Compliance is the product

This is our third year focused on fintech. The theme of the year was simple: in Indian fintech, compliance stopped being a cost and became the product.

Paytm

On 31 January, the RBI told Paytm Payments Bank to stop taking new deposits, with a deadline later pushed to 15 March. Paytm was one of the best known fintech brands in the country. The message to everyone else was clear: the regulator will act against a large company, and it will act fast.

Within weeks, the questions changed. Banks and payment companies started asking their partners for KYC records, audit trails and proof of where customer data lives. Partnerships signed on a handshake went back for review.

Crypto

The same thing happened in crypto, a few weeks earlier. In late December, the Financial Intelligence Unit issued notices to nine offshore exchanges, including Binance and KuCoin, for serving Indian users without registering under the anti money laundering rules. In January their websites were blocked in India. In June, Binance paid a penalty of ₹18.82 crore and later registered.

Last year we wrote about why we were looking at crypto payment gateways. In the past year we acquired one.

The premise was the one we described then. Indian businesses that sell abroad increasingly get paid in stablecoins, and they need someone to turn those payments into rupees in a bank account, legally. The gateway we bought had registered with the FIU, ran full KYC on its merchants and handled TDS reporting. Its unregistered competitors served the same customers with less paperwork and lower fees.

The FIU’s crackdown erased that advantage. Offshore platforms lost access to Indian users. Merchants and partners who had used them went looking for a registered alternative. The paperwork that made our gateway slower in 2023 is what made it valuable in 2024. And when US regulators approved spot bitcoin ETFs in January, larger financial companies started asking how they could offer crypto settlement without taking on the compliance risk themselves.

Why this matters for small companies

If you want to sell a fintech company in India today, the first thing a buyer will check is whether your compliance holds up. A company with average growth and clean records is easier to sell than a company with great growth and gaps.

This favours small, careful companies. They have fewer customers, simpler products and fewer shortcuts to unwind. Getting it right costs them less than it costs a fast growing company that has to fix things later.

The market now

Strategic buyers are back in fintech, but on different terms. Valuations aren’t returning to 2021 levels, and we don’t think they should. Buyers pay for revenue that renews, records that pass diligence, and teams that stay after the deal. That’s a good market for the companies we own.

We’re also spending a lot of time learning about AI. We’ll write about that next year.

Happy Diwali.