing
and interpretation of the data followed. The study in this work was built around the
identification of the key conceptualising patterns.
There are three pivotal pillars that contribute the background of financial revolu-
tion, namely, innovation, accessibility and security; the other as pacts related to
fintech can be best explained with the help of following diagram:
38 M. Thakur and C. M. Gupta

Participants of Fintech Platform:

1.Fintech
Types of Fintech Platform:
2.Startup
1.Services via mobile, Financial
3. Regulators Influencing Factors:
servies in social media.
4. Banks 1. ICT Infrastructre.
2. Alternative types of payment
5. International Payment system 2. Legal Regulation
3. New business models
6. Associations of Bankrs and Financiers. 3. Access to Capital
4. AI
7. Incubators and Investment
5. Digital Identification
8. Accelerators 4. Expertise
6. Open application
9. Vendors Programming Interfaces

Why Is Fintech Important?

In contrast to conventional and neoclassical economics, which centre on product

prices and the laws of supply and demand, studying technological innovation like
fintech is very difficult, if not impossible. The unique qualities of technological
artefacts and intellectual knowledge set them apart from other types of resources
(Galende, 2006). Traditional banks are no longer the primary intermediaries in
financial transactions; instead, “shadow” banks have emerged as a significant player
(Buchak et al., 2018).
The growth of fintech has led to the elimination of middlemen in the financial
services industry, which has prompted the introduction of new protections for inves-
tors and consumers. Startups in the financial technology sector might sidestep the
minimum capital requirements and fees of intermediaries that are common in con-
ventional banking (Iman, 2018a, b). Data science and big data analytics have revo-
lutionised data acquisition, processing and evaluation methods, drastically cutting
down on search budgets (Giudici, 2018).
According to Gomber et al. (2017), the term “fintech” was coined not long ago
from the combination of the words “financial” and “technology”. This new term
describes how traditional banking practices are being transformed by integrating
present Internet technologies. Five factors—participants, added value, legislation,
methods and scope—have been identified by Hung and Luo (2016) as having the
ability to alter the dynamics of the fintech sector. A number of works have made
reference to fintech and its many useful aspects (Alt et al., 2018; Gai et al., 2018;
Lee & Shin, 2018).
Fintech, according to Puschmann (2017), is all about new ideas in the financial
services industry in terms of business models, goods, services, organisations,
4 Theoretical Perspective of Fintech 39

procedures and systems that come from IT advancements, whether they are little
tweaks or major overhauls. The term “fintech” was used by Gomber et al. (2017) to
describe technological advancements in the banking industry that upend long-­
standing practices, procedures and products.
The four main types of financial technology businesses identified by Ng and
Kwok (2017) include crowdfunding, automated investment advisors, peer-to-peer
lending and deposit platforms and simplified payment processing. The five main
players in fintech ecosystems, according to Lee and Shin’s (2018) research, are
government agencies, financial consumers, fintech startups and conventional finan-
cial institutions. Fintech is defined and classified in this way to highlight two key
features: the use of technology and the adoption of pre-existing government rules
and regulations.
Since banks have been pioneers in embracing IT from the start, they have had to
constantly raise their game in terms of knowledge and skill. There are two possible
roles for fintech firms in these situations: disruptors and collaborators (Hung & Luo,
2016). A co-opetition approach, which incorporates both collaboration and compe-
tition simultaneously, might be advantageous for participants in this specialised and
lucrative field (Brandenburger & Nalebuff, 1996).
Fintech startups’ development and advancement might be significantly impacted
by government laws. Their policies will definitely shape the sector’s future (Arner
et al., 2017a, b). It must be emphasised that we must be very careful how we apply
this legislation. The outcomes would probably not live up to expectations if govern-
ments mandated that all banks innovate. If, however, they pushed for fintech start-
ups to join the regulated sector, a lot of regulations and standards may not be
satisfied.
Fintech startups may find policy favourability in certain industrialised nations.
Nonetheless, protectionism is popular in a number of other nations. Instead of
directly motivating fintech entrepreneurs to create new goods and services, the
Taiwanese government encourages investment between conventional banks and fin-
tech firms (Hung & Luo, 2016). In her analysis of Indonesia’s fintech regulations,
Iman (2018a, b) focuses on the interplay between the country’s central bank and
several financial services organisations.
The majority of the existing literature is descriptive and heavily focused on
investigation, according to this study. There are studies that focus on the mechanics
and systems of interaction, and there are studies that provide new ways of looking
at fintech. Studies by Kim et al. (2016), De Kerviler et al. (2016), David-West et al.
(2018); and Kim et al. (2015) all reflect the murkiness in the fintech industry. While
fintech has the ability to simplify and improve possibilities, it also carries the risk of
negative consequences.
The research shows that fintech is multi-faceted, intricate and diverse, with many
possible manifestations. There are those who stress the innovative nature of fintech,
while others say it is all about creating new goods and markets. While some people
place a premium on following rules and regulations, others place a premium on
solving complex problems using technology. It must be emphasised that there have
been previous studies in the academic field that have conducted similar evaluations.
40 M. Thakur and C. M. Gupta

 hen Looking at Fintech from an Academic Standpoint, What

W
Is the Big Picture?

We have learned a lot about the dynamics of fintech from the literature review,
which are distinct from those of tech startups. Nevertheless, there are chances to
improve and maybe reorganise the literature due to the increasing frequency and
inexplicable scarcity in some domains. We are still confused and have not fully
grasped the complexities of the fintech concept. Therefore, a more comprehensive
classification of fintech is required.
Based on their relationships, subcategories, basic technologies, variety of ser-
vices, key players, settings and industries, we grouped them into many groups. It is
evident that there are certain omitted categories, despite our best efforts to be com-
prehensive in our categorisation. Nevertheless, the final outcome should not be dras-
tically changed by any deviations.
This study adds to the growing body of literature indicating that fintech is receiv-
ing substantial attention in business and management journals. Among these sub-
themes, you may find information on fintech’s history, evolution, key features,
consumer acceptance, regulatory considerations and market rivalry.

What Is Universal Fintech?

A proper explanation of fintech must take into account and respect its historical
foundations. Fintech refers to the increase of financial service offering; yet, most
studies that have looked into its roots have been qualitative and have not analysed
its history (Schueffel, 2016).
The exact meaning of “fintech” is still up for debate. While some studies focus
on the features and distribution of products and services, others examine the frame-
works and functions. In addition, contrary to popular belief, most fintech companies
have their roots in information technology (IT) rather than conventional banking
(Gomber et al., 2017). A large proportion of fintech entrepreneurs have backgrounds
in banking, according to King (2014) and Iman (2018a, b). The reason for this is
their ability to think outside the box and come up with new solutions and tasks,
which was previously only achieved by banks and other financial organisations.
The word “fintech” is facing semantic problems and does not have a strong foun-
dation, according to Schueffel (2016). Despite the lack of a universally accepted
definition of fintech, new terms like regtech, insurtech and wealtech are emerging
from the concept. The subjective nature of the term “fintech” may lead to different
understandings among native English speakers, French speakers, German speakers
and those from other regions of the globe (Schueffel, 2016). This is why, in order to
establish a benchmark in the corporate sector, a globally accepted and widely used
definition of fintech must be crafted.
4 Theoretical Perspective of Fintech 41

There are three pivotal pillars that constitute the backbone of financial revolu-
tion, namely, innovation, accessibility and security.

The Unique Features of Fintech

The fast growth of financial technology (fintech) has happened in several settings,
providing new goods and services using cutting-edge tech. In terms of breadth and
depth, fintech companies’ products differ greatly. There is a dearth of research on
the inner workings of fintech firms, in contrast to the abundance of studies that have
examined consumer uptake and spread of fintech goods and services. Understanding
the basic mechanisms that lead to discoveries might enhance our admiration and
comprehension of technical accomplishments while preserving the feeling of
amazement and wonder that comes with them (Dranev et al., 2019).
Wonglimpiyarat (2017) states that innovators face a dilemma when trying to
manage the complexity of innovation on their own. To solve this problem, a system-
atic strategy is suggested. Among the many service industries, banks stand out as
pioneers in the use of new forms of information technology. A new environment has
emerged in the banking sector as a result of the increasing usage of fintech. Payment
and transfer services that span networks are now possible because of technological
advancements (Thompson, 2017; Shim & Shin, 2016). As a result, the complex web
of ties between fintech companies and other industry players is not unexpected.
Should we encourage the formation of fintech startups to boost economic devel-
opment, according to Schumpeter’s idea of creative destruction? Is it reasonable to
restrict the expansion of established businesses on purpose when new innovations
never come out of them? Wonglimpiyarat (2017) argues that the complex web of
ownerships and externalities around fintech technologies need strong systemic fea-
tures to ensure their widespread adoption. However, fintech companies vary in
terms of their unique traits, levels of innovation and available resources.

Present Pattern of Use

An examination of fintech will reveal interdependencies in the following areas:

ownership (banks vs. nonbanks), structure (fintech vs. techfin), regulation (or lack
thereof) and scope (from basic payments to more complicated products). Both
Rogers’ (1983) theory of innovation dissemination and Davis’ (1989) model of
technology adoption get the lion’s share of the scholarly attention. Some journals
stand out from the crowd by investigating fintech adoption via nontraditional theo-
retical lenses, such as regulatory focus theory (Higgins, 1998).
In this area of fintech, new products and services are offered to meet customer
demands that were not met by conventional financial institutions (Gomber et al.,
2017; Pousttchi & Dehnert, 2018). Companies operating in the market may create
42 M. Thakur and C. M. Gupta

innovations and discover new chances by using state-of-the-art technology and

modern ideas. Their goods and services, say Alt et al. (2018), are more suited to and
perform better in the modern, fast-paced environment. Companies like these are
quick to adapt and think beyond the box, and they are well positioned to take over
the conventional banking industry (Hemmadi, 2015).
Analysing the actions of present customers and the reactions of long-standing
incumbent businesses is another way to do research. According to Pousttchi and
Dehnert (2018), consumers in the financial technology sector will inevitably alter
their digital behaviours, as well as their beliefs and loyalties. The decision-making
time of consumers is decreasing, which means that established organisations need
to innovate faster and employ data-driven tactics to compete with new fintech start-
ups (Lee & Shin, 2018). Clients, established organisations and young fintech com-
panies all have a hand in creating promising research opportunities.
The term “regulatory framework” describes the system of laws and regulations
put in place by political entities to manage and oversee different fields and pursuits.
According to Hung and Luo (2016), established banks do not foster the develop-
ment of new financial technology companies since they have been protected from
competition for an extended period of time. In this industry, there are already estab-
lished banks serving the customers, and there are also high obstacles to entry and
fierce rivalry. It is not believed that the government will become involved in this
industry to protect the present conventional financial institutions or to lessen the
possibility of a rise in systemic risk (Chen, 2016). Management academics and
corporate law specialists may benefit from a stronger and more consequential
collaboration.
Financial technology has a crucial role in facilitating the growth of the financial
sector by increasing the variety and accessibility of services (Gabor & Brooks,
2017; Haddad & Hornuf, 2018; Swartz, 2017). This, along with the democratisation
of financial services, needs an in-depth familiarity with the regulatory and fintech
industries. All financial technology sector players are significantly impacted by the
present laws and institutional standards.
Several challenges have arisen for regulators as a result of fintech businesses’
merger of jobs, clients, technological platforms and creative business models. When
new business models and procedures emerge, regulatory frameworks are notori-
ously slow to adapt (Gozman & Currie, 2014). It is crucial to analyse the challenges
that new financial technology companies will face as they expand across many juris-
dictions at the same time.

Competitive Landscape and Market

According to Gomber et al. (2017), fintech refers to persons or organisations that

provide innovative and game-changing technology to improve efficiency, flexibility,
security and opportunity. The pioneer can be a young banking firm, a tech behemoth
or a long-standing supplier of services. While Wonglimpiyarat (2017) found that
4 Theoretical Perspective of Fintech 43

cooperative strategies may be beneficial in certain contexts, Hung and Luo (2016)
found that, in other nations, the market is seen as a situation where one side’s gain
is the same as another side’s loss. This dynamic conditionality should be further
examined in future study.
Traditional financial intermediaries’ functions have been altered by the rise of
fintech (Gai et al., 2018; Haddad & Hornuf, 2018). One example is the fintech lend-
ing business, where a rise in loan amounts might result in more commission money.
However, this could cause some to overestimate the borrower’s credit risk (Giudici,
2018). This is the potential domain in which the insurance company may partici-
pate. Security, insurance, IT infrastructure and other ancillary domains are often left
out of publications that centre on main players.
The likelihood of substantial employment losses due to fintech innovation is low
in developing nations that are not financial hubs like Singapore or Hong Kong,
according to studies by Tao et al. (2017); Iman (2018b); and Chen (2016). This
research suggests that several businesses, including legal companies, accounting
firms, technology suppliers and others, may see employment shifts. There has been
a marked difference in the skill sets needed by bankers and financiers over the
last decade.
However, we acknowledge that fintech is an intriguing subject that has not been
well investigated up to this point (Romēnova & Kudinska, 2016). The primary goal
of this piece is to propose areas that may be investigated further. In order to effec-
tively manage and control the constant expansion of financial innovation, this study
suggests a method. The results provide useful information for governments and
regulators, and they also have real-world consequences for how we handle innova-
tion in the finance industry.
The unique aspects of financial technology that have received little attention in
previous studies are the focus of this investigation. This shows how much academic
literature discusses fintech. It seems from the results of the study that there is an
ongoing effort to establish a common and accurate definition of fintech. Further
research is required to fully understand the subject’s intriguing features and proper-
ties, particularly its importance in ecosystems and market competitiveness. In order
to promote financial inclusion, blockchain technology is crucial, particularly in
developing nations. Furthermore, regulatory systems in many situations provide
great promise for enhancing the existing studies.
The fintech literature is still very much up for dispute, but it is essential to look
at it from all angles and do a thorough analysis. The study implies that the present
research is fragmented and unrelated to management or strategy literature. It is pos-
sible to systematically build a multidisciplinary system of fintech services and gov-
ernance by including the above principles utilising an impartial approach. Research
on fintech ecosystems will benefit substantially by taking into account the unique
and significant role that national cultural factors play in various contexts.
There are still strong arguments against it. Unfortunately, additional crucial con-
cepts like “blockchain”, “cryptocurrency”, “crowdfunding”, “big data analytics”
and “near-field communication” were left out of the study since it was too limited
in scope. This approach was comprehensive as it successfully removed any linked
44 M. Thakur and C. M. Gupta

terms. Another point of contention is that the issue may have lost some of its rele-
vance and timeliness by the time this essay is published, due to how quickly the
subject is developing. As a foundation for expanding upon existing literature, this
study should be considered the first stage of our research domain.
The many uses of financial technology (fintech) are the focal point of this essay’s
in-depth examination of basic business and management concepts. A growing cor-
pus of research has established the reality of a phenomenon known as “fintech trans-
formation”. This phenomenon has been studied for its unique characteristics,
characteristics in flux, complexity in dynamics and environmental factors. As a
result of integrating fintech into empirical research and theoretical frameworks in
the subject of business and management studies, the researcher claims that the dis-
cipline will grow and develop with the implementation of the aforementioned prin-
ciples. It is expected that this review and recommendation still provides engaging
information, even when the author acknowledges certain inadequacies.

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Chapter 5
The Role of Fintech on Creative
Accounting and Companies’ Performance

Yana I. Ustinova

Introduction

The term “fintech” (or “FinTech”, short for “financial technology”) usually refers to
a set of financial services provided using innovative technologies. Financial tech-
nology (fintech) combines several existing technologies like blockchain, machine
learning, cloud computing and distributed ledger into several financial innovations
and solutions. Fintech is a recent trend that many businesses are adopting in order
to enhance their business models and operations through computer power, informa-
tion exchange, reduced transaction costs and competitive benefits. The Financial
Stability Board (FSB) of the Bank for International Settlements (BIS) has provided
the following definition of fintech: “Fintech is technologically enabled financial
innovation that could result in new business models, applications, processes, or
products with an associated material effect on financial markets and institutions and
the provision of financial services” (FSB, 2021, p. 5; Blazek et al., 2023, p. 9).
Fintech is widely acknowledged to improve the financial industry’s transparency,
client experience and efficiency. Fintech has expanded due to both technological
advancements and the fact that it is subject to different regulatory constraints than
conventional financial service providers.
As it is mentioned in research by Marei et al. (2023, p. 3), during the previous
10 years, worldwide investment in fintech has dramatically expanded, reaching over
$100 billion in 2018. Fintech has also been embraced by consumers, with a survey
by EY finding that over half of consumers in the USA use fintech products and
services.
Fintech has seen an enormous adoption rate, i.e. 87%, in developing countries
like India, much higher than the global adoption rate of 64% (EY, 2019). Moreover,

Y. I. Ustinova (*)
Department of Information and Analytical Support and Accounting, Novosibirsk State
University of Economics and Management, Novosibirsk, Russia

© The Author(s), under exclusive license to Springer Nature 47

Switzerland AG 2024
C. M. Gupta, G. Kaur (eds.), E-banking, Fintech, & Financial Crimes,
https://doi.org/10.1007/978-3-031-67853-0_5
48 Y. I. Ustinova

the adoption and awareness of fintech have significantly increased since 2015 (EY,
2019). Regarding finance.
app downloads, India led the list of the top ten nations in the world in 2020
(EY, 2021).
Technological advances such as mobile payments and cloud-based accounting
software have radically changed the way businesses operate and interact with their
customers. Financial data is transferred much faster than ever before, the accuracy
and efficiency of calculations increase and tools for constructing multivariate calcu-
lation models appear to find the optimal financial solution, which helps to increase
the efficiency and information security of decisions made by companies. The ability
to work from anywhere on the planet potentially entails the levelling of territorial
boundaries for the provision of accounting services. According to Johnson (2022),
experts estimate that today more than 58% of accounting firms are investing in
innovative accounting solutions to meet client need (Jofre & Gerlach, 2018).
At the same time, approximately 90% of accountants believe that technological
changes in the accounting industry are due to a cultural shift in the profession (Jofre
& Gerlach, 2018). The role of the accountant is changing. While traditionally an
accountant was only expected to comply with regulatory requirements, prepare tax
calculations and provide accounting advisory services, with the advent of fintech, a
new generation of accounting startups is challenging the status quo and offering
innovative solutions such as financial and tax advice, financial risk identification
and development of proposals for their management, which becomes an obvious
competitive advantage (Jofre & Gerlach, 2018).
So, this trend suggests that the fairness and reliability of financial reporting
should have gradually improved. However, the phenomenon of creative accounting
remains popular.
One of the most successful definitions of creative accounting in its negative
aspect was given by K. Nasser (Naser, 1993, p. 2, 59: Creative accounting is … the
process of manipulating accounting figures, using the weak links of the rules and
taking advantage of the same in its favor as required by the management. M. Jofre
and R. Gerlach (2018, p. 2) have stated: accounting fraud may take the form of
either direct manipulation of financial items or via creative methods of accounting.
So, the negative aspect of creative accounting includes accounting fraud, uses the
same instrument and can be detected with the same approaches.
It is worth to mention that detecting creative accounting is not an easy task but
time- and energy-consuming, demanding for high professional experience and qual-
ified professional judgements from experts. As a result, big hopes in solving this
problem were anchored on fintech. According to conclusion, made by Montesdeoca
et al. (2019) after studying of 156 articles published in high-impact journals during
the period 2000–2018, the aspect that seems to be gaining more followers in the last
years is the use of information technology to help auditors better identify the pat-
terns of fraudulent behaviour in the company (Montesdeoca et al., 2019, p. 23).
The main idea behind writing this chapter was to review various aspects of theo-
retical and empirical studies on the Nexus created by fintech and creative accounting.
5 The Role of Fintech on Creative Accounting and Companies’ Performance 49

Historic Background

Fintech and Creative Accounting

The fields of creative accounting and fintech, while apparently unrelated, have the
same historical foundation and overlap in intriguing ways since both involve the
modification and administration of financial data. Gaining knowledge about their
pasts offers valuable understanding of the development of financial practices and
technology.

Financial Manipulation

Creative accounting, commonly referred to as aggressive accounting, is the deliber-

ate manipulation of financial records and statements in order to portray a desired
perception of a company’s financial well-being, rather than its actual financial
standing. This practice has existed for millennia.
The emergence of joint-stock corporations and the introduction of professional
stock markets in the nineteenth century required the creation of standardised
accounting methods. Nevertheless, these advancements also brought about the
allure and possibility of financial deceit. Companies may use innovative accounting
methods to artificially increase profits, conceal obligations or manipulate results in
order to satisfy investor expectations or regulatory mandates.
An exemplary instance from history is the South Sea Bubble of the early eigh-
teenth century, whereby firms artificially inflated stock values using questionable
accounting methods, resulting in a disastrous market collapse. In a similar vein, the
twentieth century saw countless occurrences of manipulative accounting practices,
exemplified by the notorious Enron incident in 2001. Enron used intricate financial
arrangements and off-balance-sheet corporations to conceal its debt and artificially
boost its earnings, resulting in one of the most substantial bankruptcies in American
history. This also prompted important regulatory reforms, such as the enactment of
the Sarbanes–Oxley Act in 2002.

Fintech

Fintech refers to a wide array of technical advancements that attempt to enhance

and automate financial services. The origins of Fintech may be traced back to the
emergence of early computer technology in the mid-twentieth century, which started
to fundamentally transform the methods of processing and managing financial data.
During the 1960s and 1970s, banks began using mainframe computers to man-
age accounting and client transactions, therefore establishing the foundation for
50 Y. I. Ustinova

advanced financial technology. The advent of ATMs in the 1970s and computerised
trading platforms in the 1980s were important milestones in the development of
fintech.
In the 1990s, the Internet emerged and ushered in a new era of financial advance-
ments. The advent of online banking has gained popularity, enabling users to
remotely oversee their financial affairs. Mobile banking and payment solutions
were developed in the early 2000s, leading to a fundamental shift in how individuals
engage with financial services.
Over the last 10 years, the fintech sector has had a rapid growth, mostly due to
progress in artificial intelligence, blockchain technology and big data analysis. Both
startups and established organisations are using these technologies to develop
cutting-­edge financial goods and services, including peer-to-peer lending platforms,
robo-advisors, cryptocurrency exchanges and mobile payment applications.

The Convergence Between Creative Accounting and Fintech

Although fintech seeks to improve transparency and efficiency in financial services,

it also introduces novel difficulties and prospects for innovative accounting prac-
tices. The rapid development and widespread acceptance of intricate financial tech-
nology may provide gaps and prospects for financial manipulation. Regulatory
systems often fail to keep pace with technological progress, therefore allowing dis-
honest individuals to take advantage of these loopholes.
In addition to the above textual background, we can also have an insight into the
past studies (research parameter) which prove that the relation between creative
accounting and fintech is growing and the following is the confirmation of the same.
Asif et al. (2023) conducted a study aimed to perform a bibliometric analysis of
fintech. Analysis of 1135 articles indexed on Scopus from 2002 to 2021 was focused
on fintech and found that 2021 was the leading year with 389 articles, which
accounted for 34.3% of total publications, in which China was identified as the most
productive country having 142 publications, accounting for 12.5% of the total pub-
lications (Asif et al., 2023, p. 47]. The vast part of publications was devoted to fin-
tech and its influence on financial sector in general and banking in particular as well
as its influence on accounting industry, new opportunities and challenges for
accountants. However, the issue of a role of fintech in detecting creative accounting
was not that much popular.
M.M. Thottoli (2023) performed a contextual systematic literature review using
a bibliometric analysis of 277 publications for the period 2017–2021, indexed in the
Scopus and Web of Science databases with the keywords “financial technology
accounting and auditing”. The analysis showed that researchers see a significant
impact of fintech, primarily in the professional field of accounting and auditing.
Fintech is still in its infancy, and its ongoing development and adoption is occurring
at an increasing pace, especially in the field of audit. The results also confirm that
fintech can enable the convergence of various research areas, including accounting,
auditing, business finance, economics, management and the business domain.
5 The Role of Fintech on Creative Accounting and Companies’ Performance 51

ALShanti et al. (2024) observed the Web of Science Core Collection and anal-
ysed 465 research articles dealing with creative accounting and external auditors
authored between 1981 and 2022. Cluster analysis, all-keyword co-occurrence anal-
ysis and bibliographic coupling mapping are all investigated in the study. The sur-
vey discovered four main research trends: the first trend shown is “The Future of
External Auditing and Financial Reporting Quality” (red cluster). The second trend
focuses on the future of auditors in detecting creative accounting (the green cluster).
The third trend is Financial Statement Audit Quality Management for Earnings
Management and Fraud Detection (blue and purple clusters). The fourth trend is
related to Preventing the Next Financial Fraud: A Global Creative Accounting (yel-
low cluster).
Although the topic of creative accounting (accounting fraud) as well as the topic
of fintech development and its influence on accounting practices has attracted a lot
of attention from researcher’s side, there are still some gaps that cause the relevance
of the topic and necessity for its further development.
This theoretical study develops new convergence points between fintech and cre-
ative accounting by reviewing the literature and proposing new ideas and research
questions.

Connection Between Fintech and Creative Accounting

To understand the concept of fintech and creative accounting, we need to first under-
stand the relation between the two. To have a better understanding, we can go
through the three theories which put in more light to the subject and link both fin-
tech and creative accounting:
1. Agency theory—this theory implies manager’s motivation to depict those finan-
cial indicators in financial statements that cause desirable bonuses for them and
to do this without spending significant resources on collecting and operating
information.
2. Stakeholder theory—this theory means that managers must be oriented not only
on stakeholders’ informational desires but on desires of all stakeholders. That
strikes them to incorporating special instruments that enabled them to operate
huge volumes of information in no time.
3. Legitimacy theory—this theory means that legitimate enterprise must fulfil a
bunch of social standards to get benefits from social acceptance. This forces
company to “maintain and regulate” a lot of financial and nonfinancial indicators
and requires using special tools to monitor them permanently.
These theories can be taken as a foundation to explain the relationship between
fintech and creative accounting, opening up opportunities for accounting and
increasing the reliability of financial reporting, as well as the emerging risks to the
reliability of financial statements.
52 Y. I. Ustinova

Fintech Integration into Accounting Practice

The fintech advancements that have significantly altered the accounting business
include:
1. Artificial intelligence and automation: The accounting profession has been
transformed by the use of artificial intelligence (AI) and robotic process automa-
tion (RPA), which have automated mundane tasks. This technology innovation
has greatly enhanced productivity, minimised human fallibility and enabled
accounting experts to concentrate on more critical responsibilities.
2. Cloud technologies: The introduction of cloud computing has significantly
broadened the time and location possibilities for the accounting profession.
Cloud-based solutions provide immediate access to financial data, support
remote work and improve cooperation between accounting professionals and
their customers, regardless of their location.
3. taxes Software Services: Cutting-edge software solutions for taxes have opti-
mised the tax computation process, minimising mistakes and minimising the
time needed for modifications. These services guarantee adherence to intricate
tax requirements and enhance the precision of financial reporting.
4. Mobile apps, particularly those designed for digital payments, have revolution-
ised the way companies, customers and accounting processes interact. These
advancements have sped up the sharing of information, decreased the need for
manual tasks and greatly reduced the amount of repetitive activities.
5. Blockchain technology: The promise of blockchain technology lies in its ability
to bring together many stakeholders in a single, secure, transparent and unalter-
able database. This invention streamlines the process of monitoring financial
transactions and, by decreasing the probability of fraudulent activities, enables
the validation of financial statements and records. The intrinsic characteristics of
blockchain, such as immutability and transparency, improve the integrity of
financial data and promote confidence among participants. The influence of
these technologies determines a qualitative change in the architecture of account-
ing and auditing through automation of accounting and reduction in the number
of routine operations, assistance in ensuring compliance with accounting and
auditing standards, tax legislation (including monitoring their compliance),
prompt preparation of various reports, comprehensive analysis of various data in
order to provide information support for decision-making, automation of pay-
ments, optimisation of management of incoming documentation, increasing staff
efficiency, reducing accounting costs and introducing procedures aimed at
reducing the risks of financial fraud.
The result of fintech integration can be not only a transition from routine account-
ing to analysis and risk management but also a transition from historical retrospec-
tive accounting to expert assessments of data in the present, as well as forecasting
future financial estimates. It is no coincidence that 84% of accountants admit that
using fintech allows them to focus on more meaningful work (Fintech, 2022).
5 The Role of Fintech on Creative Accounting and Companies’ Performance 53

At the same time, on the path to widespread integration of fintech into practice,
the accounting profession faces the following challenges:
1. General level of confidence in fintech, the ability to see positive prospects in the
use of fintech.
In particular, according to Ph. Smith (2022), prepared on the basis of an
ACCA study carried out in May 2022 (Fintech, 2022), 50% of accountants admit
that turning to fintech demonstrates the profession’s desire to gain new opportu-
nities and overcome the crisis in the profession, while there is a risk that the
older generation will not be able to adapt to fintech.
The researcher notes that, in general, trust in fintech depends on the age of the
respondents. In particular, among respondents aged 18–35, 41% trust fintech
more than traditional accounting products, while among respondents over 55,
only 20% share the same opinion.
Assessments of the availability of career opportunities also depend on the age
of respondents and their place of residence: the availability of opportunities in
general is seen by 50% of respondents, which is due to the first most important
factor, region of residence (44%), and the second most important, age (24%).
2. Flexibility to comply with the requirements of national accounting regulations
(to the extent that there are discrepancies with IFRS). In particular, according to
Ph. Smith (2022), eight out of ten surveyed accountants in the context of the
introduction of fintech see the need for the speedy unification of accounting
regulation.
3. The relative complexity of present accounting and auditing standards and their
relative detachment from the requirements of fintech (e.g. in terms of the imple-
mentation of the professional judgement of an accountant), which causes some
restrictions on the implementation of fintech, including:
• Accounting and auditing regulations require the implementation of certain
procedures that cannot be replaced by digital technologies.
• Legislative pressure is aimed at ensuring the reliability of information, while
fintech does not cover all stages of its preparation (e.g. it does not guarantee
the quality of source information).
• Ethical dilemma and professional scepticism require additional guarantees of
the safety of the use of digital technologies, while solving this problem
requires long-term efforts.
However, these limitations, as shown by the results of the study by Fulop
et al. (2022), can be successfully overcome as digital technologies spread and
confidence in them grows, which will be the key to appropriate reform of
accounting and audit regulation.
4. The need for expertise (in particular, in terms of coordination with the norms of
national legislation).
5. The importance of joining forces with the regulator and the professional com-
munity (in terms of discussing innovations and proposals).
54 Y. I. Ustinova

The potential dangers posed by the integration of fintech into the accounting
industry, according to Mahan (2022), Smyrnova (2021, 2022), should not be
discounted:
1. Cybersecurity issues, including virus attacks.
According to Smith (2022), eight out of ten accountants surveyed consider
this threat to be the most important deterrent to the integration of fintech into
accounting practice. At the same time, according to Fulop et al. (2022), users are
aware of the risks associated with using fintech but trust the information received,
recognising the resource as useful from a practical point of view, without chang-
ing their attitude towards its use, which can be considered as some adaptation
to risk.
2. Changes in the structure of employment in the accounting industry (reduction in
the volume of routine work, shift of accounting work towards expert functions).
3. Network and software errors, including system failure.
4. Formation of dependence on technical support of used fintech.
Although technology will continue to change the accounting industry, a number
of experts (e.g. Johnson 2022) conclude that one thing remains certain: the business
need for qualified and experienced accountants. Only expert-level specialists in the
field of accounting have not only the relevant specialised knowledge but also the
ability, by integrating fintech into their professional activities, to offer a qualita-
tively new level of accounting services, including accounting and analytical support
for decision-making on risk management, analysis of financial and economic activi-
ties, identifying bottlenecks and competitive advantages of business and financial
planning and forecasting.
The work of Juita (2019) is devoted to the study of accounting’s ability to adapt
to new challenges associated with the influence of fintech. A survey of three groups
of respondents (representatives of the academic community, the professional com-
munity and the accounting regulator) showed that they all see positive changes due
to the spread of fintech in the accounting industry. At the same time, in order to
increase the ability of accounting to adapt to digital technologies, respondents pro-
posed a number of measures: adjusting accounting regulations in order to prepare
them for various aspects of the activities of accounting specialists in the digital
world, developing training programmes and updating and improving training mate-
rials related to digital technologies, as well as support for supporting activities such
as visits to companies using fintech, master classes and training for both students
and teachers.
The conclusion of this chapter is supported by the findings of Ojha et al. (2023).
The paper notes that fintech like big data analysis, cloud accounting and other vari-
ous advanced automated processes actually prepared the accountants or, say, ele-
vated them to survive this new tech era in the best possible way. It is a major concern
for all the educational institutions across the world to bridge this technological
know-how gap between what industry demands from future accounting profes-
sional and what presently they know to keep up with advances in technologies. As a
corollary, there is a rise in the call for accounting professionals who are well versed
5 The Role of Fintech on Creative Accounting and Companies’ Performance 55

with fintech, which, in turn, increases the requirements for mastering fintech not
only for accounting graduates but also for professors.
Siddiqui and Rivera (2023) pointed out that during the last few years, many top
universities have taught fintech-specific courses in undergraduate, graduate and
executive programmes. This content seeks to prepare specialists from the field who
can strengthen the fintech industry better. For now, no specific curriculum or teach-
ing format is taught by fintech as this is a fast-changing industry, and the curriculum
needs to be adapted accordingly. The authors proposed the critical elements regard-
ing the content that must be introduced in these programmes, basing on collected
information and conducted the content analysis on the profile of fintech-specific
offered by the top 20 universities in the world and on the literature focusing on
fintech-­specific content.
The key skills of an accountant in a fintech environment are explored in
Vaidyanathan and Evett (2022). Among the main ones, the researchers included
understanding of new business models, “commercialisation” (the ability to con-
vince an investor), technology in new accounting areas, ethical approach and trust
(through ensuring transparency in the preparation of financial statements), digital
thinking and the ability to work without voluminous paper documentation, flexible
approach and adaptation to rapidly changing conditions. From a practical point of
view, the key skills of the “accountant of the future”, researchers include: analysis
and strategic thinking, teamwork and interaction, knowledge of new technologies
and the ability to quickly learn new things, “look into future”, including combining
IT skills with the skills of an expert accountant. New technologies will also increase
requirements for auditors in terms of developing tools for testing fintech systems
used by clients (Leonowicz 2023, p. 43).

