Is there regulatory approval for each and every feature in PhonePe or any other fintech app?
When AirBnB launched, did the concerned regulator have a rule permitting sharing and monetization of rooms in privately owned houses?
When Uber launched, did the concerned regulator have a rule permitting sharing and monetization of rides in privately owned cars?
Just as financial services / fintech, the industry to which PhonePe belongs, is regulated, so are hotel and taxi industries, which AirBnB and Uber respectively belong to.
As I highlighted in Fintechs Need Marketers And Lobbyists – Not Lawyers,
We probably wouldn’t have a Uber today if its founders had taken the trouble to flesh out the legal status of their proposed car ride service amidst the regulated taxi industry. Ditto for AirBnB vis-a-vis hotel industry regulation. Startup success in any industry is driven by speed and innovation. More so in fintech.
Opportunities for fintechs have historically been restricted to “regulatory gaps”, which are things that lie in the twilight zone between “Not Legal” and “Not Illegal”.
We've heard that Indian ecommerce companies have exploited "regulatory gaps" in FDI, Marketplace, etc. Now it appears that COD, which is easily the biggest driver of success of ecommerce in India, is also based on a regulatory gap. pic.twitter.com/92rO8WVOPA
— Ketharaman Swaminathan (@s_ketharaman) July 25, 2018
Fintechs tend to interpret these terms in the following manner:
- While “Illegal” means “Not Legal”, “Not Legal” does not mean “Illegal”.
- “Not Legal” means there’s no law on it.
- “Not Illegal” means it does not violate any existing laws.
I know that’s a lot of hair-splitting out here but opportunities abound for those who are adept at it. Whether they want to take up those opportunities or not depends on their ethical and moral compass and my answer should not be interpreted as my advocacy towards that pursuit.
While "Illegal" means "Not Legal", "Not Legal" does not mean "Illegal" but only that there's no regulation on the topic – aka "Regulatory Gap" ~ @Unocoin Founder.
With my exposure to Logic & Boolean Algebra & ability at Hair Splitting, I agree. Will the regulator agree? pic.twitter.com/g4kDy54S27
— Ketharaman Swaminathan (@s_ketharaman) October 20, 2018
While AirBnB and Uber are the most visible examples of new-age companies that have leveraged regulatory gaps, they’re not the only ones.
Money Quote: "We chose … to ask for permission, not forgiveness… That’s not the approach that everyone took (e.g. PayPal)… They were so small that no one cared… And then they were too big to have to comply."
– Simple CEO @i2pi #TooBigToComplyhttps://t.co/7FPlkPE0zY— Ketharaman Swaminathan (@s_ketharaman) May 19, 2018
Nor is the practice new by any stretch of imagination. Following old sayings stand testimony:
1.
In Country A, everything is allowed, except what is explicitly banned.
In Country B, everything is banned, except what is explicitly allowed.
In Country C, everything is allowed, especially what is explicitly banned.
In Country D, everything is banned, especially what is explicitly allowed.
2.
In business, it’s better to seek forgiveness than to ask for permission.