Fintech in Detecting Creative Accounting

Creative accounting can be understood on two levels. Creative accounting is defined,

at the first level, as procedures designed to account for new situations that are not
subject to existing accounting standards. The second level includes a general under-
standing of this concept, as activities leading to financial statement manipulation.
The main goal of creative accounting (taking into consideration the overlaps with
accounting fraud) is to trick the public by hiding the real financial performance of
the enterprise. According to Blazek et al. (2023, p. 413), creative accounting prac-
tices, such as renewing income, increasing amortisation, wrongly reporting assets
and liabilities, having trouble reporting profits and losses or using the profit-and-­
loss statement, may show the level to which creativity is possible. The primary
reasons for using these practices include the execution of planned legal actions and
enhancing the image of the company.
There is a widespread approach to consider corporate governance to be neces-
sary for curbing creative accounting and keeping it to a minimum. However, it is
obvious that corporate governance may not be sufficient. Companies need to utilise
56 Y. I. Ustinova

a well-established internal control system to detect fraudulent activities and prevent

them. Companies should make sure their employees receive ongoing training,
update their code of ethics to include problems that have been fixed or create a cor-
porate culture that does not support these kinds of activities.
However, effective instruments for detecting creative account cannot be overes-
timated. There are many fraud theories in accounting literature. The most common
fraud theories include Benford’s law (1938), the fraud triangle theory (1953) with
all updated versions, the Altman (Z-score) (1968), the Healy model (1985),
DeAngelo’s model (1986), the Jones (1991), the Dechow et al. (1995), which is a
modified Jones model, the Dechow et al. (1996), the Beneish model (M-score)
(1999) and the Dechow et al. (F-score) (2011) model. These theories addressed
many issues related to why fraud exists and developed models to detect fraud and
explain its causes and consequences to answer why fraud exists.
Thus, it seems obvious that fintech, which provides processing of huge volumes
of various information with high accuracy and in the shortest possible time, can help
in identifying creative accounting.
Indeed, identifying creative accounting causes certain difficulties in practice. In
this sense, the study, the results of which are presented in the work by Blazek et al.
(2023, p. 415), is very indicative. Quoted research had been focused on the Big Four
firms (KPMG, EY, PwC and Deloitte), directly asking the workers of these firms
how they deal with the creative accounting machinery. Their research found that the
psychological behaviour of respondents was inconsistent. The respondents were
unable to distinguish between the various concepts linked to creative accounting,
and the most remarkable finding was their inability to apply models indicating cre-
ative accounting.
No wonder that Big Four has started to improve this situation. They are adopting
server-based platforms that support auditors by implementing real-time financial
data collected directly from clients. For example, in April 2022, PwC announced the
use of a new cloud-based auditing platform named Aura that provides many ser-
vices powered by advanced analytics (PwC, 2022).
Generally speaking, accounting and auditing embrace big data analytics in dif-
ferent procedures. The Big Four are investing heavily in data analytics and artificial
intelligence and promoting embracing big data technologies. For instance, the
recent adaptation of the Halo online platform by PwC implemented the inclusion of
whole population analysis, which outperforms the sampling techniques that are usu-
ally used in auditing procedures along with many recalculations and risk assessment
tools (e.g. journal entry testing and general ledger analysis) that become possible by
its enhanced connectivity and high server-based processing capabilities (PwC,
2014). However, special instruments for detecting creative accounting are still
developing.
Moreover, according to Bineid et al. (2023), detecting creative accounting using
traditional techniques (e.g. accrual-based detection) requires nonpublic, inaccessi-
ble and time-consuming data to reach. This can cause serious difficulties on a way
of revealing distortions in financial statements.
5 The Role of Fintech on Creative Accounting and Companies’ Performance 57

The availability of financial and nonfinancial types of data and the possibility to
include these data types in advanced intelligent models motivated researchers to
develop many applications that meet business needs. There are some examples of
using fintech in detecting creative accounting, which could be systematised in
the table.

Researchers A type of fintech that was used

Cao et al. (2015) Big data analysis
Chen et al. (2015) Big data processing and intelligent risk models
Zhou (2017) AI algorithms
Leonowicz (2023) AI and machine learning algorithms (blockchain)
Aboud and Robinson (2020) Big data analysis
Ibrahim et al. (2021) Big data and advanced analytics
Chimonaki et al. (2023) AI (natural language processing (NLP) with machine learning)
Osei-Assibey Bonsu et al. AI and big data analysis
(2023a)
Osei-Assibey Bonsu et al. AI (with a larger impact) and big data analysis
(2023b)
Hussain et al. 2023 AI
Bineid et al. (2023) Big data analytics with the creative accounting detection model
(CADM), using AI
Al-Smadi and Al-Smadi Big data analysis (BID) and blockchain (BCH)
(2024)

Cao et al. (2015) described a case when big data analysis could assist auditors to
effectively measure client risks associated with internal control design and imple-
mentation, managerial fraud, insolvency and material financial statement
falsification.
Chen et al. (2015) found that Alibaba Group has developed a fraud risk manage-
ment system based on real-time big data processing and intelligent risk models,
which can monitor and assess fraud threats in real time, capture fraud signals and
send out alerts to prevent fraud. This system can produce thousands and thousands
of attributes in addition to employing advanced risk fraud models.
Zhou (2017) elaborated the idea that AI algorithms could provide accountants
not only with analytical capabilities to evaluate the impact of risks and manage them
for minimising automatically but also can be used to detect and prevent fraud in
innovative practices. Firms including EY and Deloitte used AI to detect fraudulent
invoices and tax returns and reduce processing time periods.
According to observations by Leonowicz (2023, p. 42), patterns of behaviour
and actions are assessed by artificial intelligence and machine learning algorithms
in order to identify anomalies and opportunities for improvement. This, in turn,
improves the quality of information for the auditor’s work, which leads to improved
quality of the audit itself, as well as improved quality of reports for management. In
particular, blockchain, as a means of reducing fraud risks, is considered in the work
of Leonowicz (2023, p. 43) due to the stability of any stored information to any of
58 Y. I. Ustinova

its modifications, as well as due to the possibility of using reporting data (including
data on completed transactions) to confirm, which can be used by the auditor instead
of requests, external confirmations, etc.
Aboud and Robinson (2020) pointed out that big data analytics can be used to
detect or prevent fraud.
Ibrahim et al. (2021) have found that big data and advanced analytics have the
potential to overcome the data limitations of accounting techniques that require
estimations and predictions. Big data could help improve the data quality by improv-
ing accuracy and completeness and making it available in real time, providing more
opportunities to detect and correct any possible distortions. Moreover, it was sug-
gested that big data will change accounting to recognise early the developments
required for accounting standards. Large amounts of nonfinancial data inside com-
panies may need the issuance of special standards to summarise and disclose.
Further, accounting standards should develop to treat big data as an asset since it is
sold in markets. Researchers also proposed some recommendations for the develop-
ment of the accounting curriculums by incorporating big data and data analytics in
the accounting subjects. Authors warned that, despite the argued benefits that big
data could provide to the business community, some risks can result when some
people misuse big data. Therefore, a legal framework and a big data act should be
developed to protect humanity from the misuse of big data.
According to Chimonaki et al. (2023), the main treat of their research was usage
annual reports, which are not as biased as financial ratios probably are, and usage of
natural language processing (NLP) with machine learning. In the context of pre-­
assessment processes, machine learning approaches offer clear advantages in pre-
dicting financial statement fraud. These methods may carefully examine big
datasets, spot complex patterns and gain knowledge from these data patterns,
improving the precision of fraud detection. Machine learning algorithms can effi-
ciently accommodate the dynamic nature of fraudulent operations due to their abil-
ity to learn and adapt continuously. This considerably increases the effectiveness of
the pre-assessment process in identifying probable fraud.
According to Osei-Assibey Bonsu et al. (2023a) has approved the same results.
Moreover, evidence, gotten by researchers, indicates that while big data signifi-
cantly impact accounting and auditing of accountants, utilising the diversity of data
volume, data variety and data velocity significantly enhances it. The finding sug-
gests that accountants could improve the quality and accuracy of financial reports
especially when big data and analytics is continuous is used. The study emphasises
the need for accountants, prospective accountants and accounting graduates to hone
their competencies in studying and producing big data analytics, which will benefit
the industry. Moreover, business institutions of higher learning should create busi-
ness curriculums that use big data in their offerings. Finally, policymakers can help
by establishing governance models for big data to organise its usage and prevent its
exploitation.
In another work by Osei-Assibey Bonsu et al. (2023b), the empirical results
show that the impact of AI and big data on accounting practices is positive and sig-
nificant, indicating that fintech could potentially mitigate the agency problem in
5 The Role of Fintech on Creative Accounting and Companies’ Performance 59

accounting practices and lead to better accounting practices. Results evidenced that,
in general, the impact of AI is larger than that of big data and led to the conclusion
that accountants must embrace and build accounting and auditing practices by using
BDA–AI to enhance their lengthy and firm performances. In addition, researchers
concluded that accountants using BDA and AI help firms obtain deeper insight,
anticipate outcomes and streamline nonroutine processes. Furthermore, BDA pres-
ents opportunity for the accounting profession to add value and aid businesses trans-
form decision-making in a variety of ways. However, AI provides more opportunities
to empower accountants to spend their time and resources wisely and creatively.
Therefore, accountants, expectant accountants and accounting graduates should
sharpen their skills in learning and developing BDA and AI forecast models that
will aid the sector, while universities should develop business courses that incorpo-
rate BDA and AI.
Hussain et al. (2023) pointed out that AI can moderate the link between ethical
commitment and creative accounting practices, detect and avoid creative account-
ing, promote ethical financial reporting and improve accounting transparency, accu-
racy and consistency. This moderating influence works along with organisation’s
culture of integrity and transparency in its accounting practice, increasing ethical
consciousness and creating rigorous governance structures (AI). The application of
AI can further improve ethical commitment, contribute to the detection and preven-
tion of creative accounting practices and further strengthen ethical commitment.
Bineid et al. (2023) concluded that big data analytics has provided practical
applications in auditing, and recently the employment of deep learning in fraud
detection has delivered remarkably accurate results. To obtain promising results of
using big data approach, it was approved to implement the two-step method: train-
ing on a simulated dataset of financial statements prepared (i.e. deliberately manip-
ulated) based on financial statements available in the literature for supervised
learning and then testing on real-world financial reports. The use of big data analyt-
ics made it possible to include nonfinancial data and aggregate accounting data with
other sectors’ data, making accounting results more accurate and credible. They
proposed a framework for the creative accounting detection model (CADM). The
model suggests the employment of a hybrid deep learning (HDL) that implements
artificial neural network (ANN), recurrent neural network (RNN) and long short-­
term memory (LSTM), using financial and nonfinancial data, depicted in published
financial statements. Further, standardising accounting data through new unified
formats like XBRL and secure data structures like blockchain added promising
opportunities for efficient research and improved accounting outcomes.
Moreover, according to Bineid et al. (2023), regulatory agencies’ results have
been enhanced by incorporating nonfinancial data as a supplement to the traditional
financial data in their systems (e.g. the UK government’s tax authority uses different
sources of data from the Internet, social media, land registry records, international
tax authorities and banks).
The empirical investigations, conducted by Al-Smadi and Al-Smadi (2024),
declared that fintech, specifically the combination of big data analysis (BID) and
blockchain (BCH), positively influences the financial reporting, management
60 Y. I. Ustinova

performance, corporate budgeting and risk and fraud management accountants.

Their study confirmed the imperative for accountants to adopt the BID and BCH
and consider them as tools to explore high-quality information. This adoption serves
the dual purpose of decreasing agency costs and addressing the inherent ambiguity
with agency theory.
It seems to be noticeable from the table that if about 10 years ago the most popu-
lar fintech instrument for detecting creative accounting was big data analysis, then
now AI instruments are the leaders. This trend strongly correlated with paying more
attention to nonfinancial data and comprehending the need of a permanent develop-
ment of algorithms for creative accounting detection.
At the same time, we should not forget that fintech is capable of processing large
volumes of information but cannot mitigate the risks of distortion of reporting due
to manipulation of incoming data, as well as artificial distortions of built-in algo-
rithms. The risks of the emergence of creative accounting in these conditions have
not yet been sufficiently reflected in the scientific literature.
Thus, fintech can help in identifying creative accounting. This requires the organ-
isation of an environment that reduces the risks of using fintech, which can, in turn,
lead to distortions in financial reporting. To provide an enabling environment for
expanding implementation of fintech into accounting, ensuring the security of
financial information, the ACCA report makes the following further recommenda-
tions to governments and regulators (Blazek et al., 2023):
1. Come together to develop common principles to underpin a multi-jurisdiction
approach to fintech regulation. There are precedents, such as the EU’s General
Data Protection Regulation (GDPR), covering all EU member states. An interna-
tional regulatory sandbox should be created to explore minimum global stan-
dards for fintech regulation; this was an approach supported by three-quarters of
the finance professionals globally who fed into this research.
However, it is worth to mention that the econometric analysis, conducted by
Ciukaj and Folwarski (2023), confirmed the existence of a significant relation-
ship between the level of fintech sector regulation and the level of its
development.
2. Prioritise secure data management and cybersecurity at the heart of frameworks
for government and regulatory approval of new fintech products and services.
Given the data-driven nature of fintech, cybersecurity is a key concern (expressed
by 83% of those who responded to an ACCA/CA ANZ survey) of governments,
businesses and the public. Ways of driving public confidence in this regard include
government-backed certification schemes for fintech services and products—par-
ticularly those that are business-to-consumer (B2C)—to protect end users.
3. Governments should incentivise fintech innovation and growth. Fintech is an
industry which attracts talented people and helps to develop highly skilled jobs.
The АССА report called on governments to consider an approach which priori-
tises areas identified by finance professionals globally, such as building links inter-
nationally to learn best practices, working with education partners to improve skills/
training, developing labs/sandboxes to support innovation and supporting fintech as
a tool for the development agenda to tackle challenges.
5 The Role of Fintech on Creative Accounting and Companies’ Performance 61

Conclusion

Fintech is a way to improve transparency and efficiency of financial industry.

Fintech can increase the speed and accuracy of operating financial and nonfinancial
data. That is why certain hopes are anchored on fintech as a tool for detecting cre-
ative accounting.
However, as far as creative accounting implies intentional distortion of financial
indicators from the real numbers, it cannot be easily detected. It requires precise
operating with huge volumes of data in no time, high professional level of experts
and significant experience.
No wonder that several advanced firms in accounting and auditing industry now-
adays are investing a lot in developing fintech instruments to improve quality and
variety of their services and to detect different financial risks and accounting frauds.
At the same time, the implementation of fintech into accounting practice for the
detection of creative accounting is still not a common approach.
Nevertheless, there is a bunch of scientific publications discovering the role of
fintech instruments in revealing and preventing accounting fraud. Generalising the
trend, it might be concluded that if about 10 years ago big data analysis had the
leading position, then these days the leading role is occupied by AI.
It worth to mention that fintech implementation strongly affects accounting
industry and accounting profession. That’s why getting well along with fintech
seems to be must have for professionals as well as for graduating students and their
teachers.
Some risks related to fintech should not be forgotten. So, smooth integration of
fintech into accounting practice requires some steps toward regulations from gov-
ernments and professional society.

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Chapter 6
Demystifying the Demand and Supply
of Money in India

Shatakshi Johri

Introduction

Demand and supply for money plays a pivotal role in macroeconomic analysis,
particularly in order to select suitable monetary policy activities. As a result, a
stream of theoretical and empirical research has been carried out across the globe,
over the past few decades. However, in the recent years, the interest in this regime
has escalated primarily by concern among the Reserve Bank of India (‘RBI’) and
researchers on impact of the movement towards flexible exchange rate regime, glo-
balization of capital markets, ongoing domestic financial liberalization and innova-
tion and country-specific issues. The widespread literature presents two major
points relevant to altering the demand for money: variable selection and representa-
tion and framework chosen (Sriram, 2000). Failure to provide due consideration to
these issues has tended to yield debate on interrelationship between motive for
which money is held and making a rational choice.
This chapter surveys a selected number of papers that applied various theories to
analyse the demand for money and the supply of money. The objective here is to
consolidate relevant information from these theories and present it in a handy and
simplistic form. In specific, the chapter presents details concerning the techniques
followed, variables chosen, periods and frequency selected and major findings of an
array of economists on the issue. In addition, it summarizes the monetary policy
instruments utilized by RBI to moderate liquidity in the market. It is hoped that the
resources accessible in this chapter provide some reference points concerning the
behavioural aspects of money demand, which in turn will help the policymakers in

S. Johri (*)
Assistant Professor (Senior Scale), School of Law, University of Petroleum and Energy
Studies (UPES), Dehradun, Uttarakhand, India
Doctoral Scholar, West Bengal National University of Juridical Sciences (WB NUJS),
Kolkata, India

© The Author(s), under exclusive license to Springer Nature 65

Switzerland AG 2024
C. M. Gupta, G. Kaur (eds.), E-banking, Fintech, & Financial Crimes,
https://doi.org/10.1007/978-3-031-67853-0_6
66 S. Johri

designing appropriate monetary policy actions and the researchers in carrying out
further research.
The chapter is structured as follows: Section I briefly specifies the general frame-
work that usually underlies the determination of the demand and supply of money
in the economy. Section II carries out relevant discussion regarding various theories
explaining such behaviour. Section III presents a brief overview of the monetary
policy of the RBI used to control the concepts the captioned concepts in India.
Consequently, Section IV deals with risks associated in holding securities, and Sect.
V concludes the entire discussion.

General Overview of Money Demand and Supply

There is a diverse spectrum of money demand theories emphasizing the transac-

tions, speculative, precautionary or utility considerations. As a result, one agree-
ment that emerges from the literature is that the empirical work is enthused by a
blend of theories. The general determination begins with the following functional
relationship for the long-term demand for money (Laidler, 1985; Sriram, 2000):
M/P= f(S, OC) where the demand for real balances M/P is a function of the cho-
sen scale variable (S) to represent the economic activity and the opportunity cost of
holding money (OC). M stands for the selected monetary aggregate in nominal term
and P for the price. Like in theoretical models, the empirical models generally spec-
ify the money demand as a function of real balances (Laidler, 1985).
The definition of money is not precise. It is a special species of wealth. It is
something that is used as a medium of exchange or as an accepted means of pay-
ment. Nonetheless, for empirical purposes, we will use rather technical definition—
monetary aggregates.
The underlying equation depicting these aggregates is as follows:
M = M1 + M2 + M3. In this equation, M1 comprises of currency in circulation
plus sight deposits. Consequently, M2 comprises of assets that are identical to sight
deposits. Banks often offer more attractive accounts that bear interest, but they can-
not be drawn on with cheques. The ease of transfer renders these assets very similar
to sight deposits. They are included in the second definition of money M2.
Consequentially, the broader measure of money instruments is rather restricted in
access and liquidity. This includes foreign currency deposits and long-term certifi-
cate of deposits or time deposits with non-banking financial institutions. This is
called M3. However, these definitions are general and differ from country to coun-
try. Usually, money demand is calibrated in terms of the narrower meaning, M1
(Agarwal et al., 2018).
The demand for money results from the form in which a person’s wealth should
be held. These are termed as macroeconomic motivations.
A typical money demand function (liquidity preference function) may be written
as follows:
6 Demystifying the Demand and Supply of Money in India 67

Md = P * L(R, Y) where Md is the nominal amount of money demanded, P is the

price level, R is the nominal interest rate, Y is real output and L is real money
demand (Krugman et al., 2020).
The main reason for holding money is to facilitate transactions. The real volume
of economic activity must therefore be an important factor in determining the
demand for money. We should expect a positive relationship between real GDP and
money demand (Nelson, 2002).
Money is valued for its purchasing power, and this purchasing power is measured
by the price level. With increased prices, people increase their demand for money,
and higher interest rates discourage the holding of wealth in the form of money;
therefore, there is negative relationship between money demand and nominal inter-
est rate (Nelson, 2002).
At this juncture, it is apt to highlight key features of various approaches to deter-
mine the flow of money in the economy.

Approaches to Determine Money Demand and Supply

The most fundamental ‘classical’ transactions motive is illustrated with the aid of
the quantity theory of money (Friedman, 1987). The clearest exposition of the clas-
sical quantity theory approach is found in the work of the American economist
Irving Fisher. It gives a behavioural interpretation to the demand of money in a
functional relationship with prices and income. The basic equation is MV = PY,
where M is the stock of money, V is its velocity (how many times a unit of money
turns over during a period of time), P is the price level and Y is real income.
Consequently, PY is nominal income or in other words the number of transactions
carried out in an economy during a period of time. The velocity of money is pre-
sumed to be constant in this case (Eatwell et al., 1987). Each transfer of goods,
services or securities is termed as the product of a price and quantity: wage per week
times number of weeks, price of a good times number of units of the good, dividend
per share times number of shares, price per share times number of shares and so on
(Fisher, 1911).
The above-mentioned motives for holding money are in perfect conformity with
the classical quantity theory, to which John Maynard Keynes also confined (1923).
In his famous 1936 book The General Theory of Employment, Interest, and Money,
Keynes developed a theory of money demand which he called liquidity preference
theory. Fig. 6.1 depicts the same graphically (Schumpeter, 1936).
Keynes abandoned the classical view that velocity was a constant and empha-
sized the importance of interest rates. He postulated that there are three motives
behind the demand for money: the transactions motive, the precautionary motive
and the speculative motive (Schumpeter, 1936) (Fig. 6.2).
According to the precautionary motive, people hold money not only to carry out
present transactions but also as cushion against an unexpected need. Because people
68 S. Johri

Fig. 6.1 J.M. Keynes: liquidity preference curve. (Schumpeter, 1936)

Fig. 6.2 Keynesian motives of holding money. (Schumpeter, 1936)

are uncertain about the payments the might want, or have, to make. If people don’t
have money with which to pay, they will incur a loss. When you are holding precau-
tionary money balances, you can take advantages of the sale. Keynes believed that
the amount of precautionary money balances people want to hold is determined
primarily by the level of transactions that they expected to make in the future and
that these transactions are proportional to income. So he considered the demand for
precautionary money balances to be proportional to income (Schumpeter, 1936).
By specifying a speculative motive, he stressed the choice between money and
bonds. If agents expect the future nominal interest rate (the return on bonds) to be
lower than the present rate, they will then reduce their holdings of money and
6 Demystifying the Demand and Supply of Money in India 69

increase their holdings of bonds. If the future interest rate does fall, then the price of
bonds will increase, and the agents will have realized a capital gain on the bonds
they purchased. This means that the demand for money in any period will depend
on both the present nominal interest rate and the expected future interest rate (in
addition to the standard transactions motives which depend on income) (Schumpeter,
1936; Eatwell et al., 1987).
The fact that the present demand for money can depend on expectations of the
future interest rates has implications for volatility of money demand. If these expec-
tations are formed, as in Keynes’ view, they are likely to change erratically and
cause money demand to be quite unstable.
Keynes also recognized people hold money not only to carry out present transac-
tions but also as cushion against an unexpected need. People are uncertain about the
payments they might want, or have, to make. If people don’t have money with which
to pay, they will incur a loss. When you are holding precautionary money balances,
you can take advantages of the sale. Keynes believed that the amount of precaution-
ary money balances people want to hold is determined primarily by the level of
transactions that they expected to make in the future and that these three transac-
tions are proportional to income. So he considered the demand for precautionary
money balances to be proportional to income. By deriving the liquidity preference
function for velocity PY/M, we can see that Keynes’ theory of the demand for
money implies that velocity is not constant but instead fluctuates with movements
in interest rates. F(i,Y) YM V = PY = Keynes’ liquidity preference theory of the
demand for money indicates that velocity has substantial fluctuations as well
(Tobin, 1956).
With the advent of time, economists developed more precise theories to explain
the three Keynesian motives for holding money. A key focus of this research was to
understanding better the role of interest rates in the demand for money.
William Baumol and James Tobin independently developed similar demand for
money models, which demonstrated that even money balances held for transactions
purposes are sensitive to the level of interest rates. They considered a hypothetical
individual who receives a payment once a period and spends it over the course of
this period in developing their models. In their models, money which earns zero
interest is held only because it can be used to carry out transactions.
The amount of money demanded for transactions however is also likely to depend
on the nominal interest rate. This arises due to the lack of synchronization in time
between when purchases are desired and when factor payments (such as wages) are
made. In other words, while workers may get paid only once a month, they gener-
ally will wish to make purchases, and hence need money, over the course of the
entire month. The most well-known example of an economic model that is based on
such considerations is the Baumol-Tobin model. Under some simplifying assump-
tions, the demand for money resulting from the Baumol-Tobin model is given by
Md tY
= where t is the cost of a trip to the bank, R is the nominal interest rate
P 2R
and P and Y are as before (Tobin, 1956).
70 S. Johri

The conclusion of the Baumol-Tobin analysis is as follows: as interest rates

increase, the amount of cash held for transactions purposes will decline, which in
turn means that velocity will increase as interest rates. The transactions component
of the demand for money is negatively related to the level of interest rates.
Another motivation required for carrying out transactions has been provided by
him, called as the portfolio motive, considered a situation where agents can hold
their wealth in a form of a low-risk/low-return asset (here, money) or high-risk/
high-return asset (bonds or equity). This creates a negative relationship between the
nominal interest rate and the demand for money (Tobin, 1956).
The key difference between this formulation and the one based on a simple ver-
sion of quantity theory is that now the demand for real balances depends on both
income (positively) or the desired level of transactions and on the nominal interest
rate (negatively). Simply put, in the transactions version, the elementary event is an
isolated exchange of a physical item for money—an actual, clearly observable
event. In the income version, the elementary event is a hypothetical event that can
be inferred but is not directly observable. It is a complete series of transactions
involving the exchange of productive services for final goods, via a sequence of
money payments, with all the intermediate transactions in this income circuit netted
out. The total value of all transactions is therefore a multiple of the value of income
transactions only (Eatwell et al., 1987).
The Baumol-Tobin model is a microeconomic model and does not offer a simple
method to capture the transactions motive (Baumol, 1952). Tobin assumed that
most people are risk-averse, and the return of money is zero. Bonds can have sub-
stantial fluctuations in price, and their returns can be quite risky and sometimes
negative. When the expected returns on bonds exceed returns on money, people
might want to hold money as a store wealth because it has less risk. Tobin’s analysis
also shows that people can reduce the total amount of risk in a portfolio by diversi-
fying (by holding both bonds and money). His model suggests that people will hold
bonds and money simultaneously as stores of wealth. Tobin attempted to improve
on Keynes’ rationale for the speculative demand for money, but he was only partly
successful.
In his famous work, modern quantity theory of money, Milton Friedman devel-
oped a theory of the demand for money in his famous article, ‘The Quantity Theory
of Money: A Restatement’, in 1956. He considered that the demand for money must
be influenced by the same factors that influence the demand for any asset. Friedman
then applied the theory of asset demand to money. The demand for an asset is posi-
tively related to wealth, and money demand is positively related to Friedman’s
wealth concept (permanent income) (Friedman, 2005).
The demand for money is a function of the resources available to individuals and
expected returns on other assets relative to the expected return on money. Friedman
regarded his model of the demand for money as follows: where Md/P = demand for
real money balances; Yp = permanent income, Friedman’s measure of wealth;
rm. = expected return on money; rb = expected return on bonds; re = expected return
on equity (common stock); Пe = expected inflation rate; w = proportion of human
6 Demystifying the Demand and Supply of Money in India 71

wealth and non-human wealth; and u = other factors influencing demand for money
(Friedman, 2005).
Permanent income has much smaller short-run fluctuations because many move-
ments of income are transitory. Friedman regarded permanent income as a determi-
nant of the demand for money in that the demand for money will not fluctuate much
with business cycle movements. Friedman categorized them into three types of
assets: bonds, equity and goods. The incentives for holding these assets rather than
money are represented by the expected return on each of these assets relative to the
expected return on money. The expected return on money rm. is influenced by (1)
the services provided by banks on deposits and (2) the interest payments on money
balances (Friedman, 2005).
The modern macroeconomic models, called as dynamic stochastic general equi-
librium, have succeeded in this attempt. The most commonly used models are the
cash-in-advance model and the money in utility function model (Sargent, 1993).
In the cash-in-advance model, agents are restricted to carrying out a volume of
transactions equal to or less than their money holdings. In the latter model, money
directly enters agents’ utility functions, capturing the ‘liquidity services’ provided
by money (Benchimol & Fourçans, 2012).
Moving further, the asset motive focuses on potential return on various assets as
an additional motivation to spend money.
Nonetheless, the transactions motive is still assumed as the most popular motive
to hold money, and the asset motive treats money, in the broader sense of including
interest-bearing bank deposits, as a particular type of a financial asset among
many others.

Role of the Reserve Bank in Money Circulation

Bank behaviour is one important determinant of money and credit developments,

both of a cyclical and of a more persistent nature. In recent years, against the back-
ground of the financial crisis, it has become increasingly evident that such a passive
view of banks is unwarranted (Papademos & Stark, 2010).
The volume of broad money in the economy is the result of the interaction of the
banking sector (including the Reserve Bank) with the money-holding sector, con-
sisting of households, nonfinancial corporations, the general government other than
central government and non-monetary financial intermediaries. Broad money com-
prises currency in circulation and close substitutes, such as bank deposits, and is
informative for aggregate spending and inflation. It thus goes beyond those assets
that are generally accepted means of payment to include instruments that function
mainly as a store of value (European Central Bank, 2011).
Empirical models for money holdings are applied for two purposes. First, they
are used to guide the analysis of monetary developments, as a means of quantifying
the contribution of various economic determinants to money growth in order to
provide a deeper understanding of the causes of money growth. This is necessary in
72 S. Johri

order to develop a view of underlying monetary expansion. Second, the models

provide a normative framework to assess whether the stock of money in the econ-
omy is consistent with price stability and to interpret the nature of deviations from
this norm. An understanding of why the money stock deviates from an equilibrium
level, defined on the basis of empirical regularities, is therefore essential from a
monetary policy perspective (Papademos & Stark, 2010).
Identifying whether monetary developments are driven by money demand or
money supply is of prime relevance when assessing the relationship between money,
asset price developments and wealth. Indeed, the holdings of broad money, as one
element in the portfolio of economic agents, are determined by the size of agents’
wealth. At the same time, asset prices, and thus the overall wealth position of agents,
may be influenced by money supply. The assessment of monetary developments is
therefore closely linked to an assessment of the sustainability of wealth and asset
price developments (ECB, 2010).
If the observed level of money is assessed as being consistent with the level of
prices, income and interest rates, then money growth reflects the economic situa-
tion. Risks to price stability resulting, for example, from strong economic growth
would be visible in money. If, however, observed monetary developments do not
evolve in line with expectations based on the historical relationship with prices,
income and interest rates, then the appropriate monetary policy response will
depend on the underlying forces leading to this deviation. If the inconsistency is the
result of demand considerations, resulting, for instance, from heightened financial
uncertainty, monetary policy should not necessarily react to monetary develop-
ments. Monetary policy influences the supply of money through the effects it has on
banks’ intermediation activity. However, the majority of the changes in money sup-
ply occurring in the economy result from developments in the way that banks con-
duct their business (Coenen et al., 2005).
More specifically, a bank is an institution, the core operations of which consist of
granting loans and supplying deposits to the public. Through the duality of lending
and deposit issuance, banks fulfil a number of functions: they offer liquidity and
payment services, undertake the screening and monitoring of borrowers’ creditwor-
thiness, redistribute risks and transform asset characteristics. These functions will
often interact within a bank’s intermediation process (Brunner & Meltzer, 1990).
Banks may intermediate between savers and borrowers by issuing securities and
lending the receipts onward. Such lending activity will require the processing of
detailed and often proprietary information on borrowers and the monitoring of the
projects that have been financed. Such credit is, however, also provided by a number
of non-monetary financial intermediaries, such as insurance corporations, as well as
pension and investment funds, and is not specific to banks. Banks may also lend to
borrowers but therefore create deposits (initially held by the borrowers) (Brunner &
Meltzer, 1990).
The deposits constitute claims on the bank that are capital-certain and demand-
able, that is, redeemable at a known nominal value (Freixas & Rochet, 2008). These
deposits have as a key feature the provision of liquidity services to their owner and,
in some cases, such as overnight deposits, can also be used for payment services. As
6 Demystifying the Demand and Supply of Money in India 73

described by Diamond and Dybvig, this transformation of illiquid claims (e.g. bank
loans) into liquid claims (e.g. bank deposits) is a key defining element of a bank
(Von Thadden, 2002). Non-monetary financial intermediaries do not provide their
customers with liquid deposits (Diamond & Dybvig, 1983).
Banks’ liquid deposit liabilities constitute the core of broad monetary aggre-
gates, and banks thus play a leading role in the supply of broad money. Changes in
banks’ behaviour will alter the money supply.
A wide range of determinants affecting banks’ intermediation activity has been
identified in the literature, such as banks’ risk aversion, borrowers’ creditworthi-
ness, the regulatory framework, the availability of capital buffers and the spread
between lending rates and funding costs, known as the ‘intermediation spread’. This
spread represents the remuneration that banks can obtain for the service of interme-
diating between depositors and borrowers through their balance sheet. In a competi-
tive equilibrium, it will equal the marginal cost of banks, which results from the
costs of originating and servicing the loans, the provision of transaction services
and the risk of default (Goodfriend & McCallum, 2007).
If deposit money can be created so easily, what is to prevent banks from making
too much—more than sufficient to keep the nation’s productive resources fully
employed without price inflation? The Reserve Bank derives its role in currency
management from the Reserve Bank of India Act, 1934. The Reserve Bank manages
currency in India. The government, on the advice of the Reserve Bank, decides on
various denominations of banknotes to be issued. The Reserve Bank also co-­
ordinates with the government in the designing of banknotes, including the security
features. The Reserve Bank estimates the quantity of banknotes that are likely to be
needed denomination-wise and accordingly places indent with the various printing
presses. Banknotes received from banks and currency chests are examined, and
those fit for circulation are reissued and the others (soiled and mutilated) are
destroyed so as to maintain the quality of banknotes in circulation (RBI, 2013).
In terms of Section 25 of RBI Act, 1934, the design of banknotes is required to
be approved by the central government on the recommendations of the Central
Board of the Reserve Bank of India. The responsibility for coinage vests with the
Government of India, on the basis of the Coinage Act, 1906, as amended from time
to time. The Government of India also attends to the designing and minting of coins
in various denominations.
The Reserve Bank decides the volume and value of banknotes to be printed each
year. The quantum of banknotes that needs to be printed broadly depends on the
requirement for meeting the demand for banknotes due to inflation, GDP growth,
replacement of soiled banknotes and reserve stock requirements. The Government
of India decides the quantity of coins to be minted on the basis of indents received
from the Reserve Bank. The Reserve Bank estimates the demand for banknotes on
the basis of the growth rate of the economy, the replacement demand and reserve
stock requirements by using statistical models/techniques (RBI, 2013).
Monetary operations of the RBI involve monetary techniques which operate on
techniques such as money supply, interest rates and availability of credit aimed to
maintain price stability, stable exchange rate, healthy balance of payment, financial
74 S. Johri

stability and economic growth. RBI, the apex institute of India which monitors and
regulates the monetary policy of the country, stabilizes the price by controlling
inflation. RBI takes into account the following monetary policies (RBI, 2013).
An open market operation is an instrument of monetary policy which involves
buying or selling of government securities from or to the public and banks. This
mechanism influences the reserve position of the banks, yield on government secu-
rities and cost of bank credit. The RBI sells government securities to contract the
flow of credit and buys government securities to increase credit flow. Open market
operation makes bank rate policy effective and maintains stability in government
securities market (RBI, 2013).
The most important tool of contracting or expanding the flow of money in the
economy is the reserve ratio or cash reserve ratio, which is a certain percentage of
bank deposits which banks are required to keep with RBI in the form of reserves or
balances. Secondly, every financial institution has to maintain a certain quantity of
liquid assets with themselves at any point of time of their total time and demand
liabilities. These assets can be cash, precious metals, approved securities like bonds,
etc. The ratio of the liquid assets to time and demand liabilities is termed as the
statutory liquidity ratio (RBI, 2013).
In addition, the Reserve Bank also uses prudential tools to modulate the flow of
credit to certain sectors so as to ensure financial stability. The availability of multi-
ple instruments and their flexible use in the implementation of monetary policy have
enabled the Reserve Bank to successfully influence the liquidity and interest rate
conditions in the economy. While the Reserve Bank prefers 24 indirect instruments
of monetary policy, it has not hesitated in taking recourse to direct instruments if
circumstances warrant such actions. Often, complex situations require varied com-
bination of direct and indirect instruments to make the policy transmission effective
(RBI, 2013).
The bank rate, also known as the discount rate, is the rate of interest charged by
the RBI for providing funds or loans to the banking system. This banking system
involves commercial and co-operative banks, Industrial Development Bank of
India, IFC, EXIM Bank and other approved financial institutes. Funds are provided
either through lending directly or rediscounting or buying money market instru-
ments like commercial bills and treasury bills. Increase in bank rate increases the
cost of borrowing by commercial banks which results in the reduction in credit
volume to the banks and hence declines the supply of money. Increase in the bank
rate is the symbol of tightening of RBI monetary policy (RBI, 2013).
In the credit ceiling operation, RBI issues prior information or direction that
loans to the commercial banks will be given up to a certain limit. In this case, com-
mercial banks will be tight in advancing loans to the public. They will allocate loans
to limited sectors. A few examples of ceiling are agriculture sector advances and
priority sector lending (RBI, 2013).
Furthermore, moral suasion as in instrument of monetary policy is just as a
request by the RBI to the commercial banks to take so and so action and measures
in so and so trend of the economy. RBI may request commercial banks not to give
6 Demystifying the Demand and Supply of Money in India 75

loans for unproductive purpose which does not add to economic growth but increases
inflation (RBI, 2013).
Another crucial instrument with the RBI is repo rate which is the rate at which
RBI lends to commercial banks generally against government securities. Reduction
in repo rate helps the commercial banks to get money at a cheaper rate, and increase
in repo rate discourages the commercial banks to get money as the rate increases
and becomes expensive. Reverse repo rate is the rate at which RBI borrows money
from the commercial banks. The increase in the repo rate will increase the cost of
borrowing and lending of the banks which will discourage the public to borrow
money and will encourage them to deposit. As the rates are high, the availability of
credit and demand decreases resulting to decrease in inflation. This increase in repo
rate and reverse repo rate is a symbol of tightening of the policy (RBI, 2013).

Risks Involved in Holding Securities

First and foremost, market risk arises out of adverse movement of prices of the
securities that are held by an investor due to changes in interest rates. This will
result in booking losses on marking to market or realizing a loss if the securities are
sold at the adverse prices. Small investors, to some extent, can mitigate market risk
by holding the bonds till maturity so that they can realize the yield at which the
securities were actually bought (Kirabaeva, 2009).
Second, cash flows arising out of maturity of these securities like treasury bills
need to be reinvested whenever they are paid. Hence, there is a risk that the investor
may not be able to reinvest these proceeds at profitable rates due to changes in inter-
est rate scenario.
Thirdly, the risk of amenability to liquidity is important. It refers to the inability
of an investor to liquidate (sell) his holdings due to nonavailability of buyers for the
security, i.e. no trading activity in that particular security. Usually, when a liquid
bond of fixed maturity is bought, its tenor gets reduced due to time decay. For
example, a 10-year security will become 8-year security after 2 years due to which
it may become illiquid. Due to illiquidity, the investor may need to sell at adverse
prices in case of urgent fund requirement. However, in such cases, eligible investors
can participate in market repo and borrow the money against the collateral of the
securities.

Conclusion

The above-mentioned theories on the demand and supply of money vary from coun-
try to country in their selective application. However, it can be concluded safely that
money demand is a function of not just income and interest rate but also stock mar-
ket prices and exchange rate.
76 S. Johri

Holding securities till maturity could be a strategy through which one could
avoid market risk. Rebalancing the portfolio wherein the securities are sold once
they become short term and new securities of longer tenor are bought could be fol-
lowed to manage the portfolio risk. However, rebalancing involves transaction and
other costs and hence needs to be used judiciously. Market risk and reinvestment
risk could also be managed through asset liability management (ALM) by matching
the cash flows with liabilities. ALM could also be undertaken by matching the dura-
tion of the cash flows (RBI, 2013).
Advanced risk management techniques involve the use of derivatives like interest
rate swaps (IRS) through which the nature of cash flows could be altered. However,
these are complex instruments requiring advanced level of expertise for proper
understanding. Adequate caution, therefore, needs to be observed for undertaking
the derivatives transactions, and such transactions should be undertaken only after
having complete understanding of the associated risks and complexities.

References

Books

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Efficient Currency Markets: Modeling M5 as Money Supply with Crypto-Currency. Finance
India, XXXII(2), pp. 405–456, Available at SSRN: https://ssrn.com/abstract=3768297 or
https://doi.org/10.2139/ssrn.3768297
Baumol, W. J. (1952). The transaction demand for cash: An inventory theoretic approach. Quarterly
Journal of Economics, 66(4), 545.
Benchimol, J., & Fourçans, A. (2012). Money and risk in a DSGE framework: A Bayesian applica-
tion to the Eurozone. Journal of Macroeconomics, 34, 95.
Brunner, K., & Meltzer, A. (1990). Money supply. In B. Friedman & F. Hahn (Eds.), Handbook of
monetary economics (Vol. I). North-Holland.
Coenen, G., Levin, A., & Wieland, V. (2005). Data uncertainty and the role of money as an infor-
mation variable for monetary policy. European Economic Review, 49(4), 975.
Diamond, D. W., & Dybvig, P. (1983). Bank runs, deposit insurance, and liquidity. Journal of
Political Economy, 91(3), 401.
Eatwell, J., et al. (1987). The New Palgrave: A dictionary of economics (pp. 3–20). Palgrave
Macmillan.
Irving Fisher, The purchasing power of money (1911).
Freixas, X., & Rochet, J.-C. (2008). Microeconomics of banking (2nd ed.). MIT Press.
Friedman, M. (1987). Quantity theory of money. In J. Eatwell, M. Milgate, & P. Newman (Eds.),
The new palgrave: A dictionary of economics (vol. 4, pp.3–20). New York: Stockton Press; and
London: Macmillan.
Friedman, M. (2005). The quantity theory of money: A restatement. In Studies in the quantity
theory of money. Chicago.
Goodfriend, M., & McCallum, B. (2007). Banking and interest rates in monetary policy analysis:
A quantitative exploration. Journal of Monetary Economics, 54, 1480.
Kirabaeva, K. (2009). International Capital Flows and Liquidity Crises. Working Paper, Cornell
University (July).
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Krugman, P. R., Obstfeld, M., & Melitz, M. J. (2020). International Economics: Theory and Policy,
Pearson, 11th Edition.
Laidler, D. E. W. (1985). The demand for money: Theories, evidences and problems (5th ed.).
Nelson, E. (2002). Direct effects of base money on aggregate demand: theory and evidence.
Journal of Monetary Economics, 49(4), 687–708.
Papademos, L., & Stark, J. (Eds.). (2010). Enhancing monetary analysis. ECB.
Reserve Bank of India: Functions and Working. (2013, December 1).
Sargent, T. J. (1993). Bounded rationality in macroeconomics. The Arne Ryde Memorial Lectures.
Schumpeter, J. (1936). Review: The General Theory of Employment, Interest and Money by John
Maynard Keynes. Journal of the American Statistical Association, 31(196), 791–795.
Sriram, S. S. (2000). A survey of recent empirical money demand studies. IMF Staff Papers, 47(3),
334–365.
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Statistics, 38(3), 241.
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d’Économétrie et d’Économie politique (DEEP), Université de Lausanne, Faculté des hEC.

Weblogs
www.economics.cornell.edu
www.rbi.org
Chapter 7
Financial Crimes Through Fintech
by Political Leaders: The Experience
of Select South Asian States

Debasish Nandy and Abdullah Al Mamun

Introduction

Fintech has emerged as a catalyst for new business prospects within the realm of
traditional banks. Its potential lies in the complete transformation of financial ser-
vices, aiming to disentangle, distribute, and demystify them in the future. The
impact of fintech has already been felt in the disruption it has caused to conventional
finance, as highlighted by Lee and Shin (2018). This disruption presents unique
challenges to established players in the industry, who once held an unquestionable
dominance, while simultaneously offering exciting advancements for them. For
instance, a startup armed with an innovative concept for a customized financial
solution tailored to the tech-savvy generation can pose a formidable threat to the
billion-dollar financial service providers presently operating in the market. Notable
examples of such disruptive fintech companies include M-Pesa, which specializes
in mobile payment services, Revolut, which offers integrated services, and
Robinhood, which facilitates trade and investment (Mahmud, et al., 2023). However,
the realization of these desired changes hinges upon the successful and widespread
adoption of fintech services. Al-Okaily et al. (2021) emphasize that fintech-enabled
sustainable development holds significant advantages, particularly for marginal-
ized groups.
Fintech can be described as financial technologies and financial innovation focus
of small companies to large corporations and financial institutions. The main focus
is to develop technologies that can transform the financial landscape by simplifying
typical financial applications (Rahman et al., 2021). The growth and development of

D. Nandy (*)
Department of Political Science, Kazi Nazrul University, Asansol, West Bengal, India
A. Al Mamun
Department of Japanese, University of Dhaka, Dhaka, Bangladesh

© The Author(s), under exclusive license to Springer Nature 79

Switzerland AG 2024
C. M. Gupta, G. Kaur (eds.), E-banking, Fintech, & Financial Crimes,
https://doi.org/10.1007/978-3-031-67853-0_7
80 D. Nandy and A. Al Mamun

the digital economy are part of national policies. ICTs play a crucial role in advanc-
ing the Sustainable Development Goals (SDGs) outlined by the United Nations,
encompassing economic growth, decent work, well-being, and poverty eradication.
By harnessing information and communication technologies, particularly through
the digital economy, nations can effectively utilize ICTs to provide digital goods
and services, thereby fostering social and economic development (UNCTAD, 2019).
In recent years, the term “fintech” has gained significant attention in Bangladesh
due to its active disruption of long-established financial systems. Fintech encom-
passes the utilization of technological advancements to enhance and expedite tradi-
tional financial services and transactions. It is often used interchangeably with the
term “financial technology.” Under the fintech umbrella, various services and prod-
ucts such as digital cash management systems, peer-to-peer lending, mobile bank-
ing, e-wallets, and mobile financial services (MFS) can be found.

Conceptualizing Financial Crime

Most of the states of South Asia have witnessed financial crimes. In many countries
in South Asia, political leaders are accused of financial crimes. The political culture
of South Asia is stigmatized for enormous corruption. Leaders are blamed for hav-
ing unauthorized wealth, property, and money. Many of them used to send money
through illegal channels abroad. The political leaders often face judicial challenges
and used to go to prison for financial offenses. Financial crimes encompass a range
of nonviolent offenses that result in financial losses for some individuals while ben-
efiting others at their expense. Despite the numerous advantages brought about by
the globalization of financial systems, increased trade volume, and rapid advance-
ments in information technology, financial crime has unfortunately expanded and
evolved (Ünvan, 2020). Consequently, it is increasingly crucial to combat these
sophisticated and well-structured crimes that inflict significant financial harm upon
individuals and organizations. To effectively address this growing menace, a com-
prehensive approach involving all sectors of society is imperative. Financial crimes
encompass various illicit activities such as fraud, misconduct in financial markets,
manipulation of financial information, handling of criminal proceeds, and financing
of terrorist activities.
Money laundering poses a significant threat due to its potential to fund terrorist
organizations, drug and weapons traffickers, and criminal enterprises. This can have
devastating effects on both the financial system and national security. Criminals can
use their illegal profits to support their legal businesses, creating an uneven playing
field between legitimate and illicit enterprises. The constantly evolving nature of
money laundering activities requires a comprehensive approach from both the inter-
national community and individual nations. Legislation alone is not enough to com-
bat this issue. Seizing illicit gains and reducing the profitability of crime are crucial
objectives. Foreign aid is also necessary, and cooperation between countries is
essential in fighting multinational money laundering operations. Negotiations based
7 Financial Crimes Through Fintech by Political Leaders: The Experience of Select… 81

on mutual understanding and respect can help resolve conflicts and prevent delays
in legal and investigative processes. Almost all crimes targeting financial institu-
tions can be categorized as financial crimes in some manner due to their wide range
of impact. This statement is occasionally employed to encompass any type of fraud-
ulent activity linked to monetary schemes, which encompasses an even broader
array of behaviors. Money laundering, tax evasion, embezzlement, forgery and
counterfeiting, identity theft, bribery and corruption, financing of terrorism, wash
trading and pump-and-dumps, insider trading, and market manipulation are among
the significant categories.

Reasons Behind the Financial Corruption by Political Leaders

Political culture generates corruption. In the political spectrum of South Asia, cor-
ruption has been an integral part. The leaders of different political parties in South
Asia spend a huge amount of money during electoral campaigning. Many times,
they try to spread money and offer money to the voters and petty leaders, party sup-
porters, and local administration to manage the vote bank. This is a very common
practice that before contesting the elections, political leaders take financial support
from the business houses. Sometimes, they used to take loans from individuals,
financial companies, and relatives. After winning the election, those leaders try to
earn money illegally very fast to repay loans they have taken. The political systems
of South Asian countries are mostly volatile; that is why the political leaders con-
sider their political career as an uncertain venture. So, they try to earn as much as
they can. Considering the uncertain political career, the leaders often get involved
in illegal money laundering activities. The unauthorized fintech channel is used by
many South Asian leaders. Due to inadequate execution, a prevailing culture of
financial politics rooted in close ties between corporate leaders and political fig-
ures, which mutually benefits both parties, interference in legal proceedings to hin-
der the punishment of corrupt wrongdoers, especially prominent individuals, and
inconsistent outcomes in anti-corruption endeavors, corruption continues to be
widespread.
Democratic politics is about making government work for the people by giving
citizens a voice in government and the ability to remove leaders from office.
Corruption is the misuse of public office for private gain. When politicians use their
office to enrich themselves or their political allies, they violate the public’s trust and
undermine the legitimacy of their governments. Politicians in liberal democracies
should be more resilient to corruption than their counterparts in authoritarian
regimes are, but experiences in Asia show that the region’s democratic governments
are by no means immune from corruption. Corruption remains a central policy issue
for democratic governments in Asia, and the politics of controlling corruption is
central to understanding electoral politics and elite political maneuvering.
Transparency International (2014) has mentioned that in the South Asian region,
bribery, nepotism, and fraud have the potential to impede economic growth and
82 D. Nandy and A. Al Mamun

worsen poverty levels. This is particularly detrimental to the most vulnerable indi-
viduals who heavily rely on social safety nets. These unethical practices divert funds
that were originally intended for public services, further exacerbating the situation.
Moreover, they contribute to the concentration of wealth in the hands of a privileged
few while discouraging potential investors who play a crucial role in fostering eco-
nomic development. The prevalence of corruption in South Asia is on the rise, and
failing to address this issue could undermine the region’s progress and hinder efforts
to achieve a fair distribution of resources. The corruption epidemic in South Asia
can be attributed to various factors, including excessive government interference in
the operations of anti-corruption bodies, lack of transparency in public institutions,
and inadequate protection for those fighting against corruption. Transparency
International conducted a comprehensive assessment of 70 prominent institutions
across six South Asian countries, such as Bangladesh, India, the Maldives, Nepal,
Pakistan, and Sri Lanka to gauge their vulnerability to corruption. The findings of
the report are as follows. Sometimes, the flow of foreign direct investment (FDI) is
negatively linked with corruption. Moreover, corruption stemming from democratic
governance, stringent regulations, and religious diversity has a substantial influence
on the region’s capacity to combat corruption (Khati & Jinwon, 2023).
The key reasons behind the corruption of the political leaders in South Asia are
as follows: Firstly, the presence of an unjustified or poorly justified government,
coupled with the negative influence of negligent leaders at both the federal and local
levels, contributes to the prevailing issues. Secondly, political favoritism and nepo-
tism within the educational and administrative sectors further exacerbate the prob-
lem. This culture of corruption in both Pakistan and Afghanistan has been nurtured
by a disregard for meritocracy, inadequate remuneration, and a culture of favorit-
ism. Thirdly, both nations frequently witness violations of rules, regulations, and
codes of conduct within the public sector. Fourthly, a commonality between the two
countries is the lack of public accountability. Fifthly, both countries have unfortu-
nately normalized a culture of corruption and unfairness in the workplace, with citi-
zens becoming accustomed to these reprehensible behaviors. Sixthly, influential
leaders, military personnel, and ministers distort laws, norms, and even constitu-
tional provisions to facilitate corrupt activities. Lastly, civil society and the media
have failed to effectively address these issues in both nations. While Pakistan lacks
a functioning civil society, Afghanistan is still in the process of establishing one
(Nandy, 2023).

The Selected Countries of the Study

In this study, three countries in South Asia have been chosen, such as Pakistan,
Afghanistan, and Bangladesh. The political and financial systems of the three coun-
tries are different. The nature of the financial corruption through fintech is also
different.
7 Financial Crimes Through Fintech by Political Leaders: The Experience of Select… 83

Pakistan

Pakistan’s political landscape was marred by a long-standing culture of corruption

(Nandy, 2017). Prominent figures in the country were accused of financial impropri-
ety, including the former prime minister who hailed from a wealthy Punjabi family.
He had led the Pakistan Muslim League-N as its president and had held various
positions in the government, including the Ministry of Finance and the Chief
Minister of Punjab. However, serious allegations of using Inter-Services Intelligence
(ISI) to manipulate elections through financial means were leveled against him. In
1993, he was fired by the president of Pakistan at the time due to his involvement in
corruption. Despite this, he was elected to a second term as prime minister in 1997.
These incidents highlight the pervasive nature of corruption in Pakistan’s political
history. During his second term in office, Nawaz Sharif experienced a significant
clash with both the military and judiciary. In 1999, his tenure was abruptly ended by
Musharraf’s intervention. Subsequently, in 2017, Sharif faced another setback when
he was implicated in the Panama Papers trial, leading to a ban on holding any public
office. This trial exposed a grave financial fraud, resulting in prison sentences for
Sharif and his daughters. The year 2016 witnessed the Panama Papers leak, which
further intensified the scrutiny of Sharif’s financial affairs. Ultimately, in July 2017,
the Pakistani Supreme Court removed him from his position.
Following the unfortunate aircraft accident that claimed the life of General Zia-­
ul-­Haq, Benazir Bhutto assumed the role of Pakistan’s first female prime minister.
However, her tenure was cut short due to allegations of corruption, leading to her
removal from office before completing 2 years. In 1993, Bhutto returned to power
as Pakistan’s second prime minister, concurrently taking on the responsibilities of
the finance minister. It was during her time as prime minister that she introduced the
practice of nepotism by appointing her husband, Asif Ali Zardari, as the minister of
investments in 1996. This decision inadvertently set the stage for a culture of family
dominance within the country’s political economy. Zardari himself faced numerous
accusations of engaging in illicit financial activities and misappropriation of public
funds. Leveraging his connections, he managed to expose defense contacts. The
state-owned businesses and power plant projects were divested by him. In return for
granting radio licenses, he succumbed to bribery. Moreover, he received payment to
bestow an export monopoly upon a select few companies. When Pakistan
International Airlines was procuring planes, he embezzled public funds. In exchange
for approving textile export quotas and permitting the establishment of sugar facto-
ries, among other matters, he accepted bribes. The Bhutto family unlawfully
obtained property in London for a sum of USD 2.5 million (Nandy, 2023).
The former prime leader has been handed his second prison term in 2018. In a
distinct corruption case, he and his daughter Maryam were incarcerated in July
2018. However, their sentences were temporarily halted by the Islamabad High
Court in September, and they were obliged to pay a bail amount of $5000 each.
After details regarding his family’s financial status were disclosed in the Panama
84 D. Nandy and A. Al Mamun

Papers, the Supreme Court of Pakistan directed Sharif to step down from his posi-
tion as prime minister in 2017 (Saifi, 2018).
Unfortunately, no Pakistani prime minister has been able to complete a full
5-year term. In 2008, Pervez Musharraf was brought to power by Western powers
and domestic democratic forces, but he faced allegations of corruption thereafter.
While elected governments are usually held responsible for corrupt practices,
Pakistan’s corrupt culture stands out due to the interplay between unscrupulous
landlords, ineffective political parties, and corrupt political leaders. The military-­
civil alliance has also played a crucial role in establishing military dominance.
Shaikh (2009) asserts that the Pakistani military has gained supremacy in the coun-
try over the years, making it the most significant institution. The military has uti-
lized munitions and the guise of security to establish its dominance in major financial
transactions. Unfortunately, corruption in the armaments sector has become more
prevalent over time, as highlighted by Henriksson (2007). The major arms sales
involve significant amounts of money, and politicians and senior army personnel in
Pakistan collude to engage in corrupt arms sales.
Pakistan’s former Prime Minister Imran Khan was arrested in 2023 by an anti-­
graft agency on corruption charges. Government officials alleged that Khan and his
wife received land worth millions of dollars as a bribe from a real estate tycoon
through a charitable trust. Khan and his aides have denied any wrongdoing. The
developer has denied the charges in the past, but he could not be contacted on
Wednesday, and his company’s marketing manager did not respond to a request for
fresh comment. The trust has nearly 60 acres of land worth 7 billion Pakistani rupees
($24.7 million) and another large piece of land in Islamabad close to Khan’s hilltop
home, the minister said. The government said the scheme originated with 190 mil-
lion pounds repatriated to Pakistan in 2019 by Britain after Hussain forfeited cash
and assets to settle a British probe into whether they were proceeds of crime
(Shahzad, 2023). On November 28, 2023, a Pakistani court ordered a public trial in
prison of former Prime Minister Imran Khan on charges of financial irregularities
(Ahmed, 2023). The Islamabad High Court (IHC) on November 30, 2023, sought a
response from the Election Commission of Pakistan (ECP) on former Prime Minister
Imran Khan’s petition seeking to set aside his conviction in the Toshakhana refer-
ence and the suspension of his disqualification (Khan & Asad, 2023).

Afghanistan

Corruption in Afghanistan is primarily a reflection of the country’s native customs

and regional traditions. Numerous cabinet ministers, members of parliament, and
political leaders have faced allegations of involvement in financial scandals. At all
levels, the administration is plagued by rampant corruption. Afghanistan’s demo-
cratic principles are fragile, and its economy is unstable. The nation faces threats
from terrorism and ethnic violence, relying heavily on international assistance due
to its lack of industrialization and economic challenges. Despite the leadership of
7 Financial Crimes Through Fintech by Political Leaders: The Experience of Select… 85

Ashraf Ghani and Hamid Karzai, corruption has remained pervasive in both politi-
cal and administrative spheres since the Taliban era. The allocation of development
funds has been drained due to careless corruption practices. Over time, Afghanistan
has developed a financial culture where politicians and officials frequently misuse
international funds. According to Transparency International’s 2019 report,
Afghanistan scored a mere 16 out of 100 and ranked 173 out of 180 nations in terms
of corruption. Transparency International has advised the Afghan government to
collaborate with the National Unity Government (NUG) and civil society to combat
corruption effectively. The rapid escalation of corruption has worsened instability
and hindered developmental efforts. The prevalence of corruption in Afghanistan
paints a grim picture of its socioeconomic profile, indicating that corruption has
become deeply ingrained within its institutions.

Corrupt Practices Among the Politicians

Nepotism has emerged as a prominent feature within Afghan politics. The country’s
politicians have established strong connections with unlawful activities and finan-
cial mismanagement. Numerous prime ministers and ministers in Afghanistan have
previously operated private businesses using the names of their family members.
Despite being one of the world’s poorest nations, the ruling elite in Afghanistan
utilizes illicit wealth to sustain extravagant lifestyles. The Anti-Corruption
Commission’s investigations have revealed that approximately 8000 officials pos-
sess unlawful funds and assets that exceed their legitimate earnings. Nevertheless, it
is imperative to implement punitive measures against a small fraction of dishonest
officers. Political leaders in Afghanistan frequently exploit their positions of power
for personal gain. For more than a decade, Afghanistan’s government has consis-
tently ranked among the top ten most corrupt nations.
Conversely, there has been a notable transformation in the perception of the
nation this year, and the Taliban takes immense pride in this development.
Transparency International, an unbiased organization that monitors corruption,
recently released the Corruption Perceptions Index for January 2023. Among the
180 states evaluated, Denmark emerged as the least corrupt nation, while Somalia
ranked at the bottom, securing the 180th position. With the Taliban presently in
power, Afghanistan has made significant strides, climbing from the 174th to the
150th spot in 2021. It is worth mentioning that the nation’s standing was even worse
in 2011, when the United States had a substantial military and developmental pres-
ence in Afghanistan, placing below countries like North Korea and Somalia (Dawi,
2023). Hence, it is crucial to highlight this fact. Despite the challenges faced,
Afghanistan has successfully shed its tarnished reputation this year, making remark-
able progress, and the Taliban takes immense pride in this achievement.
Ashraf Ghani, the former president of Afghanistan, has been accused of engag-
ing in and profiting from rampant corruption. Rumors abounded among Afghans
and analysts that the 75-year-old took millions of dollars in cash with him when he
left, and Russian state media reported the same. Please use the sharing tools found
86 D. Nandy and A. Al Mamun

via the share button at the top or side of articles. The ousted president has been criti-
cized by members of his erstwhile government, who have accused him of betrayal
and allowing the Taliban to take over Afghanistan in the wake of the US troop with-
drawal. Ghani was also accused of looting Afghan coffers as he left, including alle-
gations that he fled with a helicopter full of cash (Chan et al., 2021). Ghani in his
letter denied the accusations. The US and former Afghan officials, including those
who worked closely with Ghani, allege numerous instances of corruption and brib-
ery within Ghani’s office and family, and independent investigations have concluded
that Ghani gave lucrative contracts to immediate family members. Ghani has denied
the accusations (Turak, 2021).

Taliban Leaders

The collapse of Afghanistan’s entire banking sector has led to a decreased reliance
on the official financial system by Afghans. Before the Taliban regime in 2021,
approximately 15% or more of Afghans held bank accounts. However, with the
Taliban government in power, the country’s unrestrained economy has become
increasingly vulnerable. This vulnerability is evident in the cessation of operations
by international money transfer companies like Western Union and MoneyGram in
Afghanistan. Furthermore, before the Taliban era, only a mere 7% of women were
involved in the formal financial system of the nation, with their participation being
significantly limited. As a result, the hawala system has gained significant control
over the financial sector, accounting for nearly 90% of it under the Taliban adminis-
tration. As a result of the prevailing financial challenges faced by the system, both
the Taliban and their leaders have taken measures to reduce their operations to con-
serve funds (Stevenson, 2021). Many individuals previously relied on hawala to stay
connected with their relatives residing in Istanbul, Doha, and London. The absence
of financial support from hawala would lead to the collapse of entire economic sec-
tors in Afghanistan.

Bangladesh

Bangladesh has witnessed the illegal money transactions of the political leaders of
Bangladesh. The political culture of Bangladesh is accused of corruption. The leg-
acy of corruption has made the country stigmatized. Right from military ruler
Hussain Muhammad Ershad to the leaders of Bangladesh Nationalist Party (BNP)
and Awami League (AL) are accused of corruption and illegal monetary transac-
tions through fintech. Looting the public funds, bribery, hiding the actual income,
and using political influence, the leaders of Bangladesh used to send money abroad.
Presently, 198 financial companies are operating in Bangladesh. As the fintech
industry continues to rapidly expand, notable innovations like online payments,
electronic investment, crowdsourcing, and digital currencies are emerging.
7 Financial Crimes Through Fintech by Political Leaders: The Experience of Select… 87

According to global market research firm Statista, the fintech digital investment
market in Bangladesh is projected to reach a value of USD 55.5 million by 2023,
with a growth rate of 35.8% by 2024. Furthermore, it is anticipated to achieve a
market value of USD 909 million by 2027 (Hasan, 2023).

Financial Corruption by Jatiya Party (Hussain Muhammad Ershad)

During the majority of the 1980s and the early 1990s, Hussain Mohammad Ershad
held the reins of power in the nation. His ascendancy to leadership was solely based
on his position as the chief of staff of the Bangladesh Army, a role he had assumed
since 1978. This period was marked by the assassination of Sheikh Mujibur Rahman,
the esteemed founding father of the country, in 1975. Subsequently, Ziaur Rahman,
a charismatic military figure, assumed the mantle of leadership in Bangladesh (The
Irish Times, 2019). In 1991, Ershad was detained and imprisoned on charges of cor-
ruption. However, rather than crumbling, the Jatiya Party (JP) emerged as a formi-
dable force in electoral politics. Remarkably, Ershad contested and triumphed in
five different constituencies across two consecutive elections all while being incar-
cerated. Nevertheless, his glory days were now a thing of the past. Ershad faced
allegations of failing to disclose the gifts he had received from various nations dur-
ing his presidency from 1983 to 1990 (The Times of India, 2017).
Professor B. Chowdhury submitted a list of individuals to the Anti-Corruption
Bureau, which included notable figures such as members of parliament (MP), min-
isters, district and Upazila chairs, and high-ranking government officials (JPRS,
1991). In the aftermath of 1991, it became customary in a democratic context to
refute allegations of corruption made by leaders of national and local political par-
ties. As the elections of 1996, 2001, and eventually 2007 drew near, these accusa-
tions escalated from both sides. The United States and the European Union
consistently urged Bangladesh to take stronger measures against corruption. During
the period from 2001 to 2005, Transparency International designated Bangladesh as
the most corrupt nation in the world or tied for the highest rank (Robinson &
Sattar, 2012).

Financial Crime by Bangladesh Nationalist Party (BNP) Leaders

The “fugitive” eldest son of Bangladesh’s opposition leader and former premier
Khaleda Zia was today sentenced to 7 years in prison by a court here for laundering
nearly USD 2.5 million, overturning a lower court’s decision to acquit him in the
high-profile graft case. Two high court judges overturned a 2013 acquittal by a
lower court of 51-year-old Tarique Rahman, who lives in exile in London and now
faces a ban from politics (Gulf Times, 2016). Tarique Rahman was senior vice presi-
dent of the Bangladesh Nationalist Party (BNP). He was sentenced for siphoning off
the money to Singapore between 2003 and 2007 when the party-led four-party
righting alliance government was in power. Rahman, who has been living in London
88 D. Nandy and A. Al Mamun

since 2007, was charged under the Money Laundering Act. The court also slapped
a Taka 200 million fine on him. In a surprise verdict, a Dhaka court on November
17, 2013, acquitted Rahman of the graft charge but handed down 7 years of impris-
onment and fined Taka (Bangladesh currency) 400 million to his friend and business
partner Giasuddin Al Mamun in the same case. The High Court, however, upheld
Mamun’s jail term but lowered the amount of the fine to Taka 200 million, an equal
amount of penalty slapped on Rahman. The Anti-Corruption Commission brought
the money laundering charge against Rahman during the past military-backed
interim government which spearheaded a massive anti-graft campaign under the
State of Emergency from 2006 to 2008 when Rahman was put behind bars (The
Indian Express, 2016).
Bangladesh has long grappled with corruption within its political system. The
governing styles of many political leaders in Bangladesh have been influenced by
the political culture of Pakistan. The deregulated economy of Bangladesh has raised
concerns about good governance. Fintech has had a significant impact on
Bangladesh’s economy. In the past, it was common for businessmen, high-ranking
officials, and political figures to employ money laundering techniques to transfer
illegal funds abroad. The public’s trust has been completely betrayed by the reckless
spending of public funds by political leaders. In Bangladesh, there exists a close
relationship between the political class and the administration, which has further
perpetuated institutionalized corruption and tarnished the nation’s reputation for
transparency. Begum Khaleda Zia, the former leader of the BNP, faced corruption
allegations and was also linked to fintech.
The Zia Orphanage Trust graft case was thoroughly examined by the High Court,
which emphasized the detrimental impact of corruption on the fundamental princi-
ples of democracy, social equity, and the rule of law. On February 8, 2018, the
Special Court-5 in Dhaka sentenced former Prime Minister Khaleda to a 5-year
imprisonment, taking into account her age and social status as justifications for the
verdict. In their extensive 175-page ruling, the bench highlighted that Begum Zia
was entrusted with the management of the PM’s Orphanage Fund, a public fund,
and that she deceitfully misappropriated, utilized, and disposed of a significant
amount of money from the fund, with the active involvement of other inmates. The
court emphasized that Khaleda had a responsibility to ensure that the funds allo-
cated for the welfare of orphans were utilized fairly and appropriately (The Daily
Star, 2019).
Socioeconomic background plays a significant role in determining the fintech
readiness score. Over the past two decades, Bangladesh has made remarkable prog-
ress in enhancing the accessibility of the financial system for consumers. Data from
Bangladesh Bank indicates a notable expansion in the presence of physical bank
branches, ATMs, point-of-sale systems, and CRM machines across various criteria
(Mahmud et al., 2023). In response to the adoption of new technologies by banks,
there is a growing trend of hiring younger and more technologically adept staff
members to ensure adaptability to these changes. Alternatively, some banks are
implementing training programs to effectively handle fintech advancements (Ahmed
& Rahman, 2020).
7 Financial Crimes Through Fintech by Political Leaders: The Experience of Select… 89

Financial Crime Through Fintech by Awami League Leaders

In comparison to the other two major political parties of Bangladesh, such as BNP
and Jatiya Party, the number of corrupt leaders in Awami League is less. Due to the
transparent image and strict principles of Sheikh Hasina, the supremo of the Awami
League party, the party leaders are afraid to be involved in illicit financial transac-
tions and to be involved in money laundering through fintech. Hasina became the
Prime Minister of Bangladesh, but no such allegation related to financial crime or
money laundering through fintech has been raised against her or her family mem-
bers. However, power makes people corrupt. There was an allegation against some
youth leaders of the Awami League for being involved in financial crime. Sheikh
Hasina took a “zero tolerance” policy against corrupt party supporters and party
leaders. Sheikh Hasina has made it clear that her administration is committed to
stopping illegal money laundering through fintech by political leaders. According to
the prime minister, Tarique Rahman and Arafat Rahman Koko, the two sons of
Khaleda Zia, were implicated in illicit activities even before foreign entities and an
FBI agent provided testimony against Tarique in a money laundering case. The
prime minister further stated that Tarique Rahman and Arafat Rahman Koko man-
aged to return Tk40 crore (in Bangladeshi currency) to the government, which they
had unlawfully transferred abroad. However, retrieving the funds from the countries
where they were stashed has proven to be a formidable challenge, as these nations
are unwilling to release the funds (Dhaka Tribune, 2023).
The ruling Awami League (AL) of Bangladesh initiated an anti-corruption drive
in September 2019. The initial crackdown targeted a few illicit casinos and clubs,
resulting in the apprehension of a limited number of leaders from the ruling AL’s
youth wing. These individuals were charged with running these establishments,
engaging in extortion, participating in money laundering schemes, amassing illicit
funds, and securing government contracts through their political connections. The
campaign has been described in various ways, including as an effort to support the
“cleanse the party” movement. Both opposition leaders and members of the cabinet
assert that no one, regardless of their affiliation with the AL or any other party, will
be exempt from punishment. This anti-corruption campaign, launched by the ruling
Awami League (AL) in September 2019, has resulted in the arrest and imprison-
ment of numerous leaders associated with different affiliate groups of the ruling
party (Riaz, 2019).

Jamaat-e-Islami

The Jamaat-e-Islami party, which is aligned with right-wing ideologies, has been
linked to radicalism and the financing of terrorism. The Bangladesh High Court has
taken the step of banning this political party due to its connections with various
extremist groups and its involvement in illicit financial activities. It has been
reported that individuals from Kuwait, the United Arab Emirates, Bahrain, Pakistan,
Saudi Arabia, and Libya have contributed funds to the Jamaat-e-Islami party.
90 D. Nandy and A. Al Mamun

Furthermore, the organization has received significant financial support from sev-
eral international nongovernmental organizations (NGOs), such as the Al Haramain
Islamic Institute based in Saudi Arabia, the Revival of Islamic Heritage and Daulatul
Kuwait based in Kuwait, and the Al Fuzaira, Khairul Ansar Al Khairia, and Daulatul
Bahrain based in the United Arab Emirates and Bahrain, respectively. Moreover,
Bangladesh has witnessed the emergence and growth of Islamic fundamentalism,
with organizations like Jamaat-e-Islami and others expanding their institutional net-
works and capitalizing on the financial resources provided by Islamic petrodollars.
These organizations include Islami Chhatra Shibir, Jagrata Muslim Janata,
Bangladesh, and Islami Oikya Jote (Warikoo, 2006).
In August 2013, the High Court of Bangladesh declared the Jamaat-e-Islami
organization illegal due to its violation of the secular provision in the 1972 constitu-
tion. Consequently, during the tenth general elections held in January 2014, the
electoral commission denied the party’s participation (Shikha, 2014). Ameer
Shafiqur Rahman, the leader of Jamaat-e-Islami, faced allegations of involvement in
militancy and was placed under a 7-day remand by a Dhaka court on Tuesday.
Despite the police’s request for a 10-day remand under the Anti-Terrorism Act
(ATA) case, the court ordered his detention for 7 days. The head of Jamaat-e-Islami
was apprehended on Monday in the Basundhara neighborhood, the capital, by the
Counterterrorism and Transnational Crime (CTTC) unit. It is worth noting that he
had previously been imprisoned twice (All India Radio, 2022).

 aken Initiatives for Stopping Financial Crimes

T
Through Fintech

This study deals with three South Asian countries, such as Pakistan, Afghanistan,
and Bangladesh which are alleged with gross financial corruption through fintech.
However, these three states have taken some measures to stop financial corruption.
Pakistan is accused of giving access to illegal money laundering practices. The
Pakistani government, despite challenges, has taken significant measures to combat
illicit money laundering. The Anti-Terrorism Act of 2002 delineates the criminal
acts of money laundering and financing terrorism, along with the corresponding
penalties and jurisdictions. Additionally, the 1999 National Accountability
Ordinance has facilitated the establishment of accountability courts and necessi-
tated financial institutions to disclose any suspicious transactions to the National
Accountability Bureau (NAB). Furthermore, the Control of Narcotic Substances
Act of 1997 encompasses provisions for the freezing and confiscation of assets
linked to drug trafficking while also establishing specialized courts to handle
offenses, including financing, related to illegal drugs. Moreover, this act mandates
the reporting of any suspicious transactions to the Anti-Narcotics Force (ANF).
Since the identification of Pakistan as a country that could potentially be blacklisted
in 2018 for failing to comply with international guidelines, the Financial Action
7 Financial Crimes Through Fintech by Political Leaders: The Experience of Select… 91

Task Force (FATF) has maintained a vigilant watch over the nation’s endeavors to
combat the illicit activities of money laundering and the financing of terrorism
(Hashim, 2020).
Afghanistan has experienced of hawala system. Due to the drainage of a huge
amount of government funds by the former Afghan leaders through fintech abroad,
the Taliban administration has demonstrated its ability to combat corruption through
the implementation of roadblocks and customs inspections. Despite facing severe
international banking and economic sanctions, the beleaguered Taliban leadership
has managed to secure financial support for their fight against corruption. The World
Bank released a positive report in January 2023, highlighting the successful tax col-
lection during the first three quarters of 2022 under the Taliban administration,
which showcased a promising aspect of the Afghan economy. Additionally, the
nation achieved strong export levels and maintained a stable currency exchange
rate. However, the Taliban has not provided any specific details regarding the distri-
bution of national resources, despite claiming to have collected $1.7 billion in taxes
over the past 10 months.
In September 2016, the Special Inspector General for Afghanistan Reconstruction
(SIGAR) released a report highlighting the ineffectiveness and lack of indepen-
dence of the Anti-Corruption Commission in Afghanistan, which was established in
2008. The report also revealed that the commission had never validated the asset
declaration forms of former President Hamid Karzai. Furthermore, the asset disclo-
sure forms of Karzai and other high-ranking officials were found to contain mis-
takes and omissions. Transparency International’s annual corruption assessment
ranked Afghanistan 166th out of 168 countries, reflecting the country’s widespread
corruption. The SIGAR investigation discovered that Karzai had reported funds
held in a German bank account in his September 2015 asset disclosure form but
failed to provide the account number or identify the source of the money (Ali, 2016).
Bangladesh has implemented several measures to combat corruption. To estab-
lish an efficient legal system, the court and law enforcement organizations have
been provided with the necessary resources and training. To further investigate
activities such as money laundering, financing of terrorism, and other related crimes,
law enforcement agencies are employing a range of techniques. This includes the
identification, containment, and confiscation of unlawfully acquired assets.
Moreover, the government is actively working toward reducing trade-based money
laundering by facilitating the provision of tools and techniques, as well as promot-
ing collaboration among stakeholders. Bangladesh is making strides in improving
the process of recovering stolen assets, curbing illicit transfers, and discouraging the
generation of proceeds from criminal activities, all aimed at preventing the unlawful
flow of money. Additionally, the government is prioritizing regulatory technology,
cybersecurity, and financial inclusion to address emerging challenges and promote
wider access to financial services.
Fintech refers to the utilization of innovative and technologically advanced
approaches in providing financial services, and it is an industry that is experiencing
rapid expansion on a global scale. Additionally, Bangladesh’s legal system empow-
ers the government to enact regulations, seize assets, and confiscate illicit goods.
92 D. Nandy and A. Al Mamun

The Anti-Terrorism Act (ATA) and the Money Laundering Prevention Act (MLPA)
enable the authorities to confiscate properties and assets associated with money
laundering and terrorist financing, whether through convictions or, in certain
instances, even without a conviction.

Recommendations

Some policy recommendations can be offered to the governments of Pakistan,

Afghanistan, and Bangladesh to eliminate financial crimes through fintech. Firstly,
the national character of a country is determined by the transparency of the state
system of a country. The governments of these South Asian countries should empha-
size developing moral education at the school level to educate students about the
necessity of moral education and how the economy of the country can be developed
by stopping corruption. Secondly, through judicial activism, the practice of finan-
cial corruption can be stopped. The judiciary needs to be autonomous and powerful
as it can actively play a significant role against the political leaders. Thirdly,
through strong legislation, corruption can be minimized. The fee-and-fare parlia-
mentary democratic system is required for this. Fourthly, the role of civil society in
the anti-corruption movement is a must. So, to combat financial corruption, a vibrant
civil society is required. Except Bangladesh, the role of civil society in the anti-­
corruption movement is invisible. Fifthly, the strict financial regulation acts are to
be implemented by the governments of these countries. Due to enormous corrup-
tion, Pakistan was kept on the “gray list.” The financial credibility and reliability can
be challenged by the IMF and World Bank.

Conclusion

Based on the study, it can be said that financial crime through fintech has been a
deep-rooted problem in Pakistan, Afghanistan, and Bangladesh. Despite some ini-
tiatives by the concerned governments, fintech-based crimes have not been elimi-
nated yet. This is a quite difficult task for Pakistan and Afghanistan. Bangladesh has
little possibility to overcome this issue due to the strong commitment of the ruling
government to combat financial crimes. Corruption has been a persistent issue in
South Asia for a considerable period. The majority of nations in this region have
consistently been recognized as some of the most corrupt countries in the world,
with only a few exceptions. According to Transparency International’s Corruption
Perceptions Index (CPI) for the year 2022, Bhutan, Afghanistan, Bangladesh, India,
Nepal, Maldives, Pakistan, and Sri Lanka were all identified as countries with sig-
nificant corruption levels (Transparency International (TI, 2023). In the case of
Pakistan, fintech is associated with terror financing. For Bangladesh, it is also partly
true for the Jamaat-e-Islami party.
7 Financial Crimes Through Fintech by Political Leaders: The Experience of Select… 93

To enhance financial inclusion by combating corruption, the South Asian gov-

ernments must prioritize the enforcement of accountability measures and legal
repercussions for corrupt officials, particularly those responsible for overseeing the
financial sector. Additionally, it is imperative to recognize that lenient penalties may
not effectively deter rent-seeking behavior within the financial industry, thus neces-
sitating the establishment of stringent sanctions to address this issue (Mahmud
et al., 2023). The culture of corruption in the South Asian region by political leaders
has been a common phenomenon. The national political cultures of Pakistan,
Afghanistan, and Bangladesh are constitutionally different. However, the practice
of corruption by political leaders through fintech is common in Bangladesh,
Pakistan, and Afghanistan. In the case of Pakistan, most of the political leaders are
corrupt. The systematic corruption in Pakistan stigmatized the national image of
Pakistan. For Afghanistan, due to an unregulated economy and lack of an adequate
and formal banking system, the leaders of Afghanistan used to transfer money
abroad. In Bangladesh, except Sheikh Hasina, the Prime Minister of Bangladesh,
most of the key political leaders are accused of financial crime through fintech. The
factors contributing to corruption at the individual level have not yet been com-
pletely determined, despite efforts to combat it (Han, 2023).

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Chapter 8
Financial Crimes and Fintech in India

Shah Ali Adnan and Pramod Kumar

Opportunities of FIntech and Drawbacks- RQ 1

Introduction

The Indian financial system is constantly changing, and the combination of technol-
ogy and money has brought about a new age characterised by remarkable innova-
tion and ease. The emergence of financial technology, also known as fintech, has
revolutionised the accessibility and delivery of financial services by creating a
seamless connection between conventional banking and contemporary digital solu-
tions (Arner, 2016). Nevertheless, as this rapid advancement in technology gathers
traction, it also carries with a simultaneous danger—the rising peril of financial
misconduct. This paper explores the complex correlation between financial crimes
and fintech in India, analysing the difficulties, regulatory structures and the essential
need for a well-balanced strategy to promote innovation while guaranteeing strong
security measures. The fintech industry in India has had a significant upswing in
recent years, propelled by reasons like the government’s emphasis on a digital econ-
omy, more smartphone use and the growing middle-class demographic.
Technological advancements such as mobile wallets, digital payment systems, peer-­
to-­peer lending and robo-advisors have not only made financial transactions easier
but have also increased financial access for people from different socioeconomic
backgrounds. The combined endeavours of conventional financial institutions and
agile fintech startups have fundamentally transformed the financial services ecosys-
tem, rendering it more readily available and adaptable to the requirements of the
digitally connected populace. Nevertheless, significant technical progress brings
about significant susceptibilities. The rapid integration of digital financial services

S. Ali Adnan
ISM, Patna, Bihar, India
P. Kumar (*)
FCM, Assam down town University, Guwahati, Assam, India

© The Author(s), under exclusive license to Springer Nature 97

Switzerland AG 2024
C. M. Gupta, G. Kaur (eds.), E-banking, Fintech, & Financial Crimes,
https://doi.org/10.1007/978-3-031-67853-0_8
98 S. Ali Adnan and P. Kumar

has opened up new opportunities for financial illicit activities, including cyber
deception, identity misappropriation and the concealment of illicit funds and the
funding of terrorism. With the rapid growth of the fintech industry, it is crucial to
maintain a careful equilibrium between innovation and security. An essential obsta-
cle in the convergence of fintech and financial crimes is the constantly changing
character of cyber threats. The interconnectivity of digital networks offers an advan-
tageous environment for adept hackers to exploit weaknesses. The increasing
sophistication of phishing assaults, spyware and ransomware presents a significant
threat to both consumers and financial institutions. Due to the large volumes of
sensitive personal and financial data they manage, fintech businesses become
appealing targets for hostile actors that want to gain unauthorised access.
Furthermore, the swift rate at which technology progresses often surpasses the
establishment of complete legal frameworks. The absence of a comprehensive regu-
latory framework specifically designed for fintech creates opportunities for regula-
tory arbitrage and presents difficulties in ensuring adherence to regulations and
responsibility. To achieve a harmonious combination of promoting innovation and
preventing financial crimes, it is necessary to adopt a regulatory strategy that is both
proactive and adaptable. In light of the crucial significance of tackling these difficul-
ties, Indian regulatory authorities have been aggressively striving to provide a
favourable atmosphere for the expansion of fintech while also minimising the
accompanying dangers. The Reserve Bank of India (RBI) and the Securities and
Exchange Board of India (SEBI) have implemented norms and procedures to over-
see and control digital payment systems, peer-to-peer lending platforms and crowd-
funding activities. The purpose of these regulatory measures is to guarantee
consumer protection, data security and systemic stability within the financial indus-
try. In addition, the government’s promotion of the Unified Payments Interface
(UPI) and the use of Aadhaar-based e-KYC (know your customer) have simplified
the process of client onboarding, improving the effectiveness of financial transac-
tions and strengthening security protocols. The introduction of regulatory sand-
boxes, which provide a regulated environment for fintech businesses to experiment
with novel solutions, demonstrates a progressive approach to promoting innovation
while adhering to certain legal limits (Hedman & Henningsson, 2012). To reduce
the dangers related to financial crimes in the fintech industry, it is essential to adopt
a cooperative strategy that involves participation from government entities, regula-
tory authorities, financial institutions and technology professionals. Sharing infor-
mation and collaborating may help in creating effective countermeasures to combat
emerging dangers. Moreover, the use of cutting-edge technology such as artificial
intelligence (AI), machine learning and blockchain might enhance the robustness of
fintech platforms in combating fraudulent operations. Integrating AI-powered
anomaly detection technologies may improve the capacity to promptly detect and
prevent illicit transactions. Blockchain, characterised by its distributed and
unchangeable record, provides transparency and traceability, making it a powerful
tool in combating fraud and guaranteeing the integrity of financial transactions.
Furthermore, the implementation of ongoing educational initiatives and awareness
campaigns might enable users to identify and report possible security risks,
8 Financial Crimes and Fintech in India 99

therefore establishing a collaborative defence against financial illicit activities.

India’s rapid transition towards a digitally led financial future necessitates careful
consideration of the interdependent connection between fintech and financial
crimes. Although fintech advancements provide the potential for economic empow-
erment and financial inclusion, it is crucial not to ignore the hazards associated with
cyberattacks and financial misconduct. To ensure the security of the financial sys-
tem, it is crucial to adopt a comprehensive strategy that incorporates strong regula-
tory frameworks, advanced technical solutions and collaborative initiatives. In the
next parts of this paper, we will explore particular facets of financial crimes in the
fintech industry, analysing case studies, worldwide exemplary methods and proba-
ble future advancements. To establish a safe and creative financial ecosystem in
India, it is crucial to fully grasp the difficulties and possibilities arising from the
intersection of financial crimes and fintech. This knowledge will benefit all parties
involved (Kedia, 2022, KPMG, 2016, Briefing, 2022).

Market Updates and Major Deals in India

In its ‘Statement on Developmental and Regulatory Policies’ issued on June 8,

2023, the Reserve Bank of India put out certain enhancements for the sector. These
improvements have expanded the range of objectives and activities for which
e-RUPI vouchers may be used. The Reserve Bank of India (RBI) may provide
authorisation to individuals for receiving e-RUPI vouchers, while non-bank PPI
issuers may also be allowed to issue e-RUPI coupons. In addition, the RBI’s state-
ment aims to simplify the membership process for Bharat Bill Payment Operating
Units with the goal of enhancing participation and optimising the effectiveness of
the Bharat Bill Payment System (Chavan, 2022). In addition, the Reserve Bank of
India (RBI) has authorised banks to issue RuPay prepaid forex cards, which may be
used at ATMs, point of sale (PoS) machines and online merchants globally, in order
to provide Indian travellers more payment options when they go abroad. In addition,
the Reserve Bank of India (RBI) plans to facilitate the issuance of RuPay debit,
credit and prepaid cards by other authorities, allowing these cards to be used glob-
ally, including in India. Despite the changing needs of companies, the RBI has
always prioritised the supervision of regulations while also making necessary
adjustments to accommodate these changes. In June of 2023, news headlines
revealed that the Reserve Bank of India had contacted registered P2P lending enter-
prises in March and April of the same year. During this time, they conducted thor-
ough investigations of these businesses, specifically focusing on their collaborations
with consumer-facing applications and their risk allocation strategies. This phenom-
enon is attributed to the issuance of the ‘Digital Lending Guidelines’ by the RBI on
September 02, 2022. The RBI’s objective is to ensure that digital lending enterprises
adhere to these regulations. Lok Sabha MP Jayant Sinha now leads the Parliamentary
Standing Committee on Finance, which has recently expressed concern on the
growing prevalence of cybercrimes in India. The committee conducted
100 S. Ali Adnan and P. Kumar

interrogations of fintech executives as part of its inquiry into cybersecurity and

white-collar crimes, specifically focusing on the growing frequency of cybercrime
and potential strategies for combating it. The Parliamentary Committee recently
addressed the issue of illegal lending applications that have been subject to criticism
for imposing exorbitant interest rates and engaging in consumer harassment. The
‘Policy Recommendations for Crypto and Digital Asset Markets’ consultation
paper, released by the International Organization of Securities Commissions
(‘IOSCO’), is a significant information resource to have in mind. This might be seen
as a reaction to the consumer protection issues that arose due to the failure of the
US-based Bitcoin exchange FTX. The industry has advocated for worldwide regu-
lation as a remedy for the issue of disparate rules in several nations. The industry
often just has to ensure compliance with anti-money laundering checks. The ideas
consist of a comprehensive set of 18 principles aimed at enhancing market integrity
and protecting investors in the Bitcoin industry (Gozman et al., 2018). The recom-
mendations include a broad spectrum of subjects, such as safeguarding consumer
rights, preventing market manipulation and ensuring the secure storage of assets.
The IOSCO ideas have significant importance since they represent the first world-
wide effort to regulate the Bitcoin industry. The ideas are expected to have a signifi-
cant influence on the operations of crypto firms, perhaps leading to an increased
number of institutional investors allocating their funds to the cryptocurrency mar-
ket. The IOSCO has introduced a significant advancement in the regulation of cryp-
tocurrencies. Nevertheless, it is premature to determine the efficacy of the proposals
in practical application. The success of the ideas will depend on many factors,
including the cooperation among cryptocurrency companies and the commitment of
authorities to enforce the legislation. During the last week of June, financial influ-
encers, sometimes known as ‘finfluencers’, emerged as prominent figs. A commer-
cial featuring a finfluencer was released, showcasing the insignia of the India G20
and the Ministry of Electronics and Information Technology (MeitY). Consequently,
several individuals believed that the advertisements had the official endorsement of
the government. The MeitY later affirmed that the government is not showing
favouritism towards any individual or social media platform. The development
ignited a discourse over the content propagated by financial influencers and gar-
nered significant censure from professionals inside the sector. This is because,
unlike finfluencers, who operate without regulation or adherence to any standards,
SEBI-registered investment advisors are legally compelled to comply with regula-
tory requirements when providing advice that may be considered as investment
advice. India is home to 21 out of the 187 unicorns in the financial industry world-
wide. Pine Labs, Oxyzo, Paytm, BillDesk, Chargebee, PhonePe, CoinDCX,
CoinSwitch Kuber, CRED, Slice, Razorpay, CredAvenue, DIGIT, Groww, Policy
Bazaar, Zerodha, Zeta and Open are included in this list of firms. In 2022, the group
welcomed two new members: the fintech neobank and the fintech marketplace, and
SME loan platform Oxyzo (Gozman et al., 2018) (Table 8.1).
8 Financial Crimes and Fintech in India 101

Table 8.1 Monetisation model: how fintech companies generate revenue

Fintech
Monetisation method Key metrics segments
Spread based Earn revenues based on AuM, value of transaction Payments,
annual percentage rate wealth
or a flat fee
Software as a Earn fees from Market dynamics and size, number of RegTech
service based subscription competitor
Net interest Earn from NIMs Cost of funds and average lending Lending
based rates, quality of loan and investment
book, control on nonperforming
assets
Direct selling of Earn premium or No. of policyholders, number of InsurTech
services through service charges services provided
platform

Opportunities for Fintech in India

Similar to a coin, fintech has both benefits and drawbacks. The advancement of
technology and the increasing expertise of individuals in utilising it are driving the
growth of fintech in India. It must overcome many challenges. The subject of our
debate has shifted from the barter system to Bitcoin and cryptocurrency. Significant
transformations are taking place in the realm of digital technology. Nevertheless, in
comparison to our global rivals, we are lagging behind. The fast rise of the fintech
business in India is being driven by both the increasing personal proficiency and the
growing availability of new technology. It must overcome many challenges. Our
present subject of debate is on the replacement of the barter system with Bitcoin and
other cryptocurrencies. In the realm of digital technology, several transformations
are taking place. Nevertheless, in comparison to our global rivals, we are lagging
behind (Sharma, 2022) (Chart 8.1).

Digital Payments

One may use a credit card for hotel accommodations or a mobile wallet for purchas-
ing vegetables. The emergence and widespread use of digital payment systems have
significantly simplified and accelerated daily life. In terms of physicality, cash pay-
ments are more condensed compared to digital ones. India had an unparalleled vol-
ume of 71 billion digital transactions conducted during the fiscal year of 2022. This
exhibited a substantial increase when contrasted with the preceding 3 years. Queuing
at the bank has become obsolete. Through digital transactions, individuals may
access and get a wide range of goods and services from any location worldwide.
Over the last several years, many fintech companies have implemented ground-
breaking solutions in the industry, benefiting all stakeholders involved (Statista,
102 S. Ali Adnan and P. Kumar

30%
25%
20%
15%
10%
5%
0%
Payment Lending Bank Infra Inverstment Others
Tech

Chart 8.1 Segment-wise fintechs. (Source: ET, 2022)

total number of digital payments across India from financial year 2018 to
2023, 2024).

Big Data Analytics

The present moment is opportune for adopting digitalisation. Financial institutions

are embracing digitalisation as we shift towards a more environmentally friendly
and efficient business model. The ubiquity and enhancement of data and analytics
have led to an increased dependence of businesses on them during the last decade.
Utilising analytics and big data enables the creation of customised user experiences.
Companies use data and analytics to gain a competitive edge by enhancing opera-
tional efficiency, boosting revenue, predicting customer preferences, tailoring prod-
uct offerings and enhancing demand forecasting. Companies should be mindful of
the crucial importance of analytics when dealing with vast amounts of data. They
possess an indissoluble bond. Businesses must strategically adapt to the rapid use of
data-driven optimisation in the banking industry. The use of acquired client data
may provide perceptive commercial outcomes (Muthukannan et al., 2020).

Blockchain Technology

A blockchain, which is a decentralised database, may be used to effectively docu-

ment transactions and oversee assets inside a company network. Blockchain tech-
nology has been widely used by the commercial sector. This is a network of
interlinked, encrypted databases that contain transaction data and have the ability to
establish connections with each other. The primary purpose of storing data on a
blockchain is to create an unchangeable and reliable record of all transactions. Mere
acquaintance with technology does not ensure your ability to navigate the intrica-
cies of the topic. However, it is evident that the technology is gaining widespread
8 Financial Crimes and Fintech in India 103

acceptance and becoming more prevalent. The use of blockchain technology has the
potential to revolutionise record-keeping and intercompany transactions by incor-
porating it into both public and private ledgers. Blockchain technology has the
potential to significantly transform the way organisations exchange and store infor-
mation, whether it is for public or private ledgers. Organisations can surmount the
challenges posed by the COVID-19 pandemic via improved efficiency and height-
ened visibility. According to a CryptoTrends study (published by Statista Research
Department, July 2021, 2022a, b), the majority of Indian respondents highlighted
the convenience of blockchain payments. The proportion of those who expressed
disagreement was quite small. Despite the absence of official recognition by the
government, cryptocurrencies saw a significant surge in adoption in India (Statista,
Perception of blockchain payments being convenient across India in July
2020, 2022).

Personalisation

According to Vijai (2019), a benefit of modernising Indian banks is the enhanced

efficiency in carrying out transactions. The ultimate outcome of this digital transfor-
mation is satisfied consumers and more income. Banks not only engage in competi-
tion with one other in the present market, but they also contend with the technological
advancements used by their rivals. Everyone desires to outperform their buddies.
Recent events have brought about a significant transformation in the banking busi-
ness, with a complete adoption of the concept of customisation. Banking and cus-
tomisation are closely linked. Consistently, companies enjoy the advantages of
personalised banking. Personalisation in the banking business involves providing
customers with tailored attention that is based on their preferences and past interac-
tions. As a result of the escalating epidemic, financial institutions must now priori-
tise essential needs above discretionary luxuries. Cultivating a personal rapport also
fosters the development of trust.

Robotic Process Automation

Robotic process automation has become a crucial tool in the financial technology
industry due to its ability to simplify data collecting and processing. Many individu-
als are seeking to optimise their existing situation and are contemplating doing com-
prehensive market research in order to optimise their assets. In order to capitalise on
this unique opportunity, organisations must be prepared to provide innovative fea-
tures in their robo-advising services. Providing client support, establishing accounts
and managing various financial activities are among the many services offered in
the banking sector. Undoubtedly, the reason for the rapid increase in popularity of
104 S. Ali Adnan and P. Kumar

RPA is its ability to provide cost-effective cognitive wealth-management guidance

and an exceptional user experience.

Government Interference

In addition, the government took a proactive role and implemented many pro-
grammes to foster the expansion of fintech. Entrepreneurial initiatives in several
nations have facilitated the establishment of digital financial companies. The
Reserve Bank of India has presented a straightforward approach for launching a
financial technology firm. In addition, emerging firms have the potential to receive
government incentives of up to one crore rupees. Both consumers and companies
have started to embrace virtual currency for a wide range of transactions (Lee &
Shin, 2018).

Opportunities

Digital Big Data Block Chain

Payments Analytics Technology

Personalisation
Robotic Process Government
Automation Interference

Source: Author’s compilation

Challenges for Fintech in India

The primary challenges that pose concerns for the fintech sector are identified and
really obstacles if not solved properly.

Privacy of Data

Data privacy concerns are significant. Fintech manages a substantial volume of data,
including social security numbers, credit card information, investment particulars,
income statements and several other data points, since this is inherent to the nature
of the sector. Ensuring the security of transportation is a continuous worry for
8 Financial Crimes and Fintech in India 105

organisations operating in the mobile and Internet-based sectors that handle such
data. To prevent an inundation of fraudulent schemes and attempts to deceive via
phishing, it is essential to maintain the security of one’s data. Advancements in
technology have enabled the acquisition of remote access to IT systems that are
essential for the success of a mission. As a result, the task of comparing complex
data with financial sources has been much simplified. Additional concerns arise due
to the lack of physical inspections conducted on essential infrastructure and end-
point devices responsible for transferring company data (Basuroy, 2023).

Regulatory and Compliance Laws

Launching a fintech startup requires substantial effort. Several factors, such as

fraudulent activities and security breaches, have increased the complexity of obtain-
ing government clearance. For fintech enterprises seeking to enter the Indian mar-
ket, these rules provide a significant obstacle that is both difficult to understand and
execute. An effective regulatory framework should be established to deter fraudu-
lent activities and ensure adherence to regulations. New financial enterprises also
face significant challenges. Fintech startups are required to meet rigorous criteria
prior to being able to begin their services (Gozman et al., 2018).

Putting the Client Experience First

Comprehending the concept of money may be challenging for those who lack spe-
cialised knowledge in the field. Making prudent financial choices and investments
requires significant effort and diligence. The proliferation of fintech has facilitated
its integration into people’s lives, hence enhancing their quality of life. Nevertheless,
to provide a seamless user experience, more improvements are necessary. Fintech
firms have taken the lead in promoting accessibility and user-friendly interfaces.
Moreover, establishing an account with any of the banks has become a straightfor-
ward procedure. Due to the upfront disclosure of all prices and expenditures, there
is enhanced transparency. Trading platforms such as Robinhood are making the
language of finance more accessible (Gomber et al., 2017).

Business Model

Fintech organisations must reassess their revenue and spending plans and resource
allocation in order to adapt and thrive among evolving business models and income
streams. Due to the economic crisis, several organisations are reducing their work-
force and decreasing pay in order to minimise expenses. As a business experiences
106 S. Ali Adnan and P. Kumar

significant growth, it will need to make certain adaptations to handle the increased
demand. The data provided includes information on changes in the company’s
dependence on certain sources of income. Consequently, your company’s models
will undergo modifications. Fintech firms specialising in contactless payments are
effectively using their existing resources to manage the surge in transaction volumes
(Dhanuka, 2022).

Personalised Services

The difficulties that firms have while attempting to adjust and provide personalised
services are well acknowledged. Despite its long-standing importance and founda-
tional role in banking, firms struggle to deliver. Contemporary personalisation
involves engaging with customers in real time using their preferred mode of com-
munication. An individualised solution that considers their distinct requirements is
crucial. When customers discuss individualised services, they are referring to this
topic. They would only agree to a settlement under these specific circumstances (ET
Spotlight, 2016).

Lack of Financial Literacy

Based on the 2015 FinLit Survey, the financial literacy rate among adults in India is
at 24%. The prevalence of financial illiteracy among a significant number of indi-
viduals, resulting in their inability to effectively use financial information, is a sig-
nificant reason for concern. A significant number of individuals refrain from
investing due to their fear of incurring financial losses resulting from their own
imprudent financial choices. Individuals are experiencing the impacts of financial
technology, but their ability to fully realise its benefits is hindered by literacy chal-
lenges. An additional advantageous component of fintech as a financial wellness
consultant is the receptiveness of customers towards its offerings. Certain individu-
als may have a sense of being overwhelmed due to the multitude of options avail-
able. Efficient customisation, conversely, ensures that customers are presented with
just relevant choices (Statista Research, 2022).
8 Financial Crimes and Fintech in India 107

Challenges

Regulatory and Putting the Client

Privacy of Data
Compliance Laws Experience First

Personalised Lack of Financial

Business Model
Services Literacy

Source: Author’s compilation

Conclusion

India has seen a significant increase in the use of financial technology (fintech) in
recent years, which has brought about a revolution in the conventional banking sec-
tor. Nevertheless, the process of digitisation has encountered obstacles due to the
increasing prevalence of fintech, which has created new opportunities for financial
illicit activities. This article examines the complex connection between financial
crimes and fintech in India, investigating the dangers, regulatory actions and coop-
erative endeavours required to protect the financial ecosystem. Fintech, which refers
to the convergence of finance and technology, has revolutionised the accessibility
and delivery of financial services. India’s fintech industry has seen rapid expansion,
driven by the use of mobile banking, digital wallets and blockchain applications.
This growth has played a significant role in enhancing financial inclusion and
improving efficiency. Nevertheless, with the growth of the fintech industry, the pos-
sibilities for financial criminals also increase. Within the realm of fintech, financial
crimes involve a range of unlawful behaviours, such as fraud, money laundering,
identity theft and cybercrime. The speed and convenience provided by finance plat-
forms unwittingly give rise to vulnerabilities that unscrupulous actors exploit. The
emergence of digital payments has resulted in a surge in fraudulent transactions and
phishing assaults, posing a threat to the financial security of both people and enter-
prises. In response to the changing danger environment, Indian authorities have
implemented proactive measures to tackle the issues presented by financial crimes
in the fintech industry. The Reserve Bank of India (RBI) and other regulatory agen-
cies have enforced strict requirements, highlighting the significance of strong cyber-
security safeguards, thorough customer due diligence and vigilant transaction
monitoring. Furthermore, the implementation of know your customer (KYC) rules
and anti-money laundering (AML) guidelines seeks to improve the general credibil-
ity of the financial sector. To effectively address financial crimes in the fintech sec-
tor, it is crucial to foster coordination among regulators, financial institutions and
fintech startups. To strengthen the financial ecosystem, it is essential to exchange
information about new risks, adopt industry-wide best practices and promote a
108 S. Ali Adnan and P. Kumar

culture of cybersecurity awareness. Public-private collaborations are crucial in cre-

ating and implementing new solutions to proactively address emerging challenges.
Given the heavy reliance of fintech on technology, it is crucial to implement sophis-
ticated cybersecurity safeguards. Employing artificial intelligence (AI) and machine
learning algorithms may improve the ability to identify fraudulent activities, while
strong encryption and secure authentication procedures can protect critical financial
data. Regular cybersecurity assessments and upgrades are crucial to maintain resil-
ience against constantly emerging cyber threats. To summarise, the convergence of
financial crimes and fintech in India highlights the need for a well-balanced strategy
that prioritises both innovation and security. Although fintech has undeniably
empowered millions by giving them access to financial services, it has also simulta-
neously exposed the financial sector to novel and complex dangers. Regulators,
financial institutions and fintech startups must work together and use technology
protections to effectively reduce these risks and guarantee the ongoing expansion
and durability of India’s fintech industry. In order to successfully navigate the com-
plex relationship between financial crimes and fintech, it is crucial for the country
to remain vigilant and adaptable as it embraces the digital future.

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Chapter 9
Financial Crimes in Fintech: An Evidence
from Cryptocurrency Market

Megha Rewal and Parminder Singh

Introduction

The rise of fintech (financial technology) has changed the way we handle money,
making things more convenient and innovative. But with these changes comes a
new problem: financial crimes. One tricky area is the cryptocurrency market, where
digital currencies like Bitcoin and Ethereum are becoming popular (Amsyar et al.
(2020)). Unfortunately, these digital assets are also becoming targets for illegal
activities like fraud and hacking (Grobys (2021), Kapsis (2023)). This chapter
explores how fintech and financial crimes intersect, specifically focusing on the
cryptocurrency market represented by the CCi30 index by taking the effect of the
news on the cryptocurrency coins and then the effect of the hacking events on them.
Cryptocurrencies attract both regular investors and bad actors due to their decentral-
ized and private nature (Carlisle (2017)). From scams to cyberattacks, a lot is going
on, and regulators are trying to catch up. Switching effects to recent trends in cryp-
tocurrencies, the use of technology in finance has brought some problems (Huang
(2021)). Generally people taken Cryptocurrencies like Bitcoin as investments rather
than regular money. For yet another consecutive year, cybercriminals have managed
to steal billions of dollars in cryptocurrency. However, there is a noteworthy shift in
this trend, marking the first decline since 2020, as reported by cybersecurity firms
specializing in digital assets. In the present year, hackers successfully escaped with
approximately $2 billion across numerous cyberattacks and thefts. According to the
latest data from Chain Sec, there have been a total of 55 hacking events, resulting in
a collective loss of around $2.4 billion at the time of these incidents. Especially, the
largest recorded loss stems from the Mt. Gox hack in 2014, amounting to a stagger-
ing $661,348,000 in stolen funds. To assess the impact of hacks or news on crypto-
currencies, we utilize the CCi30 index. This index comprises the top 30

M. Rewal (*) · P. Singh

Department of Commerce, Akal University, Talwandi Sabo, Punjab, India

© The Author(s), under exclusive license to Springer Nature 111

Switzerland AG 2024
C. M. Gupta, G. Kaur (eds.), E-banking, Fintech, & Financial Crimes,
https://doi.org/10.1007/978-3-031-67853-0_9
112 M. Rewal and P. Singh

cryptocurrencies based on adjusted market capitalization, encompassing

­approximately 90% of the total cryptocurrency market capitalization as of today. By
selecting the top 30 cryptocurrencies, the CCi30 statistically mirrors the entirety of
the cryptocurrency market with a 99% confidence level and a narrow confidence
interval of 1.11. In simpler terms, the margin of error for the index value, serving as
an indicator of the market, is minimal at just 1.11%. Earlier studies mainly focus on
the particular cryptocurrency coins and the major hacks, but in this chapter, we try
to check out the DeFi hacks on the top 30 cryptocurrency coins based on market
capitalization. Trozze et al. (2022) Studying both academic and real-world sources
reveals 47 types of cryptocurrency fraud. Ponzi schemes and high-yield programs
are common, with pump-and-dump schemes and exchange fraud being the most
profitable. Surprisingly, pump-and-dumps are seen as the least harmful among these
frauds. Kutera (2022) Money laundering is the top cryptocurrency fraud, followed
by Ponzi scheme-based financial pyramids. The study highlights the urgency for
stricter laws to tackle the growing cryptocurrency crimes. It offers practical advice
for people in the market and suggests focusing on advanced computer applications
to better detect abuse. De Koker and Goldbarsht (2022) explore that financial tech-
nologies are changing fast and attracting criminals. Regulators, industry, and law
enforcement must respond well. Because we’re still new to these technologies,
changes will happen even faster. It emphasizes understanding and dealing with the
changing challenges in financial crime. Thowseaf (2023) discovers that the danger
comes from services like Bitcoin mixing and exchanges that scammers and money
launderers use. These services hide where the money comes from, making transac-
tions secret. Bitcoin’s unpredictable payments and unclear system make it attractive
for illegal stuff like supporting rebels or buying drugs. Horn (2020) observes how
people pay and invest, making financial services easier to use. But it has risks too.
Using data for unfair pricing and stealing identities is a worry. Cryptocurrencies in
fintech use a lot of energy, causing environmental concerns. When companies use
consumer data unfairly, it can lead to social issues. The review suggests we need a
balanced approach to developing fintech, thinking about both risks and benefits.
Motsi-Omoijiade (2018) studies how financial services operate in cryptocurrency
markets. It examines their actions, the risks they encounter, and how they are con-
trolled. It highlights challenges in creating rules for cryptocurrency markets.
Carsello (2021) explores how rules are made for cryptocurrencies, highlighting
challenges due to the variety of digital assets. In the USA, four important agencies
have different views on classifying or treating cryptocurrency. The lack of clarity
puts some parts of the cryptocurrency industry at risk of financial crimes. It stresses
the importance of clear and comprehensive rules in this rapidly changing tech field.
Brown (2016) explains why cybercriminals prefer using Bitcoin. It mentions that
Bitcoin is decentralized and provides a level of anonymity. While some may believe
Bitcoin is not a significant risk for money laundering, the article argues that it is
quite risky for criminal activities. Corbet et al. (2020) explores that when cyber-
criminals hack a cryptocurrency, its price becomes more unpredictable, and other
cryptocurrencies start moving together in price. Cybercrime events also disrupt how
prices are usually determined for the hacked currency compared to others. Higbee
9 Financial Crimes in Fintech: An Evidence from Cryptocurrency Market 113

(2018) discusses how the cryptocurrency market, starting with Bitcoin in 2009, has
become highly unpredictable. It had significant highs in 2017 but experienced a
decline in 2018. It emphasizes that these market shifts attract a lot of media atten-
tion. Additionally, hackers use tricky schemes like crypto-jacking, where they use
other people’s computers to mine cryptocurrency. Chen (2023) et al., expresses how
hacking affects cryptocurrencies, especially Bitcoin. It examines the impact of
hacking incidents and stolen funds on returns, volatility, and price discovery for
both directly purchased Bitcoin and Bitcoin futures. The results reveal that when
more funds are stolen due to hacking, profits decrease, and the price becomes more
volatile for both direct Bitcoin and Bitcoin futures. Charoenwong and Bernardi
(2021) The study examines major cryptocurrency thefts in the last decade, estimat-
ing stolen amounts ranging from $7 to $88 billion, depending on when the stolen
cryptocurrencies were converted to regular money. Larger estimates occur when
stolen cryptocurrencies are held longer and market values increase. Out of 30 thefts,
20 were due to security breaches, five to human mistakes, and five to insider thefts
caused by agency problems (Fig. 9.1).
The graph indicates that the data is stationary, meaning that the returns of CCi30
are at a consistent level.
Figure 9.2 shows CCi30 has a mean of 0.001111 and a median of 0.003382, sug-
gesting a slight left skew as the mean is lower than the median. The maximum value
is 0.200092, while the minimum is −0.484550, illustrating a wide range of values.
The standard deviation of 0.041353 implies moderate variability around the mean.
The skewness value of −1.863846 indicates a significant negative skew, suggesting
a distribution with a longer tail to the left. Additionally, the high kurtosis value of
21.54938 signifies a peaked distribution with heavy tails. The Jarque-Bera test sta-
tistic of 21791.75, along with a probability of 0.000000, indicates a departure from
normality. A histogram plot of the data would likely reveal a highly negatively

CCi30 return
.3

.2

.1

.0

-.1

-.2

-.3

-.4

-.5
I II III IV I II III IV I II III IV I II III IV
2020 2021 2022 2023

Fig. 9.1 Unit root test on CCi30 return. (Source: Prepared by authors in e-views)
114 M. Rewal and P. Singh

600
Series: CCI30_RETURN
500 Sample 1/01/2020 12/31/2023
Observations 1461
400
Mean 0.001111
Median 0.003382
300
Maximum 0.200092
Minimum -0.484550
200
Std. Dev. 0.041353
Skewness -1.863846
100 Kurtosis 21.54938

0 Jarque-Bera 21791.75
-0.5 -0.4 -0.3 -0.2 -0.1 0.0 0.1 0.2
Probability 0.000000

Fig. 9.2 Descriptive statistics of CCi30 returns. (Source: Prepared by authors in e-views)

Table 9.1 ARCH effect on CCi30 returns

Variable Coefficient Std. error z-Statistic Prob.
CCi30 return 0.0011 0.0013 0.8246 0.4096
AR(2) 0.8746 0.0722 12.1116 0.0000
MA(2) −0.8514 0.0766 −11.1209 0.0000
Variance equation
CCi30 return 0.0015 0.0000 67.7914 0.0000
RESID(−1)^2 0.1324 0.0248 5.3309 0.0000
Source: Prepared by authors in e-views

skewed distribution with a sharp peak and heavy tails, consistent with the provided
statistical measures.
In the correlogram, the spikes are coming on AR(2) and MA(2). Therefore, we
go for the Arima 2,2 estimation. Table 9.1 shows the ARCH effect based on the
AR(2) and MA(2). The output suggests the results of a time series analysis, possibly
a model with autoregressive (AR) and moving average (MA) components, along
with a variance equation. The intercept in the mean equation (CCi30 return) has a
small positive coefficient (0.0011), which is not statistically significant (p = 0.4096).
The AR(2) and MA(2) terms have significant coefficients (0.8746 and −0.8514,
respectively) indicating the importance of the lag-2 values in the autoregressive and
moving average processes. In the variance equation, both the intercept (0.0015) and
the impact of the lag-1 squared residual (0.1324) are statistically significant
(p = 0.0000), suggesting a well-fitted model. The model seems to capture the
dynamics of the time series, emphasizing the relevance of lag-2 values and lag-1
squared residuals in both the mean and variance equations:

CCi30 Returnt = β1 * CCi30 Returnt - 1 + β2 * ARt - 2 - β3 * MAt

- 2 + α1 + α2 * RESIDt - 1 + α3 * GARCHt - 1 * Zt (9.1)
9 Financial Crimes in Fintech: An Evidence from Cryptocurrency Market 115

• CCi30 Returnt​ is the return variable at time t.

• CCi30 Returnt − 1​, ARt − 2​, and MAt − 2​ are lagged values.
• RESIDt − 1​ is the residual term from the previous period.
• GARCHt − 1​ is the generalized autoregressive conditional heteroskedasticity
(GARCH) term from the previous period.
• It is a random variable with a standard normal distribution.
• β1​, β2​, β3​, α1​, α2​, and α3​are the parameters to be estimated.
Table 9.2 shows the GARCH effect on the returns of the CCi30. GARCH (gen-
eralized autoregressive conditional heteroskedasticity) model is commonly used to
analyze volatility in financial data (Francq & Zakorian (2019)). In the mean equa-
tion, the intercept (C) has a positive coefficient of 0.0018, but it is not statistically
significant at the conventional significance level of 0.05 (p = 0.0549). The AR(2)
and MA(2) coefficients are 0.3006 and −0.2483, respectively, both of which are not
statistically significant (p = 0.4014 and p = 0.4954). In the variance equation, the
intercept (C) is significant (p = 0.0000), indicating a constant term in the volatility
equation. The squared lag-1 residual term (RESID(−1)^2) has a significant impact
(p = 0.0000), emphasizing the persistence of volatility. Additionally, the GARCH(−1)
coefficient is highly significant (p = 0.0000), suggesting a strong autoregressive
relationship in the conditional variance, reflecting the assembling of volatility.
Overall, the model indicates the presence of conditional heteroskedasticity in the

Table 9.2 GARCH effect on CCi30 returns

Variable Coefficient Std. error z-Statistic Prob.
CCi30 return 0.0018 0.0009 1.9200 0.0549
AR(2) 0.3006 0.3582 0.8391 0.4014
MA(2) −0.2483 0.3642 −0.6818 0.4954
Variance equation
CCi30 return 0.0000 0.0000 5.2842 0.0000
RESID(−1)^2 0.1260 0.0086 14.6043 0.0000
GARCH(−1) 0.8717 0.0095 91.3761 0.0000
Source: Prepared by authors in e-views

Table 9.3 GARCH in mean effect on CCi30 returns

Variable Coefficient Std. error z-Statistic Prob.
SQRT(GARCH) 0.0057 0.0933 0.0614 0.9510
CCi30 return 0.0016 0.0031 0.5128 0.6081
AR(2) 0.3003 0.3634 0.8265 0.4085
MA(2) −0.2479 0.3695 −0.6710 0.5022
Variance equation
CCi30 return 0.0000 0.0000 5.2803 0.0000
RESID(−1)^2 0.1261 0.0087 14.5226 0.0000
GARCH(−1) 0.8715 0.0096 90.9126 0.0000
Source: Prepared by authors in e-views
116 M. Rewal and P. Singh

time series, with past squared residuals and GARCH effects influencing the volatil-
ity dynamics (Table 9.3).
This study adopts the capital asset pricing model (CAPM) within portfolio the-
ory, emphasizing the interplay of risk and return. The GARCH-in-mean model,
employing standard deviation as the optimal risk measure, assesses the relationship
between risk and return in the context of cryptocurrency investments, particularly
CCi30. The non-significance of the SQRT(GARCH) value suggests that cryptocur-
rency investments may not be preferable compared to alternative avenues, providing
insights into potential risk hedging strategies. While individual coefficients in the
model lack significance, the incorporation of the GARCH term unveils the signifi-
cance of ARCH and GARCH coefficients, highlighting the efficacy of CCi30 in
providing risk coverage. In the subsequent analysis, the variance equation reveals
the significance of the constant term, indicating foundational volatility, and under-
scores the persistence of volatility through the squared lag-1 residual term. The
highly significant GARCH(−1) coefficient emphasizes a robust autoregressive rela-
tionship in conditional variance. Overall, the model suggests the influence of past
squared residuals and GARCH effects in explaining volatility, while mean equation
coefficients lack statistically significant impact at the chosen level.
In Table 9.4, none of the coefficients are statistically significant at the conven-
tional significance level of 0.05, with p-values of 0.1940, 0.3995, and 0.4998,
respectively. In the variance equation, the constant term (C) is significant
(p = 0.0000), representing the baseline volatility. The squared lag-1 residual term
(RESID(−1)^2) is highly significant (p = 0.0000), indicating persistence in volatil-
ity. Additionally, the interaction term RESID(−1)^2*(RESID(−1) < 0) is significant
(p = 0.0002), suggesting that negative squared lag-1 residuals have a distinct impact
on volatility. The GARCH(−1) coefficient is substantial (0.8617) and highly signifi-
cant (p = 0.0000), indicating a strong autoregressive relationship in the conditional
variance. The table shows the effect of good and bad news at one period lag. Term
RESID(−1)^2*(RESID(−1) < 0) is significant which shows that there is a signifi-
cant difference between the effect of good news and the bad news. But to know
whether good news dominates or the bad news, we go for the E-GARCH model.

Table 9.4 T-GARCH effect on CCi30 returns

Variable Coefficient Std. error z-Statistic Prob.
CCi30 return 0.0013 0.0010 1.2988 0.1940
AR(2) 0.3000 0.3560 0.8426 0.3995
MA(2) −0.2432 0.3604 −0.6748 0.4998
Variance equation
CCi30 return 0.0000 0.0000 5.8009 0.0000
RESID(−1)^2 0.0996 0.0166 6.0000 0.0000
RESID(−1)^2*(RESID(−1) < 0) 0.0547 0.0148 3.7052 0.0002
GARCH(−1) 0.8617 0.0112 77.1375 0.0000
Source: Prepared by authors in e-views
9 Financial Crimes in Fintech: An Evidence from Cryptocurrency Market 117

Table 9.5 E-GARCH effect on CCi30 returns

Variable Coefficient Std. error z-Statistic Prob.
CCi30 return 0.0014 0.0010 1.3330 0.1825
AR(2) 0.2381 0.3175 0.7498 0.4534
MA(2) −0.1737 0.3235 −0.5369 0.5913
Variance equation
C(4) −0.3565 0.0408 −8.7438 0.0000
C(5) 0.2207 0.0190 11.6091 0.0000
C(6) −0.0486 0.0086 −5.6225 0.0000
C(7) 0.9695 0.0053 184.6572 0.0000
Source: Prepared by authors in e-views

E-GARCH model clearly shows whether there is good news or bad news which
affects more on the returns of the CCi30. In Table 9.5, the mean equation, the coef-
ficients for the CCi30 returns, AR(2), and MA(2) are 0.0014, 0.2381, and −0.1737,
respectively. None of these coefficients are statistically significant at the conven-
tional significance level of 0.05, with p-values of 0.1825, 0.4534, and 0.5913,
respectively. In the variance equation, the coefficients C(4), C(5), C(6), and C(7)
correspond to lagged terms, suggesting a time series structure in the conditional
variance. These coefficients have highly significant and interpretable effects. C(4)
has a negative coefficient, indicating a dampening effect on volatility four periods
ago. C(5) has a positive coefficient, suggesting a long-­lasting impact on volatility
from five periods ago. C(6) has a negative coefficient, indicating a diminishing
effect on volatility six periods ago. Finally, C(7) has a large positive coefficient,
implying a substantial and persistent influence on volatility seven periods ago. The
probability of C(6) shows the residual value with the multiple of the GARCH effect,
which is significant that clear the effect of good news and bad news are significantly
different from each other. The coefficient is negative by −0.0486 which shows that
bad news dominates more on the returns of CCi30 (Table 9.6).
The provided correlation matrix shows the pairwise correlations between three
variables, i.e., CCI30_RETURN, HACK_DAY, and HACK_RETURN. The corre-
lation coefficient between CCI30_RETURN and HACK_DAY is −0.0488, suggest-
ing a weak negative correlation between the daily returns of the CCi30 index and
HACK (an exchange-traded fund focused on cybersecurity-related companies). The
correlation coefficient between CCI30_RETURN and HACK_RETURN is 0.4032,
indicating a moderate positive correlation between the returns of the CCi30 index
and HACK. Meanwhile, the correlation coefficient between HACK_DAY and
HACK_RETURN is −0.0922, suggesting a weak negative correlation between the
daily returns and overall returns of the HACK ETF. These correlation values pro-
vide insights into the relationships between the variables, helping to assess potential
dependencies or diversification opportunities in a portfolio that includes these
assets. It is important to note that correlation does not imply causation and further
analysis would be needed to draw more definitive conclusions about the relation-
ships between these financial variables:
118 M. Rewal and P. Singh

Table 9.6 Correlation between CCi30 return and hacking

CCI30_RETURN HACK_DAY HACK_RETURN
CCI30_RETURN 1.0000 −0.0488 0.4032
HACK_DAY −0.0488 1.0000 −0.0922
HACK_RETURN 0.4032 −0.0922 1.0000
Source: Prepared by authors in e-views

Table 9.7 Regression on CCi30 return with hacking

Variable Coefficient Std. error t-Statistic Prob.
CCi30 return 0.0017 0.0010 1.6706 0.0950
HACK_DAY −0.0017 0.0035 −0.4885 0.6252
HACK_RETURN 1.0000 0.0599 16.7078 0.0000
Source: Prepared by authors in e-views

CCi30 Returnt = β 1* CCi30 Returnt - 1 + β 2* HACK DAYt

- β 3* HACKRETURN t (9.2)

• CCi30 Returnt​is the return variable at time t.

• Returnt − 1​ is the lagged return.
• DAY-HACKDAYt​​ is the variable representing the day of a hack event.
• HACK RETURNt​​is the return variable corresponding to a hack event.
• ​β2​ and β3​are the coefficients to be estimated (Table 9.7).
The output appears to be from a regression analysis with three variables: CCi30
return (C), HACK_DAY, and HACK_RETURN. The coefficient for the CCi30
return is 0.0017, which is not statistically significant at the 0.05 significance level
(p = 0.0950). The coefficient for HACK_DAY is −0.0017, indicating a negative but
insignificant relationship with the dependent variable. The most notable result is the
coefficient for HACK_RETURN, which is 1.0000 with a highly significant t-statis-
tic of 16.7078 (p = 0.0000). This implies that a one-unit increase in HACK_
RETURN is associated with a one-unit increase in the dependent variable. However,
caution should be exercised when interpreting these types of results as the coeffi-
cient value of 1.0000 may suggest potential issues, such as perfection of scaling
factor. Further examination and diagnostic checks may be necessary to ensure the
reliability and validity of the regression model.

Conclusion

This study investigates the interplay between financial technology (fintech), particu-
larly cryptocurrencies represented by the CCi30 index, and financial crimes, with a
focus on hacking incidents. Utilizing ARCH, GARCH, and GARCH-in-mean mod-
els, the analysis reveals the presence of conditional heteroskedasticity, emphasizing
the persistence of volatility. Correlation and regression analyses explore
9 Financial Crimes in Fintech: An Evidence from Cryptocurrency Market 119

relationships between CCi30 returns and hacking-­related variables, highlighting

significant connections. The findings contribute insights for policymakers and
industry stakeholders to address risks in the evolving fintech landscape.

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Chapter 10
Compliance Related to Fintech:
An Overview of the Indian Legal System

Monika Thakur

Indian Fintech Laws RQ 2

Introduction

India has several successful fintech firms in loans, payments, investments, trading,
personal finance, wealth management, credit ratings, insurance and regulatory ser-
vices. Over 2000 financial businesses make the nation one of the fastest-growing
fintech ecosystems. The sector might be worth $150 billion by 2025. The Indian
fintech sector collected USD 8.53 billion in 278 agreements last financial year. India
had over 23 billion digital payments worth INR 38.3 lakh crore (~USD 475 billion)
in the fourth quarter of the previous year. Digital (noncash) payments are likely to
dominate all payments by 2026 due to their present and forecast growth. Forecasts
and trends are often overblown, so be wary. Local companies, some with foreign
funding, dominate India’s fintech industry. However, international players have
increased in recent years, a trend expected to continue. According to the data, the
fintech business in India, notably the payments sector, is predicted to develop sig-
nificantly due to increased Internet use and governmental improvements.
Early in the COVID-19 pandemic, the Indian fintech industry struggled but grew
(Singh & Singh, 2023; Tut, 2023). The RBI governor cited a report and suggested
the pandemic may have contributed to global financial inclusion and fast digitalisa-
tion in India in a recent interview. It would be interesting to observe how the fintech
business in India grows once the world returns to normal. Some industrial subsec-
tors may suffer from COVID-19’s 2-year technological reliance, which has since
decreased (Vasenska et al., 2021; Toumi et al., 2023). Global economic and geopo-
litical developments might hurt the industry. Fintech may help India’s economy
survive a global catastrophe, according to some estimates. Affordable Internet ser-
vices help fintech expand in India by attracting more customers (Fu & Mishra, 2022).

M. Thakur (*)
Faculty of Legal Sciences, Shoolini University, Solan, Himachal Pradesh, India

© The Author(s), under exclusive license to Springer Nature 121

Switzerland AG 2024
C. M. Gupta, G. Kaur (eds.), E-banking, Fintech, & Financial Crimes,
https://doi.org/10.1007/978-3-031-67853-0_10
122 M. Thakur

ESG objectives are growing in finance. Sustainable financing is growing, and

banks are offering ESG-linked loans, which benefits operations. Dicuonzo et al.
(2024) stated that the 2023 FIS Global Innovation Report found that 84% of Indian
enterprises expect ESG trends to impact their operations. Indian authorities require
the top 1000 listed companies to file ‘Business Responsibility and Sustainability
Reports’. They are also exploring regulating ESG ratings providers. IFSCA’s
Sustainable Finance committee released a report in October with recommendations
to become a global sustainable hub. Starting in October 2022, SEBI may require
ESG fund managers to invest 80% of their assets in sustainability-themed securities.
Buy now, pay later (BNPL) and other micro-credit options are growing fintech
trends. In addition to blockchain, open banking, increased alliances between fintech
businesses and conventional banks, neo-banks, embedded finance, AI and the meta-
verse were major topics last year (Singh, 2022). Technology-based embedded
finance is growing quickly and might change the financial business. Some of these
firms are ‘techfin’ under India’s future legislation. Digital payments also tend to
rise. The Indian fintech industry is expected to achieve USD 1 trillion in AUM and
USD 200 billion in revenue. These projections are sometimes inflated by industry
participants and promoters for various reasons. 1.2 Are cryptocurrency-based fin-
tech firms unlawful or restricted in your jurisdiction? Indian fintech rules are com-
plicated and ever-changing. The rules that govern a fintech company’s operation
dictate its constraints. A fintech business that takes deposits and lends must have a
banking or non-banking licence from India’s central bank and regulator, the
RBI. Although BNPL fintech platforms were popular in India, the RBI strengthened
its regulations last year by issuing/amending Guidelines on Digital Lending, RBI
Master Directions on Credit Card and Debit Card—Issuance and Conduct, 2022,
and a clarification to its earlier Master Directions on Prepaid Payment Instruments.
To explain, the newly constituted International Financial Services Centres
Authority (IFSCA) in Gandhinagar, Gujarat, under the 2019 Act, prepared a list of
‘illustrative’ fintech and techfin areas/activities in India. Fintech operations are
divided into banking, capital markets, funds management and insurance (Delimatsis,
2021; Shah & Chugan, 2023). BNPL, Digital Banks, Robo Advisory, Sustainable
Finance, Embedded Insurance, Cyber Insurance, etc. Techfin includes agri tech,
climate/green/sustainable tech, space tech, banking, financial services and insur-
ance solutions using AI, chatbots, Web 3.0, etc.
India’s cryptocurrency law is unclear. There is no official regulation for bitcoin
businesses. The RBI barred all banks and non-banking financial institutions from
virtual currency activities and services in April 2018. The Supreme Court of India
overturned the RBI’s restriction on cryptocurrency purchases and trading, stating
that the RBI cannot regulate without a law (Singh & Rajni, 2022).
The Indian government has proposed the Cryptocurrency and Regulation of
Official Digital Currency Bill, 2021. This law establishes a framework for an RBI-­
issued digital currency and bans all private cryptocurrencies in India, save in speci-
fied instances, to promote cryptocurrency technology and applications. Indian
parties’ involvement will likely change the Cryptocurrency Bill before it becomes
law. Indian authorities now tax ‘crypto’ gains at the same rate as lottery prizes. An
10 Compliance Related to Fintech: An Overview of the Indian Legal System 123

amendment would criminalise not paying taxes on these gains. India, the G-20 pres-
idency, says cryptocurrency is lawful. The IMF and G-20 are creating a crypto asset
regulation consultation document. RBI produced a central bank digital currency
(CBDC) concept note and began a wholesale and retail test in October 2022. This
supports the government’s intention to centralise digital currencies, while decentral-
ised currencies’ fate remains unclear. The RBI changed the RBI Act, 1934, to cover
digital money.

Finance for Financial Technology

What equity and loan funding are available for new and developing enterprises in
your area? India’s growing enterprises may use stock and loan finance. Private
investors like venture capitalists and private equity firms fund most enterprises,
including fintech. Bank and other financial institution business loans are unpopular
owing to high interest rates and hefty collateral requirements. India allows foreign
investments under the law. Indian companies may borrow money from overseas
banks, financial institutions and equity investors via external commercial borrow-
ings (ECB) (Cumming & Schwienbqcher, 2021; Li et al., 2023; Moro-Visconti &
Moro-Visconti, 2021).
IPOs, particularly in IT, have increased in recent years. After a strong 2021, fin-
tech IPOs in India fell in 2022, contrary to expectations. The global geopolitical
scenario and the underperformance of numerous fintech businesses listed on the
public market last year may have caused this ‘funding winter’. Retail and finance
were worst hit by 2022 funding cuts in the Indian startup ecosystem (Salerno, 2022).
Startups and developing businesses get financial assistance from the Indian and
state governments.
Some of such examples are as follows:
1. Micro and small enterprises may borrow up to INR 10 million from the Credit
Guarantee Trust for Micro and Small Enterprise without collateral.
2. Startup India Initiative finances and incentivises eligible fintechs.
3. PRISM’s Technopreneur Promotion Programme supports innovators.
4. The Tamil Nadu Fintech Policy 2021 encourages fintech collaboration and gives
incentives.

Tax Benefits

Both national and state governments provide long-term policy statements or yearly
plans to stimulate investment. Some incentives are exclusive for local investors,
while others are open to foreigners.
124 M. Thakur

Competitive capital gains tax rates stimulate investment. Several efforts under
the National Manufacturing Policy (2011) and Make in India Programme (2014)
improve infrastructure for important industry investments. The new industrial pol-
icy from the government will promote investment with national and global market
synergies. The 2023–2024 budget allocated INR 1500 crores on fintech and bank-
ing. Fintech companies and banks received INR 2600 crore from the government to
promote UPI transactions earlier this year. The Indian government is promoting
technology, financial technology and startup investments and those that help these
businesses. Local fintechs seeking international markets and foreign fintechs seek-
ing IFSC access in India have an incentive scheme from IFSCA. The government
offered tax-related relaxations, including extending the deadline for moving money
to IFSC GIFT City from March 31, 2023, to March 31, 2025 (Baporikar, 2021).

Jurisdiction’s IPO Criteria for a Firm

The Securities and Exchange Board of India (SEBI) sets ‘eligibility norms’ for
IPOs. There are multiple ‘routes’. The profitability route requires a business to fulfil
minimum net physical assets and net worth to qualify for an IPO. Second, qualified
institutional buyers must buy most public shares by the alternative route. Una et al.
(2023) talks about Anchor investors, directors and promoters of an IPO must meet
SEBI requirements. Promoters must make a minimum commitment, lock up their
shares and have a clean SEBI and law enforcement background. Changes and
updates last year tightened compliance standards to reduce post-listing price volatil-
ity. SEBI makes suitable pricing recommendations. The National Stock Exchange
(NSE) also has rules (Ray et al., 2022).
Any major exits (business sale or IPO) by local financial startup founders?
RenewBuy paid $10 million for finance business Artivatic.AI. The deal included all
shareholders leaving.

Financial Technology Regulation

Fintech business models are complicated and interwoven; hence, India has no com-
prehensive fintech regulatory framework. Fintech firms’ rules and regulations
depend on their business operations.
Principals supervise fintech firms are regulated by RBI, SEBI, IRDAI, PFRDA
and IFSCA. The stated authorities govern online payments, payment aggregators,
data privacy, loans, securities trading, insurance goods, etc. Financial activities need
RBI, SEBI or IRDAI permits and licences.
Indian fintech businesses may be subject to several laws:
10 Compliance Related to Fintech: An Overview of the Indian Legal System 125

Relevant Regulations

Sr.
no. Regulation Year
1 Payment and settlement systems act 2007
2 Master directions on prepaid payment instruments 2021
3 Scale-based regulation for non-banking financial companies 2021
4 Account setup, management and payment processing for electronic intermediary 2009
transactions
5 Payment bank licencing regulations were established in 2014 and operating 2016
standards
6 Payment system operator self-regulatory organisation recognition framework 2020
7 Regulatory guidelines for payment aggregators and gateways 2020
8 Directive on processing electronic mandates on cards for recurring transactions 2019
9 Card transaction tokenisation circular 2019
10 Digital lending guidelines 2022
11 RBI master directions on credit and debit card issuance and conduct 2022
12 National Payments Corporation of India 2008
13 SEBI 1992
14 Mutual Fund Memo 2021 2021
15 IRDAI 1999
16 Insurance repository and electronic policy issue guidelines 2015
17 Insurance e-commerce norms 2017
18 Insurance regulatory and development Authority of India regulated e-insurance 2016
policies
19 The international financial services Centres authority act 2019
20 IFSC Fintech entity framework 2022

Indian financial regulators and politicians are increasingly receptive to fintech

innovation and technology-driven fintechs. Disruptive innovation that conflicts with
regulatory frameworks or technology that encourages consumer deception or fraud
may be difficult to manage. The RBI governor has stressed that fintech enterprises
need better client safety, cybersecurity, financial integrity management and data
protection to survive. The key market regulators are offering regulatory ‘sandbox’
options to Indian financial technology companies to foster innovation.

Reserve Bank of India and Regulations

The RBI Enabling Framework for Regulatory Sandbox was launched in 2019. Later
that year, the first cohort, ‘retail payments’, was presented. By 2021, six organisa-
tions have completed the first group’s testing.
The regulatory sandbox’s second, third and fourth cohorts cover ‘cross-border
payments’, ‘MSME lending’ and ‘prevention and mitigation of financial frauds’,
126 M. Thakur

respectively, announced in December 2020, September 2021 and October 2021. In

September 2022, RBI announced the fifth cohort, which will accept proposals for
innovative products, services and technology across numerous regulatory functions.
Six firms and their solutions were selected for the ‘test phase’ of the fourth cohort
to identify and mitigate financial frauds earlier this year (Varma & Nijjer, 2022;
Varma et al., 2022a, b).
The RBI launched the Reserve Bank Innovation Hub (RBIH) in late 2020 to
promote financial sector innovation via technology and assistance. The RBI has cre-
ated a ‘fintech department’ to focus on the sector.

SEBI

SEBI created the Regulatory Sandbox Framework in 2020 to foster securities sector
innovation and allow regulated enterprises to test fintech concepts. SEBI’s
‘Innovation Sandbox’ online project promotes financial innovation (Kherala, 2019;
Iyer, 2021).

IRDAI

Virdi and Mer (2023): stated that promote insurance innovation along with, IRDAI
created the IRDAI (Regulatory Sandbox) Regulations in 2019. This sandbox aims
to balance structured insurance sector development, policyholder protection and
innovation.

IFSCA

IFSCA has multiple committees, one on sustainable finance. IFSCA’s framework

includes the Fintech Regulatory Sandbox (FRS). India has taken steps beyond regu-
latory sandboxes to boost financial innovation. The government formed joint work-
ing groups with the UK and Singapore. To improve coordination, the MAS and
IFSCA signed the Fintech Cooperation Agreement in September 2022 (Kaur
et al., 2024).
10 Compliance Related to Fintech: An Overview of the Indian Legal System 127

 ustainable Finance and AI Research

S
and Information Sharing

Few years back, the Financial Stability and Development Council (FSDC-SC) sub-
committee created an inter-operable regulatory sandbox to help financial sector
regulators coordinate fintech problems. What regulatory hurdles must foreign fin-
techs overcome to gain new customers in your jurisdiction? Foreign fintech compa-
nies used to face the regulatory need that some have a physical presence in India.
The foundation of the IFSCA and execution of the IFSC’s fintech framework, which
applies to eligible multinational enterprises, may change the situation. Foreign cor-
porations establishing a company in India must follow foreign currency control
laws, which may restrict foreign ownership in an Indian corporation or subsidiary.
Cross-border payments and transactions may cause problems. Fintech companies
that lend or credit may face regulatory restrictions when borrowing or lending in
foreign currencies, particularly if local rules tighten. PayPal, a foreign fintech busi-
ness, will stop domestic payments in India, a competitive sector, and focus on help-
ing Indian companies sell abroad. Another problem may be data storage management.
The RBI mandates that payment system data be stored in India for payments com-
panies. International enterprises that store and handle global payment information
at centralised facilities or outside India are substantially affected by this. Due to data
storage violations, several major Indian financial services businesses have shut down.

Nonmonetary Regulation Alternatives

Does your jurisdiction regulate personal data collection, use and transfer? What is
the legal foundation for these laws and how do they affect fintech companies in your
jurisdiction? Data protection rules are lacking in India. However, the government is
proposing the Digital Personal Data Protection Bill, 2022, for further debates. The
DPDP Bill is unenacted. Data movement outside India is limited to federally desig-
nated countries or territories, which is critical for fintech companies (Bashambu &
Chetwani, 2022).
The SPDI Rules under the Information Technology Act, 2000, govern sensitive
personal data processing. This covers data collection, usage, transfer, storage and
processing. The SPDI Rules regulate SPDI collection, storage, transport, processing
and disclosure. This includes passwords; financial information like bank account
numbers, credit card numbers or other payment instruments; physical, physiologi-
cal and mental health data; sexual orientation data; medical records; histories; and
biometric data. Any corporation collecting SPDI from an individual must seek writ-
ten authorisation from the data subject, per SPDI Rules. Before collecting sensitive
personal data, consent must be obtained, explaining the purpose, recipients, etc.
Except under a formal agreement, approval is needed before transmitting or reveal-
ing sensitive personal data. Corporate bodies collecting, storing, using or
128 M. Thakur

transferring SPDI must follow the International Standard IS/ISO/IEC 27001 for
Information Security Management System Requirements or other government-­
approved standards. Each SPDI collector must appoint a grievance officer to resolve
data subject concerns, per SPDI Rules. SPDI managers must post their privacy poli-
cies online. SPDI Rules should be followed in the policy, which should list the cat-
egories of SPDI gathered and their usage. Fintech financial data is SPDI and
controlled by SPDI Rules. In addition to the SPDI Rules, Indian regulators protect
financial data with privacy protections. IRDAI laws require insurers to protect poli-
cyholder anonymity, retain insurance records in Indian data centres and swiftly
recover data shared with outsourced service providers after service delivery.
Insurance brokers, web aggregators, common service centres and surveyors must
follow regulations to protect insurance-related data they receive for policy servicing.
The RBI mandates that payment system operators store all payment system data
on Indian systems and data centres. Payment data may be processed internationally
without limits. However, data processed outside India must be returned to India
within one business day or 24 hours after payment processing. Complete transaction
data should comprise information collected, transmitted and managed throughout
the payment process. If required, the foreign country may keep a copy of the data
during the transaction (Chakravarty, 2023).
The RBI’s Guidelines on Regulation of Payment Aggregators and Payment
Gateways prohibit licenced non-bank payment aggregators and merchants from
storing full card data. They can only save card numbers’ last four digits for
reconciliation.
The RBI’s Guidelines on Digital Lending require regulated organisations to
ensure that digital lending apps/platforms gather relevant, borrower-approved and
auditable data. Regulated entities must ensure that digital lending apps/platforms
only access the borrower’s mobile phone resources once for necessary features like
camera, microphone, location or other required features during onboarding/know
your customer (KYC) with the borrower’s explicit consent. Regulated organisations
must ensure that digital lending apps/platforms do not store more personal data than
necessary. Without regulatory approval, biometric data should not be gathered or
stored (Chakravarty, 2023).

Data Privacy Laws

Despite the IT Act’s provisions for execution beyond India, the SDPI Rules’ appli-
cability to international firms is unclear. If passed, the DPDP Bill will include for-
eign data controllers handling Indian data principals’ data. While serving Indian
fintech, foreign organisations may need to indirectly comply with Indian privacy
laws. According to the SDPI Rules, an Indian organisation cannot send sensitive
personal data or information (SPDI) to a foreign organisation that does not fulfil its
data protection and security standards.
10 Compliance Related to Fintech: An Overview of the Indian Legal System 129

Not all SDPI Rules ban data transmission beyond India. Cross-border transfers
are allowed if the foreign recipient entity guarantees an equivalent level of data
protection as the Indian transferor entity and the data subject give explicit consent,
unless the data transfer is part of a legal contract. As said, the DPDP Bill might
change this.
There are still sector-specific limitations that impede data transfer across borders
or require data storage. As said, IRDAI requires insurance data to be housed in
Indian data centres. The RBI requires all payment system operators in the payment
ecosystem to store payment system data in Indian systems and data centres. The
RBI’s Guidelines on Digital Lending need borrower consent before sharing per-
sonal information with other parties. The guidelines require all data to be stored on
Indian servers.

Describe Data Privacy Violation Penalties

Civil and criminal penalties may result from violating data privacy rules and the IT
Act. Organisations that retain, handle or deal with sensitive personal data and infor-
mation (SPDI) must compensate victims if they fail to develop and maintain accept-
able security measures. Leaking contract-violating information is punishable by
prison time under the IT Act. The IT Act requires service providers, intermediaries
and data centres to report cyber events to CERT-In, the institution in charge.
Noncompliance can result in a daily fine of up to INR 5000. For its duties, CERT-In
may seek information and provide directions. Failure to provide needed information
or follow CERT-In’s instructions might result in a year in jail, an INR 10 million
fine or both.
Sectoral regulators like RBI, SEBI and IRDAI issue fines, penalties and impris-
onment. If they were accountable for the company’s business behaviour, knew about
the offence and did nothing to prevent it, the RBI and IRDAI may penalise people.
Data localisation violations, data security breaches and security standards violations
may result in RBI and IRDAI suspension of firm operation.
The DPDP Bill seeks roughly USD 60 million in fines for noncompliance. Data
principals who violate restrictions face penalties under the DPDP Bill (Malhotra &
Bhilwar, 2023). The IT Act and its associated rules, such as the Information
Technology (Information Security Practices and Procedures for Protected System)
Rules 2018, the Information Technology (Guidelines for Intermediaries and Digital
Media Ethics Code) Rules 2021, the Information Technology (Electronic Service
Delivery) Rules 2011 and the CERT-In Rules, which establish CERT-In as an
administrative body for cybersecurity incident information, could affect (Chaturvedi
& Srivastava, 2023).
In addition to the IT Act, the RBI has a rigorous cybersecurity framework for
banks and non-banking financial companies. MD-PPIs, another RBI circular,
require PPIs to have a system to monitor, manage and handle cybersecurity events
and breaches. After their financial year ends, non-bank PPIs must submit a System
130 M. Thakur

Audit Report (SAR) (Jeyasingh, 2023), with a CERT-In-approved cybersecurity

audit within 2 months (Chaturvedi & Srivastava, 2023).
SEBI issued circulars on ‘Cyber Security Resilience Framework for Stockbrokers/
Depository Participants’ and ‘Cyber Security Resilience Framework for Mutual
Funds/Asset Management Companies (AMCs)’ that may influence fintech compa-
nies. The IRDAI’s Information and Cybersecurity Guidelines offer a comprehensive
cybersecurity framework for the insurance business to reduce cyber risks. The
Credit Information Companies (Regulation) Act 2005 (Hardik, 2023), Credit
Information Companies Rules 2006 and Aadhaar Act 2016 address cybersecurity
(Hardik, 2023).
IFSCA’s International Financial Services Centres Authority (Maintenance of
Insurance Records and Submission of Requisite Information for Investigation and
Inspection) Regulations, 2022, require cybersecurity policy and data protection
records (Shavshukov & Zhuravleva, 2023).
India’s principal money laundering statute is the PMLA and its rules (Mittal &
Agrawal, 2023). India is a FATF member and has signed various anti-money laun-
dering and antiterrorism financing agreements (Pandey, 2023). The PMLA requires
India to follow FATF and anti-money laundering rules. Banks, financial institutions
and intermediaries must preserve financial transaction records, verify information
and maintain customer identification records. Financial authorities including the
RBI, SEBI and IRDA regulate financial transaction records and consumer verifica-
tion. SEBI has Guidelines on Anti-Money Laundering (AML) Standards and
Combating the Financing of Terrorism (CFT) for Securities Market Intermediaries
(Gaviyau & Sibindi, 2023), RBI has the Master Direction—KYC Direction, 2016,
and IRDA has AML/CFT guidelines for the insurance sector. Further regulatory
frameworks for fintech companies in India are not available. SEBI published a cir-
cular requiring registered mutual funds that utilise AI and machine learning tech-
nologies to produce quarterly updates on their technology and AI safety procedures.
To assist Make AI in India and Make AI Work for India, the 2023–2024 budget
proposed three AI centres of excellence at top universities.

Conclusion

The journey of the financial system has changed it appearance and working; through
this chapter, the author has tried to understand the concept of fintech and found that
it is the need of the hour and has also solved several problems, but along with the
solutions have come several problems which are to be checked and solved through
the legal fraternity. The financial system in India subcontinent is governed by sev-
eral acts and provisions, and several bodies such as RBI and SEBI are the main
players which govern all the financial transactions in India and play a major role to
control the activities of fintech companies. Thus, the journey of fintech and its finan-
cial structure will always go hand in hand but times will be there which will make
them overtake each other sometimes and those will be the times when they have to
settle or find the mid way to get the possible outcomes for the betterment of the
society.
10 Compliance Related to Fintech: An Overview of the Indian Legal System 131

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Chapter 11
Optimizing the Role of Indonesian Fintech
and Legal Protection Efforts for Fintech
Users by the Indonesian Financial Services
Authority (OJK) in Financial Services

Sulistyandari, Ulil Afwa, Tri Lisiani Prihatinah, Aryuni Yuliantiningsih,

and Ari Tri Wibowo

China Fintech Regulation

Introduction

The growth of fintech companies in Indonesia is very rapid (Rahayu & Astuti,
2022). The Financial Services Authority in Indonesia, Otoritas Jasa Keuangan
(OJK), continues to encourage the development of technology-based financial ser-
vice providers (fintech). The rapid expansion of fintech in Indonesia has sparked a
debate over its regulatory framework. While fintech offers unprecedented access to
financial services for the unbanked and underbanked population, concerns about
data privacy, cybersecurity, and financial stability are mounting (Wilson, 2017).
Critics argue that the existing legal infrastructure is inadequate to tackle the unique
challenges digital financial services pose. This contention underscores the need for
a nuanced understanding of fintech’s impact and the development of robust legal
mechanisms.
The Indonesian financial sector has undergone a significant transformation with
the advent of fintech. Traditional banking models are being challenged by agile,
technology-driven companies offering various services, from digital payments to
peer-to-peer lending (Hartono, 2020). This shift necessitates a reevaluation of regu-
latory approaches. The OJK has been instrumental in this transformation, imple-
menting regulations that foster innovation while ensuring financial stability and
consumer protection (Wijaya & Tumpal, 2022).

Sulistyandari · U. Afwa (*) · T. L. Prihatinah

Faculty of Law, Universitas Jenderal Soedirman, Purwokerto, Indonesia
e-mail: [email protected]
A. Yuliantiningsih
Southeast Asia Research Centre, Universitas Jenderal Soedirman, Purwokerto, Indonesia
A. T. Wibowo
Faculty of Law, Universtas Nahdatul Ulama Indonesia, Central Jakarta, Indonesia

© The Author(s), under exclusive license to Springer Nature 133

Switzerland AG 2024
C. M. Gupta, G. Kaur (eds.), E-banking, Fintech, & Financial Crimes,
https://doi.org/10.1007/978-3-031-67853-0_11
134 Sulistyandari et al.

A notable trend in the Indonesian fintech sector is the increasing collaboration

between fintech firms and traditional financial institutions (Rodliyah et al., 2020).
This synergy combines technological innovation with the reliability and trust of
established financial entities. Moreover, there is a growing focus on financial inclu-
sion, with fintech services reaching remote areas previously underserved by tradi-
tional banks (Pratama & Dewi, 2021). However, this expansion brings forth issues
related to equitable access and fair treatment of consumers, emphasizing the role of
regulatory bodies in monitoring and guiding this trend.
The urgency lies in establishing a legal framework that promotes fintech innova-
tion and ensures the protection of consumer rights and the integrity of the financial
system. The OJK has taken commendable steps in this direction, such as introduc-
ing regulations on digital financial services and engaging in stakeholder dialogues
to understand the evolving fintech landscape (Aditya & Nugroho, 2022). Moving
forward, a balanced approach is required, one that encourages innovation while
implementing stringent oversight mechanisms to prevent malpractices and ensure
the safety of users’ financial and personal data. The role of fintech in Indonesia is a
dynamic and evolving narrative marked by rapid growth and significant regulatory
challenges. The OJK’s efforts in legal protection and optimizing fintech’s role are
crucial in shaping a resilient and inclusive financial ecosystem. This paper aims to
explore these aspects in depth, contributing to the discourse on fintech regulation
and consumer protection in Indonesia.
The problem is that fintech company usually withdraws funds from the public.
Therefore, its operational activities must also be regulated and supervised by the
OJK. Therefore, the OJK has issued OJK Regulation Number 10/POJK.05/2022
about information technology-based lending and borrowing services. This OJK
regulation states that fintech companies’ lending and borrowing services operating
in Indonesia must be registered and follow the rules set by OJK. They must comply
with OJK regulations regarding operational permits, forms of institutions, business
scope, financial reports, and capital. The objective of this OJK legislation is to facil-
itate individuals in meeting their cash requirements promptly, conveniently, and
efficiently. Additionally, it aims to enhance competitiveness and enable actors in
micro, small, and medium firms to obtain access to capital. Based on data from the
Indonesia Fintech Association (AFI), there are a huge number of fintech startups in
Indonesia. However, not all are registered and get operational permission from OJK
(Salvasani & Kholil, 2020). So, there is great potential for harm to fintech users. The
problem in this study is how to implement OJK Number 10/POJK.05/2022 concern-
ing information technology-based money-borrowing services to optimize the role of
fintech and as a legal protection effort for fintech Indonesia users.
The study highlights a pivotal aspect of the fintech landscape in Indonesia, focus-
ing on the implementation of OJK Regulation Number 10/POJK.05/2022. This
regulation marks a significant stride in addressing the dual objectives of promoting
financial innovation and ensuring legal protection for users of fintech services.
Despite the progressive nature of this regulation, challenges remain, particularly in
ensuring comprehensive compliance among Indonesia’s burgeoning number of fin-
tech entities. The discrepancy between the total number of fintech startups and those
11 Optimizing the Role of Indonesian Fintech and Legal Protection Efforts for Fintech… 135

registered under OJK’s purview underscores an urgent need for stringent monitor-
ing and enforcement mechanisms (Suryono et al., 2021). This regulation is not
merely a statutory requirement but a crucial step toward establishing a balanced
ecosystem where fintech can thrive without compromising the safety and rights of
its users. It is imperative that future studies and policy measures continue to evolve
with the dynamic fintech sector, focusing on the effective implementation of exist-
ing regulations and the introduction of innovative solutions to emerging challenges.
Also it is important to study the best practice of fintech in another relevant devel-
oped country.

Discussion

Fintech in Indonesia

Based on Law Number 21 of 2011 (OJK Law), OJK has the authority to regulate
and supervise financial services, including banking and nonbanking financial ser-
vices. Since December 31, 2012, OJK has had the juridical and effective authority
to regulate and supervise nonbanking financial services institutions (LJKNP). If the
operator does not register in accordance with the provisions of the OJK regulation,
then the operator is considered to conduct illegal business activities.
According to the OJK Regulation Number 10/POJK.05/2022, information
technology-­based money-borrowing services are very helpful in increasing public
access to financial services and products online, both with various parties without
the need to know each other. The main advantages of information technology-based
lending and borrowing services include the availability of online electronic agree-
ment documents for the needs of the parties, the availability of legal counsel to
facilitate online transactions, risk assessment of the parties online, sending billing
information online, provision of loan status information to parties online, and provi-
sion of escrow accounts and virtual accounts in banks to parties so that the entire
implementation of the payment of funds takes place in the banking system. For this
reason, information technology-based lending and borrowing services are expected
to meet cash needs quickly, easily, and efficiently and increase competitiveness
(Asongu et al., 2019).
Understanding the role is an action that limits a person or an organization to
carry out an activity based on goals and conditions agreed upon so that it can be
carried out as well as possible (Soekanto, 2009). In order to get the desired outcome,
fintech organisers play a crucial role. Therefore, the role of the OJK is also required
as regulated in the OJK Regulation Number 10/POJK.05/2022, in which the activi-
ties of the fintech company/organizers to help provide funds in cash quickly and
efficiently to small- and medium-sized micro-entrepreneurs are carried out.
Law enforcement is not merely the implementation of legislation or the imple-
mentation of court decisions. However, law enforcement’s main problem is the
136 Sulistyandari et al.

factors that might influence it (Cruz, 2019). These factors are as follows: legal fac-
tors themselves; factors of law enforcement, namely, parties that form or apply the
law; factors of facilities or facilities that support law enforcement; and community
factors, namely, the environment in which the law applies or is applied. Cultural
factors result from creative work and a sense based on human intentions in the rela-
tionship of life (Soekanto, 2011).
Thus, law enforcement or implementation of OJK Regulation Number 10/
POJK.05/2022 is influenced by several factors, namely, the legal factor itself; fac-
tors of law enforcement, namely, parties that form or apply the law; factors of facili-
ties or facilities that support law enforcement; community factors, namely, the
environment where the law applies or is applied; and cultural factors, namely, as a
result of creative work and a sense based on human intentions in the relationship
of life.
The legal factor in this case is the OJK Regulation Number 10/POJK.05/2022
concerning information technology-based lending and borrowing services. This
OJK regulation aims to provide legal protection to users and organizers of informa-
tion technology-based lending and borrowing services. There are several concepts
regarding legal protection. Legal protection relates to how the law provides justice,
namely, giving or regulating rights and obligations to legal subjects. Besides that, it
also relates to how the law provides justice to legal subjects whose rights are vio-
lated to defend their rights. Philipus M. Hadjon distinguishes legal protection into
preventive and repressive legal protection. All means, including legislation, are pre-
ventive protection to prevent disputes. Handling protection by the judiciary is
repressive legal protection, which aims to resolve disputes. Fintech Indonesia users
in lending and borrowing services are lenders and loan recipients who use informa-
tion technology-based lending and borrowing services domiciled in the territory of
Indonesia (Saputri et al., 2022). Obstacles related to the legal factor are that the OJK
regulation still requires implementing regulations, so that the OJK Circular is stipu-
lated immediately, among others, which regulates specifically the settlement of dis-
putes in the information technology-based lending and borrowing services, thus
providing legal certainty regarding legal protection to fintech users.
One factor of law enforcement, in this case, is the OJK because the OJK has to
supervise compliance with the obligations of the company/fintech organizers and
give sanctions if there is a violation of the obligations of the OJK regulation.
Registration and permit applications for information technology-based lending and
borrowing services can only be submitted to the Central OJK. Hence, the law
enforcer in OJK Regulation Number 10/POJK.05/2022 is the Central OJK. Law
enforcement carried out by the OJK Center is administrative law enforcement of 63
fintech companies that have registered and obtained OJK permits.
Factors of facilities or facilities that support law enforcement to enforce the law:
OJK requires human resources, and then the rules are used as a benchmark for
enforcing the law. Initially, it was discussed that human resources are limited and
only implemented by OJK at the center; the POJK is insufficient. OJK still needs
guidance in conducting supervision and evaluating the results of supervision,
11 Optimizing the Role of Indonesian Fintech and Legal Protection Efforts for Fintech… 137

meaning that more technical regulations, such as the OJK Circular about the imple-
mentation of supervision and so on, are needed.
Community factors, namely, the environment in which the law applies or is
applied: The population examined in this research include fintech companies/orga-
nizers as well as fintech users, comprising lenders and receivers. Fintech companies
must search for information online on the profile and information of fintech users.
In addition, fintech companies must have the feasibility of managing information
technology systems in implementing information technology-based lending and
borrowing services. Based on data from OJK, there are several reasons why there
are still many fintech companies that have already carried out their business activi-
ties but have not registered and obtained OJK permits, because of financial limita-
tions (1 billion for registration and 2.5 billion for obtaining OJK licenses) which
have not fulfilled the requirements and do not yet have the feasibility of governance
of information technology systems the implementation of information technology-
based lending and borrowing services. For the fintech company to fulfill these
requirements, it is also necessary to have the role of the Indonesia Fintech
Association (AFI) to encourage its members to fulfill these requirements.
Cultural factors result from creative work and a sense that is based on human
intentions in the relationship of life. The meaning of cultural factors in this study is
the assumptions or judgments of fintech users and the public toward information
technology-based money-borrowing services that ultimately affect their attitudes
and behavior toward these services. One is the public’s perception that borrowing
from fintech company is highly interesting. So, they still choose to borrow from
conventional institutions, and the fact that some people still do not keep up with
technological developments means they cannot access fintech services. For this rea-
son, more intense socialization from fintech and OJK companies is needed.
Many fintech companies/organizers have already registered and obtained per-
mission from OJK, and 3 trillion rupiah has been absorbed for loans. This proves
that fintech companies/organizers have helped (MSMEs) to find funds quickly and
efficiently. However, in order to optimize the role of the fintech company, the role
of OJK as law enforcement/supervisor must be supported to ensure compliance
with the OJK regulation. Despite the presence of obstacles such high interest rates,
individuals in society still opt to borrow from traditional institutions instead of fin-
tech firms because to their lack of familiarity with technological advancements.
Therefore, it is crucial to promote widespread awareness and acceptance of fintech
companies by OJK.
An important drawback of the Indonesian fintech industry is the constantly
changing regulatory environment, which continues to pose a problem. Regulations
in Indonesia often lack specificity and are subject to frequent changes, creating
uncertainty for businesses. The evolving regulatory framework is a significant hur-
dle for fintech development in Indonesia. This underscores the need for a more sta-
ble and predictable regulatory framework to support the fintech industry’s growth.
Compared to Indonesia, Singapore boasts a more advanced technological infra-
structure for fintech (Luk & Preston, 1998). This is supported by significant govern-
ment investment in information technology, and the Singaporean government
138 Sulistyandari et al.

proactively develops specific and consistent regulations to support innovation. The

Monetary Authority of Singapore (MAS) has implemented various policies, includ-
ing regulatory sandboxes, to foster fintech growth (Bromberg et al., 2017). This
approach has created a conducive environment for fintech innovation.
The US fintech ecosystem is characterized by significant capital support and
advanced innovation: A strong capital market and a deep-rooted culture of innova-
tion influence this. The Financial Technology Association reports that fintech invest-
ments in the United States reach billions of dollars annually (Indonesian Fintech
Association (AFI), 2022). This investment capacity accelerates innovation and
growth in the US fintech sector. The United States adopts a decentralized regulatory
approach to fintech. This is due to a greater role played by state governments in
financial regulation (Anagnostopoulos, 2018).
China’s fintech industry is distinguished by its massive scale and integration with
the broader digital economy. The Chinese government has actively promoted fin-
tech as part of its broader digital transformation strategy. As reported by the People’s
Bank of China, China’s fintech sector is one of the largest in the world, with a sig-
nificant presence of big tech firms in financial services. China’s approach reflects a
unique model where fintech is deeply intertwined with the country’s digital and
economic policies (Zhou et al., 2018).
As a researcher in the field of law, it is critical to explore the best practices in
regulating and implementing financial technology (fintech) as observed in leading
global economies like the United States, China, and Singapore. These countries
have developed unique approaches and strategies that have significantly shaped
their respective fintech landscapes, offering valuable insights into effective fintech
governance. Their experiences offer critical insights for other nations looking to
cultivate a thriving, well-regulated fintech ecosystem. The detailed comparison will
be explained below:

Singapore Fintech Regulation

The financial regulator in Singapore, the Monetary Authority of Singapore (MAS),

is one of the world regulators that responded early to the development of fintech.
MAS is actively working to frame an appropriate regulatory approach to support
and oversee the development of fintech (Khan, 2003). MAS adopts the following
policy approach: First, MAS will take a differentiated approach to different tech-
nologies and their applications. It is worth noting that, unlike full-fledged financial
companies such as banks, which provide comprehensive services and products, the
present wave of fintech startups themselves individually develop technology to
improve certain financial services or products, so the risks inherent in their activities
or due to the nature of the technology are different. A “one-size-fits-all” regulatory
approach is inappropriate. For instance, digital payments and digital currencies
raise authentication and identity issues; P2P lending platforms and crowdfunding
have implications for consumers. Second, MAS will adopt a risk-based approach to
11 Optimizing the Role of Indonesian Fintech and Legal Protection Efforts for Fintech… 139

fintech innovation in unregulated sectors. MAS is aware that prematurely introduc-

ing regulation can stifle innovation and potentially thwart the adoption of beneficial
technologies. Therefore, it always ensures that regulation should not be a precursor
to innovation. Instead, MAS applies materiality and proportionality. This means
that when the risks posed by new technology become material, then regulation
comes in. In addition, regulations must be proportional to the risks posed. For exam-
ple, the MAS regulates banks primarily because they accept deposits from ordinary
people. Securities crowdfunding platforms (debt or equity) are not permitted to take
deposits, and where investors are limited to accredited or sophisticated investors,
MAS generally regulates such platforms lightly. However, when some crowdfund-
ing platforms wanted to help companies obtain business loans from retail investors,
MAS stepped in to require the platforms to be licensed by MAS and enforce licens-
ing conditions such as minimum capital and disclosure requirements. The aim is to
strike the right balance between increasing access to securities crowdfunding for
new businesses and small and medium enterprises and protecting the interests of
investors. MAS also stated that if the financing platform becomes huge and raises
concerns about financial market stability, then MAS may consider macroprudential
regulations such as capital adequacy, credit ratings, fund solvency, etc., to strengthen
individual players and others—measures to strengthen the resilience of the entire
market. Third, in connection with the fintech experiments mentioned above, MAS
published the “Regulatory Sandbox” for fintech startup companies and large finan-
cial companies to experiment with financial technology (fintech) solutions. MAS is
well aware of the speed at which the emerging fintech landscape is evolving and that
friction caused by existing regulations can slow down the innovation process (Horn
et al., 2020).
The Monetary Authority of Singapore (MAS) and the National Research
Foundation established the Fintech Office to review, align, and improve fintech
funding schemes across government agencies, identify gaps, and propose strategies,
policies, and schemes.

China Fintech Regulation

The fintech industry in the People’s Republic of China (PRC) differs greatly from
that of the developed world in many respects. While cryptocurrency and cross-­
border payments receive a lot of attention in North America and Western Europe,
mobile payments and online lending dominate headline news in the People’s
Republic of China. Ant, Tencent, Baidu, and JD Digits are just a few of the unicorn
companies that control the PRC’s fintech market (Huang, 2020).
In exploring the resolution of peer-to-peer lending (P2PL) disputes in China, one
discerns a multifaceted approach aimed at enhancing both regulatory oversight and
procedural efficiency. To begin, regional mechanisms have been bolstered through
the implementation of the “Sunshine Management” complaint reporting system,
exemplified by its adoption in the Liyang region. This system not only categorizes
140 Sulistyandari et al.

and makes public the nature of complaints but also tailors complaint mechanisms to
assist financially disadvantaged individuals, with provinces like Hunan offering
specialized channels for grievances.
Moreover, a significant regulatory shift is underway as the China Banking and
Insurance Regulatory Commission (CBIRC) mandates that all P2PL platforms tran-
sition into microcredit institutions within a 2-year timeframe. This transformation is
set against a backdrop of stricter regulatory standards designed to curtail fund mis-
use and improve repayment rates among borrowers. An illustrative directive requires
all P2PL firms to settle outstanding loans within a year prior to their conversion into
microloan entities, a move calculated to mitigate creditor losses, enhance social
stability, and foster the orderly growth of inclusive finance. The capital thresholds
set for this transformation are formidable, with a minimum of 50 million yuan for
regional operations and 1 billion yuan for national activities, effectively barring
platforms with significant credit risks or fraudulent operations from continuing
(Technologies, 2016). Additionally, the determination of online loan interest rates
has been centralized under the aegis of the Supreme People’s Court of the People’s
Republic of China. This judicial body has set the permissible ceiling for private
lending rates at four times the bank’s interest rate, a policy aimed at balancing com-
petitiveness with consumer protection.
Lastly, the judicial landscape itself is undergoing a technological revolution with
the introduction of the “smart court” system. This digital judiciary leverages soft-
ware applications that enhance the decision-making processes by providing judges
with tools to reference similar cases, verify evidence, and identify contradictions,
thus integrating big data and algorithmic support into the judicial workflow. Despite
the high-tech assistance, the final adjudicative power rests firmly with the human
judges, ensuring that justice retains its inherently human discernment. This suite of
reforms and innovations collectively represents a robust framework aimed at mod-
ernizing and streamlining the resolution of P2PL disputes in China.

US Fintech Regulation

In the United States, the regulatory framework for peer-to-peer lending (P2PL) is
both intricate and comprehensive, involving multiple federal agencies to ensure
both operational compliance and consumer protection. Supervision of P2PL falls
under the purview of the Securities and Exchange Commission (SEC), the Consumer
Financial Protection Bureau (CFPB), and the Federal Trade Commission (FTC),
each playing a distinct role in overseeing various facets of P2PL operations.
The operational model for P2PL in the United States adopts what is known as the
“Notary Model,” which incorporates an intermediary, specifically WebBank, to
facilitate the funding process between borrowers and lenders. In this model, although
WebBank initially provides the funds, the financial transactions are recorded in the
name of the platform rather than the individual lenders. Subsequently, the platform
issues a promissory note to the lenders, thereby making them creditors of the plat-
form itself (Turguttopbas, 2022).
11 Optimizing the Role of Indonesian Fintech and Legal Protection Efforts for Fintech… 141

Regarding consumer protection, two major institutions stand at the forefront: the
CFPB and the FTC. The CFPB exercises broad regulatory powers across the finan-
cial sector, particularly focusing on consumer rights within nonbank lending mar-
kets. It is tasked with enforcing laws that guard against unfair, deceptive, or abusive
acts and practices in consumer lending. On the other hand, the FTC enforces the
broader Consumer Protection Act across various sectors, including P2PL. Together,
these agencies form a robust regulatory shield, designed to protect consumers while
fostering a fair and transparent lending environment. This multilayered approach
not only reinforces the security of financial transactions but also ensures that the
principles of fairness and transparency are upheld in the fast-evolving landscape of
financial technology in the United States.

Conclusion

The research into the regulation and implementation of fintech in Indonesia, com-
pared with global leaders such as the United States, China, and Singapore, reveals
significant findings. A key observation is the challenge faced by Indonesia in creat-
ing a stable and forward-looking regulatory framework. The Indonesian fintech
landscape, while burgeoning, is marked by regulatory uncertainties and evolving
policies, which impact the confidence and growth of fintech entities. Another criti-
cal finding is the disparity in technological infrastructure and regulatory maturity
compared to countries like Singapore and the United States. These nations have
developed more advanced frameworks and infrastructures that support fintech inno-
vation while ensuring consumer protection and financial stability. This contrast
underscores the need for Indonesia to enhance its regulatory and technological envi-
ronment to foster a more robust fintech ecosystem. From an academic perspective,
this study contributes to the understanding of fintech regulation in a global context.
It provides a comprehensive analysis of the varying approaches to fintech gover-
nance, highlighting the successes and challenges in different regulatory environ-
ments. This comparative analysis offers valuable insights for policymakers,
regulators, and scholars, particularly in countries striving to develop their fintech
sectors. The findings from this study can guide the formulation of more effective
fintech policies and regulations in Indonesia and other emerging economies explor-
ing fintech as a tool for financial inclusion and economic development.

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Chapter 12
Legal Implications of Fintech

Srinivas Subbarao Pasumarti

Use this for RQ 4 and RQ 5

Introduction to Fintech

Financial technology, or fintech, rapidly reshapes the financial services landscape

worldwide. Leveraging cutting-edge technologies like artificial intelligence (AI),
blockchain, and cloud computing, fintech companies offer innovative solutions
across areas like payments, lending, wealth management, and insurance. This global
phenomenon has found fertile ground in India, a country with a young, tech-savvy
population and a significant unbanked segment.
The United States has emerged as a leading force in global fintech, boasting
established giants like Visa, PayPal, and Mastercard (Iyer & Darabi, 2020). Other
established hubs include the United Kingdom, Israel, Singapore, and Hong Kong,
which are known for their supportive regulatory environments and vital investor
ecosystems (Nguyen & Nielsen, 2020). A recent study by EY depicted the global
fintech market reaching a staggering USD 22.3 trillion by 2025, signifying the
immense potential of this sector (EY, 2020).
India presents a compelling case study within the global fintech narrative. The
Indian market is one of the fastest-growing globally, with a projected value of USD
150 billion by 2025, surpassing its 2021 valuation of USD 50 billion (Invest India,
n.d.). This exponential growth can be attributed to several key factors. Indian con-
sumers are increasingly tech-savvy and demand convenient, user-friendly financial
services. Fintech companies cater to this need by offering mobile-first solutions that
are readily accessible through smartphones (Mehta & Mithas, 2020). Global regula-
tions like the General Data Protection Regulation (GDPR) and the California
Consumer Privacy Act (CCPA) mandate robust data security measures and user

S. S. Pasumarti (*)
Department of Management Studies, NALSAR University of Law,
Hyderabad, Telangana, India
e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature 143

Switzerland AG 2024
C. M. Gupta, G. Kaur (eds.), E-banking, Fintech, & Financial Crimes,
https://doi.org/10.1007/978-3-031-67853-0_12
144 S. S. Pasumarti

control over their information. Noncompliance can result in hefty fines and erode
consumer trust (Founder Shield, 2023).
The explosion of e-commerce and smartphone penetration in India has laid the
groundwork for adopting digital financial services. Fintech solutions seamlessly
integrate with these trends, providing a natural transition for consumers to embrace
digital finance (Chitale et al. 2018). The Indian government has taken proactive
measures to promote fintech innovation. Initiatives like the Jan Dhan Yojana scheme
for financial inclusion and the creation of regulatory sandboxes have fostered a con-
ducive environment for fintech startups to experiment and grow (Banerjee & Dutta,
2020). In India, the Reserve Bank of India (RBI) plays a central role in AML/KYC
compliance for fintech companies (Global Legal Insights, 2023).
The Indian fintech sector has witnessed a significant influx of investment, rank-
ing second globally in terms of deal volume (NASSCOM, n.d.). This funding fuels
innovation and helps startups scale their operations, enabling them to compete with
established financial institutions. The rise of fintech in India has significantly
impacted financial inclusion. Fintech companies empower millions of previously
unbanked individuals, particularly in rural areas by providing access to digital
financial services like mobile payments and microloans. Additionally, fintech fos-
ters healthy competition in the financial sector, leading to better interest rates, a
more comprehensive range of products, and improved consumer customer service.
Looking ahead, the future of Indian fintech is brimming with potential. The mar-
ket is expected to continue its remarkable growth, with some projections estimating
a value of USD 2.1 trillion by 2030, as per Invest India’s report. As technology
evolves and government initiatives support innovation, we expect to see even more
disruptive fintech solutions emerge, further transforming how Indians manage their
finances and interact with the financial system.

 ere Are Some Fundamental Legal Considerations

H
in the Fintech Industry

Regulatory Compliance

Regulatory compliance forms the backbone of fintech’s legal implications. Different

jurisdictions have responded to the rise of fintech with a range of regulatory frame-
works aimed at ensuring the integrity of financial markets, protecting consumers,
and fostering innovation.
1. Licensing Requirements: Many fintech startups engage in activities that require
licensing under existing financial regulations. For example, digital payment plat-
forms may need to be approved as electronic money institutions.
2. Anti-money Laundering (AML) and Counterterrorist Financing (CTF): Fintech
companies follow AML and CTF regulations, implementing systems to monitor,
report, and prevent suspicious activities.
12 Legal Implications of Fintech 145

3. Regulatory Sandboxes: Some authorities have established “regulatory sand-

boxes,” allowing fintech startups to examine their creations in a measured envi-
ronment under regulatory supervision.

Data Protection and Privacy

The fintech industry relies heavily on data, raising significant concerns regarding
data protection and privacy. Acquiescence with data protection laws, such as the
General Data Protection Regulation (GDPR), is crucial.
1. Consent and Transparency: Fintech companies must ensure they have lawful
bases for processing personal data, typically requiring explicit consent from
individuals.
2. Data Security Measures: Applying robust data security procedures to protect
against data breaches is a legal requirement and critical for maintaining con-
sumer faith.
3. Cross-Border Data Transfers: Fintech companies operating internationally must
navigate the complexities of transferring data across jurisdictions, each with its
data protection laws.

Cybersecurity

Fintech companies are highly apprehensive about cybersecurity due to the financial
and delicate personal information they handle.
1. Compliance with Cybersecurity Standards: There are increasing regulatory
expectations for fintech firms to adhere to stringent cybersecurity standards and
practices.
2. Incident Reporting: Many jurisdictions require financial institutions, including
fintech companies, to report cybersecurity incidents to regulators and, in some
cases, to affected individuals.

Intellectual Property (IP)

Innovation is at the heart of fintech, making IP protection vital for securing propri-
etary technologies and maintaining competitive advantages.
1. Patents: Fintech innovations, such as blockchain technologies and algorithms
for financial analysis, may be patentable.
146 S. S. Pasumarti

2. Trademarks: Brand identity is crucial for fintech companies, necessitating trade-

mark protection.
3. Trade Secrets: Protecting proprietary algorithms and methodologies as trade
secrets is common and requires adequate internal safeguards.

Consumer Protection

Ensuring fair treatment and protection of consumers using fintech services is a pri-
ority for regulators globally.
1. Transparency and Fairness: Fintech firms must offer pure data about their ser-
vices, with costs, terms, and conditions.
2. Dispute Resolution: Implementing effective customer complaints and dispute
resolution mechanisms is essential.
3. Accessibility: Ensuring that fintech services are accessible to all population seg-
ments, including those with disabilities, is increasingly seen as a consumer pro-
tection component.

Contractual Agreements and Cross-Border Considerations

Fintech companies enter contractual agreements with partners, vendors, and cus-
tomers. Ensuring that contracts are well drafted and legally sound is essential to
avoid disputes and legal challenges.
Fintech companies that operate internationally must navigate the legal complexi-
ties of multiple jurisdictions. Understanding and complying with each jurisdiction’s
regulatory requirements is crucial to avoiding legal issues.

Financial Fraud and Compliance

Fintech companies are susceptible to financial fraud and must implement measures
to detect and prevent fraud. Compliance with regulations aimed at preventing finan-
cial crimes is also critical.
12 Legal Implications of Fintech 147

Crowdfunding and Securities Regulations

Fintech platforms that engage in crowdfunding or facilitate the issuance of securi-

ties must comply with relevant securities regulations. This includes registration
requirements and adherence to disclosure obligations.
Given the evolving nature of the fintech industry, staying informed about changes
in regulations and seeking legal advice is essential for fintech companies to navigate
the complex legal landscape successfully.

 ey Authorities and Compliance Requirements

K
for Fintech Activities

The regulatory landscape for fintech in India involves several vital authorities, and
compliance requirements may vary based on the nature of fintech activities. Here
are some of the key regulatory compliance aspects for fintech in India:

Reserve Bank of India (RBI)

The Reserve Bank of India (RBI) plays a momentous role in regulating and super-
vising fintech activities in India. The RBI is the apex-level banking institution in the
country and is accountable for framing and executing monetary policy, issuing cur-
rency, and regulating the financial system. In the context of fintech, the RBI’s role
involves several key aspects:
The RBI establishes the regulatory framework for various financial services,
including those offered by fintech companies. It issues guidelines and regulations to
ensure the financial system’s stability, integrity, and efficiency. Fintech companies
often need authorization or licenses to operate in the financial sector. The RBI is
responsible for issuing these licenses and setting the eligibility criteria. The licens-
ing process helps ensure that only legitimate and compliant entities participate in
financial activities.
The RBI oversees payment and settlement systems in the country, including
those facilitated by fintech companies. It formulates policies to improve the security
and efficiency of payment structures and promote the adoption of secure and inno-
vative payment technologies.
The RBI regulates digital payments, e-wallets, and other electronic payment sys-
tems. It issues guidelines to protect consumers, enhance cybersecurity, and ensure
the proper functioning of these systems. The RBI also sets standards for interoper-
ability and security in digital payments.
Fintech companies often pact with subtle financial and personal data. The RBI
formulates guidelines to ensure the safety and privacy of customer data, protecting
148 S. S. Pasumarti

it from data breaches and cyber threats. Compliance with these guidelines is essen-
tial for fintech companies.
The RBI focuses on consumer protection in the financial sector, including fintech
services. It sets standards for transparent disclosure of terms and conditions, fair
treatment of customers, and mechanisms for addressing customer complaints and
grievances. Recognizing the importance of innovation in the fintech sector, the RBI
has introduced regulatory sandboxes. These sandboxes permit fintech companies to
examine their products and services in a precise atmosphere with certain relaxations
in regulatory requirements. The RBI closely monitors these experiments to assess
their viability and potential risks.
The RBI supervises and monitors the activities of financial institutions, including
fintech companies, to ensure acquiescence with rules and maintain the economic
system’s stability. Regular inspections and audits are conducted to assess the finan-
cial health and adherence to regulatory standards. The RBI sets guidelines for for-
eign exchange transactions in cross-border fintech activities, ensuring compliance
with foreign exchange regulations. This includes regulations related to outward and
inward remittances, foreign investment, and collaborations with international enti-
ties. The RBI collaborates with other regulators, such as the SEBI and IRDAI, to
address regulatory overlaps and ensure a comprehensive regulatory framework for
fintech.
The Reserve Bank of India plays a multifaceted role in amendable fintech activi-
ties, covering licensing, payment systems, data protection, consumer protection,
innovation, and overall supervision to maintain the stability and integrity of the
country’s financial system.

National Payments Corporation of India (NPCI)

The NPCI develops and oversees retail payment systems of fintech companies in
India. It plays an essential role in promoting digital payments and safeguarding the
efficiency and security of payment mechanisms, including the Unified Payments
Interface (UPI), Immediate Payment Service (IMPS), and National Electronic
Funds Transfer (NEFT).
NPCI designs, develops, and operates retail payment products and services to
facilitate electronic transactions. NPCI has introduced innovations like UPI, Bharat
Bill Payment System (BBPS), and RuPay to drive the spread of digital payments
nationwide. NPCI also works toward creating interoperable payment systems,
allowing users of different banks and financial institutions to transact seamlessly.
Standardizing protocols and formats is critical to ensuring compatibility among
diverse payment systems.
NPCI contributes to financial inclusion initiatives by providing accessible and
affordable digital payment solutions. Its various payment products aim to bring the
unbanked and underbanked population into the formal financial system. Unified
Payments Interface (UPI), developed by NPCI, has played a transformative role in
12 Legal Implications of Fintech 149

fintech. It allows users to associate several bank accounts with a single mobile
request, allowing easy fund transfers, merchant payments, and other financial trans-
actions. While NPCI is not a regulatory body, it operates under the regulatory
framework established by the RBI. It collaborates with the RBI and other stakehold-
ers to ensure compliance with regulations and guidelines governing the payment
industry.

Securities and Exchange Board of India (SEBI)

SEBI regulates various securities-related entities and activities, including stock

exchanges, brokers, mutual funds, and securities issuance. SEBI oversees fintech
applications and innovations in the capital markets. This includes using technology
in trading platforms, robo-advisors, blockchain applications, and crowdfunding
platforms. SEBI aims to balance innovation with investor protection and market
integrity. SEBI regulates crowdfunding platforms and activities, ensuring they com-
ply with established norms. This involves setting guidelines for crowdfunding cam-
paigns, investor protection, and the prevention of fraudulent activities in
fundraising.
SEBI strongly emphasizes investor protection and education. It formulates regu-
lations and guidelines to ensure that investors receive fair and transparent informa-
tion and takes measures to prevent market manipulation and insider trading. SEBI
has introduced governing sandboxes to encourage fintech innovation in the securi-
ties market. The sandboxes deliver an exact atmosphere for examining new tech-
nologies, products, and services, letting companies experiment with certain
relaxations in regulatory requirements.
SEBI conducts surveillance of the securities market to identify and address any
irregularities or market abuses. It has enforcement powers to take action against
entities that violate securities laws, ensuring the integrity and fairness of the market.
SEBI concentrates on regulating securities markets and ensures that fintech innova-
tions in the capital markets adhere to regulatory standards, promoting investor
safety and market veracity.

I nsurance Regulatory and Development Authority

of India (IRDAI)

IRDAI is the regulatory authority overseeing India’s insurance segment. It regulates

insurtech, which uses technology to enhance and streamline insurance services.
IRDAI ensures that technological advancements in insurance are aligned with regu-
latory standards and back to the development of the insurance market. Fintech com-
panies operating in the insurance sector, including digital insurance providers and
150 S. S. Pasumarti

insurance aggregators, need to obtain licenses from IRDAI. The authority sets
guidelines for compliance with regulatory requirements, including product offer-
ings, customer protection, and solvency margins.
IRDAI is responsible for protecting the interests of insurance policyholders. It
sets norms for transparent communication, disclosure of policy terms, and fair treat-
ment of customers. This includes guidelines for insurtech platforms to ensure con-
sumers receive adequate information about insurance products and services.

Department of Telecommunications (DoT)

The DoT oversees the telecommunications sector, and its role becomes crucial in
fintech services that rely on mobile technology. Mobile payments, banking, and
other fintech applications often depend on robust and secure telecommunications
infrastructure. The DoT ensures the availability of reliable connectivity and com-
munication channels for fintech services.
The DoT plays a role in facilitating the use of mobile wallets and USSD
(Unstructured Supplementary Service Data) for financial transactions. It works to
ensure that mobile-based fintech services comply with regulatory standards and do
not compromise the security and privacy of users.

Ministry of Finance (MoF)

The Ministry of Finance plays a broader role in macroeconomic and financial stabil-
ity through macro-prudential regulations. While specific regulatory bodies oversee
sectors like banking, insurance, and securities, the MoF formulates policies and
strategies to ensure the overall health and stability of the financial system. The MoF
allocates funds through the annual budget for various financial sector initiatives and
regulatory bodies. It may introduce measures to encourage the growth of fintech,
promote financial inclusion, and address any fiscal challenges arising from adopting
new technologies in the financial sector.

Goods and Services Tax (GST)

GST is a wide-ranging indirect tax that has substituted many indirect taxes at the
central and state levels. Fintech transactions, including digital payments and finan-
cial services, are subject to GST. The GST regime ensures uniformity in taxation
nationwide and governs the tax implications of fintech transactions.
Fintech companies must comply with GST regulations, including registration,
filing returns, and paying taxes. The GST framework applies to goods and services,
12 Legal Implications of Fintech 151

and fintech services fall under the services category. Compliance with GST regula-
tions is essential to avoid legal consequences.
Each entity plays a specific role in the regulatory landscape of fintech in India.
IRDAI oversees insurtech, the DoT ensures the connectivity and security of mobile-­
based fintech services, the MoF contributes to macroeconomic stability, and GST
governs the taxation of fintech transactions. These bodies collectively contribute to
developing and regulating the country’s fintech environment.

Legal Aspects of Fintech Globally

The General Data Protection Regulation (GDPR) in the European Union and simi-
lar data protection laws globally require fintech firms to handle personal data
responsibly. Compliance with these regulations is crucial for cross-border
operations.
Fintech companies must comply with global anti-money laundering (AML) and
counterterrorist financing (CTF) regulations. Many jurisdictions have strict require-
ments for customer due diligence and reporting suspicious transactions.
Fintech companies operating internationally need to navigate a complex web of
regulations. Compliance with local laws and obtaining necessary licenses for each
jurisdiction is critical.
The legal status of cryptocurrencies and blockchain technology varies globally.
Some countries have embraced them, while others have imposed strict regulations
or bans. Fintech companies in this space need to be aware of the regulatory environ-
ment. Fintech companies need to comply with consumer protection laws globally.
Clear and transparent data for users and certifying reasonable business practices are
essential.
Global fintech companies must protect their intellectual property rights interna-
tionally, considering differences in patent, trademark, and copyright laws. Fintech
companies must be attentive to and obey international sanctions and restrictions,
especially when dealing with cross-border transactions.
Fintech companies must stay informed about regulatory developments, engage
legal counsel, and adapt their operations to comply with the evolving legal land-
scape in India and the global fintech ecosystem.

 ata Privacy Laws and Regulations for Fintech

D
in the United States

• Fintech companies in the United States operate under complex data privacy laws
and regulations. Noteworthy legal aspects include:
152 S. S. Pasumarti

• Gramm-Leach-Bliley Act (GLBA): The GLBA contains the Privacy Rule, which
imposes strict requirements on financial institutions to protect customer data.
• Health Insurance Portability and Accountability Act (HIPAA): HIPAA sets stan-
dards for protecting patient data, although it primarily affects healthcare organi-
zations rather than fintech companies directly.
• California Consumer Privacy Act (CCPA): The CCPA provides California resi-
dents with certain rights concerning their personal information held by businesses.
• California Privacy Rights Act (CPRA): An amendment to the CCPA, the CPRA
strengthens consumer privacy protections in California.
• Virginia Consumer Data Protection Act (VCDPA): Similar to the CCPA, the
VCDPA grants Virginia residents certain rights regarding their personal
information.
• Colorado Privacy Act (CPA): Like the CCPA and VCDPA, the CPA affords
Colorado residents specific rights relating to their personal information.
• Federal Trade Commission (FTC): The FTC enforces federal consumer protec-
tion laws, including the Fair Credit Reporting Act (FCRA).
• Consumer Financial Protection Bureau (CFPB): The CFPB administers the
FCRA and proposes new rules to enhance consumer data privacy rights.
These laws and regulations establish a comprehensive framework for protecting
consumer data privacy in the United States, and fintech companies must abide by
these rules to ensure compliance and avoid legal consequences.

 ifferences in Legal Aspects of Fintech in India

D
and the United States

The legal aspects of fintech in India and the United States differ in several ways. In
India, the regulatory landscape for fintech is mainly fragmented, with no single set
of regulations or guidelines that uniformly apply to fintech payment products.
• The RBI governs the regulatory framework for fintech in India, setting rules and
regulations for every aspect of the industry.
• On the other hand, in the United States, fintech companies must navigate a vari-
ety of statutes and regulations based on their location and the services provided.
• Both countries have data privacy laws and regulations to protect consumer finan-
cial information. In India, the Gramm-Leach-Bliley Act (GLBA) contains the
Privacy Rule, which imposes strict requirements on financial institutions to pro-
tect customer data.
• In the United States, the GLBA also applies, along with the Health Insurance
Portability and Accountability Act (HIPAA) and the California Consumer
Privacy Act (CCPA).
12 Legal Implications of Fintech 153

• Another critical difference is the approach to cryptocurrencies. In India, crypto-

currency is not a valid legal tender, and there is no specific legal framework to
regulate crypto transactions.
• In contrast, the United States has taken a more nuanced approach, with various
federal and state agencies regulating cryptocurrencies and related activities.
• While both countries have established regulatory frameworks for fintech, the
specific laws and regulations differ, reflecting each country’s unique legal and
regulatory environments.

Conclusion

The legal landscape for fintech is complex and rapidly evolving, reflecting the pace
of technological innovation and the global nature of financial services. Fintech com-
panies must navigate a patchwork of regulatory requirements, safeguard sensitive
data, protect their innovations, and ensure they operate transparently and fairly. As
it grows, collaboration between regulators, fintech firms, and traditional financial
institutions will be vital in fostering an environment that balances innovation with
consumer protection and market integrity.

References

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International Journal of Financial Studies, 8(12), 3809.
Chitale, V., Mehrotra, A., & Sengupta, S. (2018). Fintech and financial inclusion in India. Journal
of Financial Services Research, 53(3), 547–579.
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tent/dam/ey-­sites/ey-­com/en_uk/resources/ey-­fintech-­scale-­up-­handbook-­interactive.pdf
Founder Shield. (2023, February 15). 7 Legal Issues Every Fintech Should Avoid (and How to
Diffuse Them!)
Global Legal Insights. (2023, January 11). Fintech Laws and Regulations | India.
Invest India. (n.d.). Invest India – Financial Services Sector in India | Fintech Industry in India.
https://www.investindia.gov.in/
Iyer, L. S., & Darabi, A. (2020). The role of FinTech in the US financial system. International
Journal of Finance & Economics, 25(2), 223–242.
Mehta, P., & Mithas, S. (2020). Understanding the adoption of mobile financial services in emerg-
ing economies: A tale of two countries. Information Systems Journal, 30(6), 968–1000.
NASSCOM. (n.d.). NASSCOM – Fintech in India – A Global.
Nguyen, L. H., & Nielsen, C. P. (2020). A framework for understanding fintech ecosystems: A
capability perspective. Technological Forecasting and Social Change, 159, 110224.
154 S. S. Pasumarti

Further Readings

Asshiddiqie, J. (2007). The role of advocates in law enforcement. Legal oration material at the
“Inauguration of the IPP Service Period of DPHI, 2012.
Diantha, I. M. P., & Made, I. (2016). Normative legal research methodology in justifying legal
theory. Prenada Media.
Hadad, M. D. (2017). Financial Technology (Fintech) in Indonesia. Public Lecture on Fintech,
Indonesia Banking School.
Rahmadani, U. K. (2020). Law Enforcement of Criminal Loan Based on Financial Technology
Loan Intimidation.
Fadri, I. (2010). Criminal policy on the prevention of economic crimes in Indonesia. Journal of
Law, 3, 430–455.
Lutham, S. (1999). Criminalization policy in criminal law reform. Journal of Law Ius Quia Iustum,
6(11), 1–13.
Priyatno, D. (2007). Reorientation and reformulation of the corporate criminal liability system in
criminal policies and criminal law policies. Syiar Hukum, 9(3), 202–217.
Tampubolon, H. R. (2019). The ins and outs of peer-to-peer lending as a new form of finance in
Indonesia. Jurnal Bina Mulia Hukum, 3(2), 188–198.
Wahyuni, R. A. E., & Turisno, B. E. (2019). Illegal technology financial practices in online loans in
terms of business ethics. Indonesian Legal Development Journal, 1(3), 379–391.
Wulandari, F. E. (2018). Peer to peer lending in POJK, PBI and fatwa DSN MUI. Ahkam: Journal
of Islamic Law, 6(2), 241–266.
NATSIR, N. I. (2009). Criminal policy on criminal action of cyber terrorism. Doctoral disserta-
tion. University of Diponegoro.
Chapter 13
Decentralized Finance (DeFi) and Legal
Challenges: Navigating the Intersection
of Innovation and Regulation
in the Fintech Revolution

K. Bharanitharan and Gagandeep Kaur

Introduction

Decentralized finance (DeFi) represents a paradigm shift in the traditional financial

landscape, offering a decentralized alternative to conventional financial services
through blockchain technology (Makarov & Schoar, 2022). In contrast to central-
ized financial systems, which rely on intermediaries such as banks and brokers,
DeFi protocols facilitate peer-to-peer transactions and allow users to access finan-
cial services without the need for intermediaries. This decentralized approach pro-
vides several advantages, including increased transparency, accessibility and
censorship resistance. The expanding field of decentralized finance (DeFi) repre-
sents a change in the world supported by blockchain technology and smart contracts
(Qin et al., 2021)). This fresh system provides a platform for transactions without
relying on banks, removing middlemen and promoting greater transparency and
accessibility. However, the rise of DeFi also brings about obstacles and uncertain-
ties that require thorough examination. The transformative power of DeFi lies in its
capacity to make financial services accessible to everyone with an Internet connec-
tion, thus advancing inclusion. This is made possible through the use of public per-
missionless blockchains and smart contracts that automate transactions. Despite
DeFi’s benefits of efficiency, transparency and inclusivity, there are risks such as
fraud, money laundering and the absence of consumer protections seen in conven-
tional finance​​​​(Decentralized Finance: 4 Challenges to Consider | MIT Sloan, 2022;
Wall, 2022).
Regulatory bodies like the Securities and Exchange Commission (SEC) stress
the importance for DeFi projects to actively engage with regulatory frameworks to

K. Bharanitharan (*) · G. Kaur

School of Law, University of Petroleum and Energy Studies (UPES),
Dehradun, Uttarakhand, India
e-mail: [email protected]; [email protected]

© The Author(s), under exclusive license to Springer Nature 155

Switzerland AG 2024
C. M. Gupta, G. Kaur (eds.), E-banking, Fintech, & Financial Crimes,
https://doi.org/10.1007/978-3-031-67853-0_13
156 K. Bharanitharan and G. Kaur

safeguard investors and maintain market integrity. The SEC approach highlights the
significance of communication and adherence to regulations for encouraging the
innovation within a regulated setting. Furthermore, the decentralized and global
nature of DeFi presents obstacles, for regulators underscoring the importance of
understanding the technology and fostering collaboration between regulators and
DeFi entities to establish a regulatory framework that balances innovation with con-
sumer protection (Zetzsche et al., 2020).
The legal environment surrounding DeFi is further complex due to the applica-
tions it encompasses spanning from stablecoins and trading platforms to lending
services and insurance. Each category brings its set of issues from concerns about
issuer risks related to tokenized assets to the challenges of enforcing tax laws in a
decentralized setting (Schär, 2021; Schoar et al., 2022). The ability of systems to
adapt these innovations is crucial for the progress of DeFi, necessitating a joint
effort to navigate existing legal uncertainties and regulatory gaps.
As DeFi progresses, it becomes essential for stakeholders to confront these regu-
latory hurdles. The future trajectory of DeFi relies on lawmakers, regulators and
industry players collaborating effectively to devise tactics that protect consumer
interests while nurturing innovation and expansion in this emerging sector
(Decentralized Finance: Opportunities, Risks and Legal Challenges, n.d.). The
transformation of DeFi from a service into a financial offering will depend on how
adeptly it can manage the complex array of legal and regulatory obstacles it
encounters.

DeFi: An Overview

The growth of decentralized finance (DeFi) has been a journey intertwined with the
evolution of cryptocurrencies and blockchain technology. While Bitcoin introduced
in 2009 set the foundation for currencies, it was Ethereum’s arrival in 2015 that truly
paved the way for DeFi’s progress. The implementation of contracts by Ethereum
allowed for the development of decentralized applications, particularly those rele-
vant to DeFi (Reiff, 2023).
A significant moment in DeFi’s evolution occurred with the establishment of
MakerDAO in 2017. MakerDAO, which existed before Ethereum, is a lending pro-
tocol that enables users to borrow or lend cryptocurrencies and offers a stablecoin.
This period also marked the rise of exchanges like EtherDelta and the surge in popu-
larity of initial coin offerings (ICOs) both playing roles in shaping DeFi. The ICO
frenzy in 2017 highlighted both the potential and risks associated with DeFi. ICOs
facilitated participation in funding financial projects aligning closely with DeFi’s
principles of decentralization and inclusivity. Ethereum played a part during this
time as many new token projects traded their offerings for ETH. While some proj-
ects failed to meet expectations, this era also saw the inception of enduring DeFi
platforms such as Aave and 0x. The evolution of DeFi has shifted towards utilizing
pooled funds than peer-to-peer interactions. Platforms like Uniswap which emerged
13 Decentralized Finance (DeFi) and Legal Challenges: Navigating the Intersection… 157

in 2018 demonstrate this change by employing liquidity pools for trading of user-
to-­user transactions. Moreover, the idea of asset tokenization has played a role in
shaping DeFi. Public blockchains enable the establishment of a shared record of
ownership leading to the tokenization of assets. Ethereum’s blockchain has notably
become a favoured platform for creating tokens including the used ERC 20 standard
in DeFi applications. Tokenization boosts asset accessibility and effectiveness form-
ing an element in the DeFi ecosystem. Stablecoins categorized as tokenized assets
have gained importance within the DeFi sector by fulfilling the demand for stable
value assets in agreements. These stablecoins can be supported by on-chain collat-
eral as seen with Dai stablecoin or off-chain collateral like USDT and USDC. While
offering advantages, such as stability, these stablecoins also introduce concerns
related to reliability and reliance on backing assurances (Schär, 2021).
In the world of DeFi, there are types of tokens aside from the ones such as gov-
ernance tokens, tokens for specific functions in smart contracts and non-fungible
tokens (NFTs). Non-fungible tokens (NFTs) are unique digital assets that represent
ownership or proof of authenticity of a specific item or piece of content, typically
stored and traded on a blockchain. Unlike cryptocurrencies such as Bitcoin or
Ethereum, which are fungible and can be exchanged on a one-to-one basis, NFTs
are indivisible and cannot be replicated. Each NFT contains metadata that distin-
guishes it from other tokens, including information about its creator, ownership
history and characteristics that make it unique. NFTs stand out as they represent
one-of-a-kind assets and have captured a lot of interest for their role, in establishing
ownership and distinguishing individual digital or physical assets (Raman &
Raj, 2021).

Key Components and Technologies

Decentralized finance (DeFi) encompasses various components that collectively

form a decentralized financial ecosystem. Decentralized finance (DeFi) relies on a
mix of distributed ledger technologies (DLT), smart contracts and different types of
tokens to operate effectively. Each of these components plays a role in shaping the
functional DeFi ecosystem (Fig. 13.1).
The first key component of DeFi is distributed ledger technologies. It serves as
the foundation of DeFi providing a structure for transactions that prioritizes trans-
parency, immutability and security. These features are essential for establishing
trust without the need for intermediaries. The second key component of DeFi is
smart contracts. Smart contracts are automated agreements encoded with terms that
execute themselves when conditions are met. They are fundamental to DeFi appli-
cations allowing for the automation of transactions and agreements. Interacting with
contracts is made user-friendly through web-based interfaces enhancing accessibil-
ity to DeFi protocols. The third key component of DeFi is tokenization. Tokenization
involves converting ownership rights to an asset into tokens on a blockchain. This
process has expanded the range of assets integrated into DeFi immensely. The
158 K. Bharanitharan and G. Kaur

Fig. 13.1 Key components of decentralized finance (DeFi)

majority of tokens within DeFi are built on the Ethereum blockchain using the ERC
20 token standard ensuring interoperability across DeFi platforms. Tokenization not
only boosts the efficiency and accessibility of transferring assets but also opens up
a whole new range of possibilities when it comes to the types of assets available
from stablecoins and governance tokens to non-fungible tokens (NFTs). The fourth
key component of DeFi is stablecoins. They play a role in finance (DeFi) by provid-
ing low-volatility assets that are crucial for various financial agreements. Stablecoins
can be backed by methods, off-chain collateral (such as USDT and USDC), on-­
chain collateral (like the Dai stablecoin) or even no collateral all. The choice of
model affects the stability of the token and counterparty risk. The fifth key compo-
nent of DeFi is decentralized exchanges (DEX). DEX enables users to trade crypto-
currency assets without having to rely on an entity. This setup helps mitigate risks
associated with exchanges including asset seizure or loss vulnerability to points of
failure and potential malicious activities. The last key component of DeFi is DeFi
protocols and aggregators. These protocols provide a range of services like lending,
borrowing and trading derivatives. DeFi aggregators expand these capabilities by
13 Decentralized Finance (DeFi) and Legal Challenges: Navigating the Intersection… 159

linking applications and protocols offering tools for comparing services and facili-
tating intricate financial operations across various protocols. Together these ele-
ments form a vibrant ecosystem that is constantly evolving and adaptable. Every
element has its contribution to maintaining the functionality of the DeFi sector
while also expanding the range of financial services available beyond what tradi-
tional centralized financial institutions offered.
These key components form the foundation of the DeFi ecosystem, enabling
users to access a wide range of financial services in a decentralized and permission-
less manner. However, it is essential to note that the DeFi space is rapidly evolving,
with new innovations and components continuously emerging to address the evolv-
ing needs of users and enhance the efficiency and accessibility of decentralized
finance. The ongoing progress and incorporation of these technologies play a role in
shaping the future of DeFi paving the way for transformation in the financial sector
through enhanced inclusivity, efficiency and transparency, in financial services
(Auer et al., 2023).

DeFi Market Landscape

The decentralized finance (DeFi) market is undergoing significant growth and evo-
lution driven by several key factors and trends.
Regulators, in the United States, are increasingly focusing on the DeFi sector.
There is a growing emphasis on finding a balance between privacy and transparency
to address concerns and promote alignment. True DeFi platforms that operate with-
out control are likely to remain outside existing frameworks. However, platforms
with some centralized elements (HyFi) may face scrutiny. Efforts are underway to
enhance compliance measures and develop on-chain solutions to address concerns
and enhance the security and transparency of DeFi.
On the other hand, the trend of tokenization continues to drive growth in the
DeFi sector. Tokenization involves representing real-world assets as tokens on the
blockchain. This trend covers a range of assets such as stocks, bonds, real estate and
even treasury bills. Tokenization is expected to enhance liquidity transaction costs.
The emergence of yield-­bearing stablecoins backed by tokenized treasury bills is
becoming a trend that appeals to risk-averse investors while contributing to increased
liquidity and innovation, in the sector. DeFi platforms are becoming more popular
due to their ability to support money transfers, securely store funds in cryptocur-
rency wallets and facilitate trading of assets. The shift towards networks like
Ethereum 2.0 is anticipated to improve the functionality, security and scalability
of DeFi.
However, the industry encounters challenges such as the necessity for infrastruc-
ture and regulations as well as the risks linked to the volatility of crypto assets uti-
lized as collateral. Emerging as an element, DeFi insurance aims to enhance user
trust and drive the adoption of decentralized exchanges (DEXs). It mitigates risks
including wallet breaches, liquidity challenges and vulnerabilities in contracts,
160 K. Bharanitharan and G. Kaur

thereby appealing to more institutional investors in the DeFi sector. The impact of
Covid pandemic hastened the acceptance of technology in streamlining supply
chain applications and business processes. It also prompted investors to explore
opportunities in DeFi amid a period of interest rates.
Blockchain technology and smart contracts play roles in driving DeFi’s expan-
sion. Blockchain empowers decentralized services, while smart contracts enable
more secure financial transactions. The DeFi sector is undergoing a change pro-
pelled by advancements in technology and creative business strategies. Key players
in the industry are using these changes to seize prospects and broaden their reach
worldwide. Data analytics take precedence in DeFi applications delivering advan-
tages in decision-making processes and risk mitigation strategies. The realm of pay-
ments is also expanding rapidly improving the efficiency of peer-to-peer
cryptocurrency transactions.
Presently, North America leads the DeFi market, thanks to industry players and
a substantial crypto market presence. On the other hand, Asia Pacific is projected to
see growth due to swift technological adoption and economic advancements in the
area. The decentralized finance industry is experiencing a surge in companies,
established organizations and technology companies vying for advancements and a
piece of the market. Collaborative efforts are prevalent as companies strive for inno-
vation and a slice of the market pie. The DeFi market landscape is characterized by
its growth, regulatory challenges, the rise of tokenization and evolving technology
and applications. These developments are shaping DeFi into a more mature and
robust sector of the financial industry​(Research, 2024).

International Legal Frameworks Governing DeFi

The legal rules governing decentralized finance (DeFi) are constantly intricate as
authorities worldwide work to adjust financial regulations to fit the unique aspects
of DeFi.
In the United States, multiple federal agencies like the Department of Justice
Financial Crimes Enforcement Network, Internal Revenue Service, Commodity
Futures Trading Commission and Securities and Exchange Commission (SEC)
potentially oversee parts of DeFi. State authorities might also have a say. Nonetheless,
DeFi investors typically do not receive the compliance standards and comprehen-
sive disclosure commonly seen in regulated markets. The SEC plays a role in over-
seeing activities within its domain concerning securities and related actions in the
DeFi realm. It encourages developers of DeFi projects to communicate with its staff
for understanding and navigating through matters (SEC.gov | Statement on DeFi
Risks, Regulations, and Opportunities, 2021). Regulators around the world are
acknowledging the importance of promoting innovation while safeguarding inves-
tors and maintaining stability. They are exploring ways to adapt regulations or
establish frameworks to offer clarity and oversight in the realm of DeFi. This
includes applying existing laws to components of DeFi and crafting tailored
13 Decentralized Finance (DeFi) and Legal Challenges: Navigating the Intersection… 161

regulations for this sector. Self-regulation is becoming increasingly important

within the DeFi community as industry groups are setting up guidelines and stan-
dards (Contributors, 2023).
The International Organization of Securities Commissions (IOSCO) has put
forth recommendations based on the notion that DeFi’s not fundamentally different
from finance. IOSCO proposes applying existing securities regulations to the DeFi
sector. The recommendations for evaluating DeFi involve a thorough assessment of
its products, services, structures and operations. This includes identifying respon-
sible individuals and establishing regulatory standards that address conflicts of
interest and manage risks. Enforcing applicable laws is crucial as is fostering inter-
national collaboration to ensure comprehensive regulation. Recognizing the con-
nections between DeFi, the broader crypto asset market and traditional financial
markets is essential for creating a well-rounded regulatory approach (IOSCO
Unveils Consultation Report on Global DeFi Regulation, n.d.).
Also, the financial stability board (FSB) has been looking into the risks to stabil-
ity posed by DeFi. Although acknowledging the features of DeFi, the FSB points
out that its functions are not significantly different from those of finance. The board
is worried about weaknesses, liquidity discrepancies and how these could affect
stability. To tackle these concerns, the FSB recommends evaluating DeFi activities
under structures and considering additional regulations to address DeFi-related
risks (FSB Assesses Financial Stability Risks of Decentralized Finance, n.d.). The
World Economic Forum has highlighted the importance of implementing strategies
for DeFi. They propose that modifying regulations and creating laws tailored to
DeFi can help regulate the industry and encourage innovation. This strategy would
require cooperation among regulators, industry players and legal professionals to
tackle the challenges of DeFi especially considering its global characteristics
(Decentralized Finance Heats up: New Approaches Needed for Industry
Transformation, n.d.).
Global initiatives suggest a push to incorporate DeFi into a defined regulatory
system blending adjustments to existing financial rules with the development of
new regulations tailored to DeFi. This holistic strategy seeks to promote stability,
safeguard investor interests and foster the expansion of the DeFi industry.

Legal Challenges in DeFi

Decentralized finance (DeFi) faces a range of issues due to its innovative nature and
fast-paced development.
One major challenge is the smart contracts and legal enforceability. The status
and enforceability of contracts which are self-executing contracts on the block-
chain. Understanding how these contracts align with frameworks especially regard-
ing their validity and resolving disputes is crucial. The ongoing debate centres
around adapting existing systems to accommodate the aspects of smart contracts.
Secondly, anti-money laundering (AML) and know your customer (KYC)
162 K. Bharanitharan and G. Kaur

compliance present significant legal challenges. These platforms often facilitate

transactions that lack identification making it difficult to comply with regulations
that mandate verifying client identities and monitoring transactions to prevent illicit
activities. While initiatives like the US Infrastructure Investment and Jobs Act
(2021) aim to implement KYC measures in the cryptocurrency sector, their effec-
tiveness in DeFi remains uncertain due to its structure. Another major legal chal-
lenge in DeFi is the classification of various products and tokens as securities. The
classification depends on factors like the nature of the token, the rights it confers
and its marketing. Compliance with securities laws involves obligations like regis-
tration, disclosure and adherence to investor protection standards.
To tackle these obstacles, cooperation among regulators, industry players and
legal professionals is essential. Crafting frameworks involves striking a balance
between encouraging innovation and ensuring adherence to rules for investor pro-
tection. The cross-border nature of DeFi complicates matters, necessitating coordi-
nation to align regulations and standards across regions. Stakeholders need to
navigate these challenges to support the sector’s growth responsibly while safe-
guarding the interests of participants and upholding financial stability. Worldwide
efforts are underway to comprehend and regulate DeFi effectively by adjusting
existing regulations or formulating ones through discussions aimed at grasping its
complexities and potential risks​​​​ (Salami, 2021).

Overview of Fintech Regulation in India

The regulatory landscape for fintech in India is multifaceted and evolving, reflecting
the country’s rapid growth in this sector.
(i) Cryptocurrency Regulation: The Indian government has taken steps to regulate
cryptocurrencies actively. The draft Cryptocurrency and Regulation of Official
Digital Currency Bill, 2021, aims to establish a framework for a currency
issued by the Reserve Bank of India (RBI) while placing restrictions on private
cryptocurrencies. However, it is important to note that this bill is still in the
drafting phase and could undergo changes. In 2023–2024, the Indian govern-
ment allocated funds for fintech and banks indicating a growing acknowledg-
ment of the sector’s significance (Khurana et al., 2023).
(ii) Funding for Fintech in India: In India, fintech companies have access to fund-
ing options, including equity and debt. Funding sources range from investors
like venture capitalists to bank loans, foreign investments, external commercial
borrowings and initial public offerings (IPOs). Nevertheless, there has been a
trend in fintech IPOs in 2022 due to global conditions and the performance of
certain public fintech companies.
(iii) Government Initiatives and Incentives: Both at the state levels, the Indian gov-
ernment has introduced initiatives to support startups and expanding busi-
nesses, particularly those in the fintech industry. This support encompasses
13 Decentralized Finance (DeFi) and Legal Challenges: Navigating the Intersection… 163

funding programmes such as the Credit Guarantee Trust for Micro and Small
Enterprises as policy measures like the Tamil Nadu Fintech Policy 2021.
(iv) Regulatory Framework: The fintech industry in India operates under guide-
lines as opposed to a single comprehensive framework. Different regulations
apply based on the type of fintech service being offered. Major regulatory bod-
ies such as RBI, SEBI, IRDAI, PFRDA and IFSCA oversee aspects of activi-
ties like online payments, lending, insurance and securities trading. To conduct
business, fintech companies typically need approvals and licenses from these
authorities.
(v) Data Protection and Privacy: Regarding data protection and privacy, the pro-
posed DPDP Act 2023 in India introduces changes related to data processing
and safeguarding information. This Act could potentially complicate the land-
scape for technology firms those in the fintech sector handling sensitive finan-
cial data (Navigating the Maze of Fintech Regulation in India: Understanding
the Challenges of Multiple Regulators. Conventus Law, 2023).
In response to concerns, the Indian government has implemented measures to
bring compliance and transparency within the fintech lending domain. Recent
actions include imposing bans on loan applications due to compliance issues and
other related concerns. These initiatives have prompted fintech firms to adopt trans-
parency practices and foster a lending environment for borrowers.

 he Regulatory Landscape for Cryptocurrencies

T
and Decentralized Finance (DeFi) Services in India

The regulatory landscape for cryptocurrencies and decentralized finance (DeFi) ser-
vices in India is characterized by its evolving nature and the active role of various
regulatory bodies. The legal status of cryptocurrencies and DeFi services in India
has seen shifts over the years. Initially, the Reserve Bank of India (RBI) imposed
restrictions on regulated entities dealing with cryptocurrencies in 2018 causing dis-
ruptions in the market. However, a pivotal ruling by the Indian Supreme Court in
2020 overturned this reviving hope for the industry. Subsequently, efforts have been
underway to establish a framework for cryptocurrencies in India. A proposed bill
titled “The Cryptocurrency and Regulation of Official Digital Currency Bill 2021”
aims to introduce a currency issued by the RBI while restricting private cryptocur-
rencies; however, this bill is still undergoing review and potential modifications.
The government’s approach towards cryptocurrencies has been cautious emphasiz-
ing a balance between embracing technology and safeguarding investor interests
(Desire, 2023; R, 2024). Various regulatory bodies play roles in overseeing the fin-
tech sector in India, including, but not limited to, the RBI, Securities and Exchange
Board of India (SEBI), Insurance Regulatory and Development Authority of India
(IRDAI), Pension Fund Regulatory and Development Authority (PFRDA) and
International Financial Services Centres Authority (IFSCA). Various regulatory
164 K. Bharanitharan and G. Kaur

bodies oversee aspects of fintech operations such as payments, transactions, data

privacy, lending, insurance and securities trading. To kick-start their services, fin-
tech companies often need to obtain approvals and licenses from these authorities.
In times there have been developments and legal judgements influencing the fin-
tech landscape in India. The 2020 Supreme Court ruling brought clarity to the status
of cryptocurrencies in the country. Additionally, the Indian government has been
actively revising regulations and frameworks to effectively manage the fintech
industry. This includes efforts to revamp laws related to the Internet, data, cyberse-
curity, telecommunications and data protection through policies and statutes.
Proposed legislations like the draft National Data Governance Framework Policy
2022 and Digital Personal Data Protection (DPDP) Act 2023 are expected to impact
data security and privacy within the fintech sector (Anand et al., 2023).
The environment surrounding fintech and cryptocurrencies in India is vibrant as
regulatory bodies strive to keep pace with advancements while safeguarding inves-
tor interests and financial stability. Maintaining a balance between fostering innova-
tion and implementing regulations remains an aspect that will shape the future of
these industries in India.

Conclusion and Recommendations

It is concluded that the world of finance (DeFi) in India is going through changes
and regulatory developments. The legal status of cryptocurrencies and DeFi ser-
vices is still uncertain as the government is approaching their integration into the
system cautiously. Organizations like RBI, SEBI and IRDAI are instrumental in
shaping the fintech landscape by addressing issues such as safeguarding investors
and ensuring stability. A comparison with countries shows that India is making slow
but deliberate progress towards establishing a regulatory framework for cryptocur-
rencies and DeFi by 2025. Collaboration among regulators, industry players and
legal experts will be crucial as the sector advances to handle the complexities of
DeFi while promoting innovation and safeguarding stakeholders’ interests.
Before researchers dive into the recommendations for decentralized finance
(DeFi), it is crucial to acknowledge the impact and swift evolution of this sector.
DeFi arising from advancements in technology has revolutionized the financial
transactions which are carried out posing a challenge to financial systems and regu-
lations. This new field offers accessibility, efficiency and transparency in services
but also brings about complexities like regulatory ambiguity, security issues and
ethical dilemmas. The merging of technology and finance embodied by DeFi
requires an approach that balances innovation with compliance to laws and regula-
tions. In light of these considerations, the upcoming recommendations seek to offer
guidance for the encompassing growth of the DeFi industry ensuring that its poten-
tial is fully realized while managing associated risks effectively. Few recommenda-
tions are as follows:
13 Decentralized Finance (DeFi) and Legal Challenges: Navigating the Intersection… 165

1. Harmonizing Regulations and Setting Standards: It is essential to promote a

DeFi landscape by harmonizing regulations and setting standard practices across
different countries. This approach should involve defining the status of crypto-
currencies and DeFi services as well as establishing consistent standards for
protecting investors, preventing money laundering and countering terrorist
financing.
2. Implementing Technological Governance: Encourage the development and
implementation of governance mechanisms within the DeFi ecosystem. This
could include conducting audits of contracts, implementing risk management
protocols and devising emergency response strategies to maintain system integ-
rity and safeguard users against vulnerabilities and exploitation.
3. Improving Interoperability and Transparency: Support the creation of DeFi plat-
forms and protocols that facilitate platform transactions and enhance liquidity.
Transparency can be enhanced through reporting practices that ensure users have
knowledge about the risks associated with DeFi services.
4. Establishing Legal Frameworks for Smart Contracts and Educating Consumers:
It is recommended to develop a framework tailored specifically to address the
enforceability and implications of contracts. This framework should provide
guidance on jurisdiction contract validity and dispute resolution mechanisms in
a decentralized environment. Also, it is important to inform consumers about the
risks and benefits of DeFi including its technology, potential uses and risks. This
will help users make decisions.
5. Balancing Innovation and AML and KYC Compliance: It is important to find a
balance between promoting innovation in DeFi and adhering to legal policy.
Collaboration between regulators and DeFi stakeholders can create a secure eco-
system. Also, developing AML and KYC frameworks that can function effec-
tively in the nature of DeFi transactions without compromising privacy or
decentralization principles is crucial.
6. Global Standards Collaboration and Ethical Behaviour: It is recommended to
encourage cooperation among authorities, tech experts and legal professionals to
establish standards for DeFi is essential. Addressing issues, like border transac-
tions, security concerns and legal uncertainties should be a priority. Ethical
behaviour offers reward to DeFi platforms that follow standards such as trans-
parency, consumer safeguarding and compliance with regulations. This could
include tax benefits, funding opportunities or acknowledgment initiatives.
These suggestions aim to pave the way for an ethical and advantageous
advancement of DeFi that aligns with the technology’s capabilities and the need
for strong regulatory supervision.
166 K. Bharanitharan and G. Kaur

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Index

A D
Aadhaar, 14, 21 Decentralized Finance (DeFi), 31, 155–165
Accounting frauds, 48, 51, 55, 61 Detection of creative accounting, 61
Afghanistan, 82, 84–86, 90–93 Digital payments, 20–22, 28, 52, 97, 98,
Anti-money laundering (AML), 100, 107, 130, 101–102, 107, 121, 122, 133, 138, 144,
144, 151, 161, 165 147, 148, 150
Apex Bank, 147
Artificial intelligence (AI), 5, 8, 12, 17, 18, 50,
52, 56–61, 98, 108, 122, 124, 127, E
130, 143 Evolving threats, 108

C F
CCi30, 111–119 Financial crimes, 79–93, 97–108, 111–119,
Compliance, 5, 19, 23, 29, 52, 100, 105, 146, 160
121–130, 134, 136, 137, 140, 144–152, Fintech, 1, 12, 27, 35, 47, 79, 97, 111, 121,
159, 160, 162–165 133, 143, 162
Consumer privacy concerns, 1–9 Fintech privacy, 1–9, 104, 124, 133, 145
Counter-terrorist financing (CTF), 144, 151 Funding, 36, 73, 98, 121, 123, 139, 140, 144,
Creative accounting, 47–61 156, 162, 163, 165
Cryptocurrency, 16, 23, 43, 50, 100, 101, 103,
111–119, 122, 123, 139, 151, 153,
156–160, 162–165 G
Cryptocurrency and Regulation of Official Generalized autoregressive conditional
Digital Currency Bill, 2021, 122, heteroskedasticity (GARCH), 115–118
162, 163
Cybercrime, 2–3, 5, 8, 99, 100, 107, 112
Cybersecurity, 1–9, 54, 60, 91, 100, 107, 108, H
111, 125, 129, 130, 133, 145, 147, 164 Hacking, 111, 113, 118
Cybersecurity measures, 107 Hawala, 86, 91

© The Editor(s) (if applicable) and The Author(s), under exclusive license to 169
Springer Nature Switzerland AG 2024
C. M. Gupta, G. Kaur (eds.), E-banking, Fintech, & Financial Crimes,
https://doi.org/10.1007/978-3-031-67853-0
170 Index

I P
Innovations, 1, 3–6, 8, 12, 13, 17–19, 22, Pakistan, 82–84, 88–90, 92, 93
29–33, 35, 37, 38, 41–43, 47, 52, 53, Privacy, 3, 6–8, 12, 13, 29, 104–105, 121–130,
60, 61, 65, 79, 86, 97, 98, 108, 122, 133, 143, 145, 147, 150–152,
125, 126, 133, 134, 138–141, 144, 145, 159, 163–165
148, 149, 153, 155–165 Privacy concerns, 3, 5–6, 104
International relations, 27–33
Internet of Things (IOT), 4, 5, 8, 19
R
Regulatory, 3, 30, 35, 47, 73, 91, 97, 121, 133,
J 143, 155
Jan Dhan, 144 Reserve Bank of India (RBI), 2, 65, 66, 73–76,
98, 99, 104, 107, 121–130, 144,
147–149, 152, 162–164
K
Know Your Customer (KYC), 98, 107, 128,
144, 161, 162, 165 S
Smart contracts, 23, 155, 157, 160, 161, 165
Sri Lanka, 27, 82, 92
L
Legal authorities, 135, 147–151
Legal insights, 144 T
Legal provisions, 135 Trends, 17–20, 22, 37, 47, 48, 51, 60, 61, 74,
88, 111, 121, 122, 134, 144, 159, 162

M
Mobile payments, 20, 48, 50, 79, 139, U
144, 150 Unregulated economy, 93
Money control, 127

W
Wearable device, 17