DOI: 10.59571/mpi.v3si1.10
The rapid growth of fintech in India has unlocked many opportunities, making banking services available to the underserved population. However, it has also exposed consumers to the risk of unfair lending practices, data misuse, and regulatory blind spots. Drawing from recent research by Brinda Sampat, Emmanuel Mogaji, Nguyen Phong Nguyen on fintech's unintended consequences, we critically examine these challenges and propose a digital fort to ensure ethical fintech growth in India, prioritising consumer protection and regulatory compliance.1 We define digital fort as a security and compliance architecture that combines technological infrastructure, data protection measures, and ethical business practices. This framework helps fintech developers, industry leaders, and policymakers in guarding the financial operations. It is also useful in defending against technical vulnerabilities and predatory practices.
1 The article 'The dark side of FinTech in financial services: a qualitative enquiry into FinTech developers' perspective' by Brinda Sampat, Emmanuel Mogaji, and Nguyen Phong Nguyen, featured in Volume 42, Issue 1 of the International Journal of Bank Marketing, highlights that weak infrastructure, data-privacy lapses and regulatory gaps expose users to fraud, revealing the dark side of fintech, and contend that these risks can be curbed through ethical data handling, developer upskilling and tighter oversight
Published by SPJIMR in 2025. This is an open access article under the CC BY license Management Practice Insights Vol 3
Special Issue
India's fintech sector is expected to reach US$420 billion by 2029, driven partly by the widespread adoption of government-backed innovative platforms like the Unified Payments Interface (UPI).2 UPI has enabled users to send money instantly through mobile phones. This system has transformed daily transactions, from small street vendors to large retailers, processing 8 billion transactions worth Rs 13 trillion in January 2023.3 This rapid growth has exposed vulnerabilities in the current regulatory and technological framework. Recent data reveals concerning trends in digital payment problems. 42% of users reported transaction failures as their primary concern, while 37% faced issues with payment authentication.4 System downtime during peak festival seasons affected an estimated 45 million transactions in 2023. The Reserve Bank of India (RBI) reported a 36% increase in mobile/electronic banking-related complaints in 2023.5
Another area of concern is the rise of predatory lending apps. We present a case based on documented cases from the RBI Consumer Complaints Forum. Rajesh, a carpenter from Pune, took a quick loan through one such app, unknowingly granting access to his personal data. When he defaulted, the app's agents harassed him and his contacts using that information.6 Even tech-savvy users have reported unauthorised data sharing. In 2023, the government's API system experienced a data breach, affecting over 815 million Indians, with unauthorised data sharing being the primary concern.7
The rapid growth of fintech innovations has exposed
42% of users reported transaction failures as their primary concern, while 37% faced issues with payment authentication
vulnerabilities in the financial ecosystem, particularly in the integration of emerging technologies like AI, blockchain, and cybersecurity into legacy banking systems. This misalignment creates opportunities for cybercriminals to exploit the gaps.8 Indian regulators, like the RBI and the Securities and Exchange Board of India (SEBI), face the challenge of fostering innovation while ensuring consumer protection in an environment that is evolving faster than the adaptive capabilities of regulatory frameworks.
RBI has introduced a series of regulations, which includes more stringent Know Your Customer (KYC) norms, reporting requirements for digital lending platforms, and mandated grievance redressal mechanisms to address the increasing incidence of fintech-related risks. It has also implemented the Digital Lending Guidelines, which require direct loan disbursements into borrowers' accounts and emphasise stronger cybersecurity protocols for Non-Banking Financial Companies (NBFCs). The dark side of fintech is further exemplified by the ethical risks that developers and companies are still struggling to manage. There are growing concerns that algorithms used in financial apps can unintentionally reinforce bias or enable fraud.9 The problem is made worse by slow regulatory responses, leaving users vulnerable as companies rush to innovate. While the RBI has taken steps to tighten oversight, the real challenge lies in balancing the need for innovation with the responsibility to protect consumers.
Our analysis of international fintech markets reveals several successful models for ethical fintech development that offer valuable lessons for India's growing digital finance ecosystem and also inspire the digital fort framework recommended later in this essay.
Ÿ Open Banking in the UK: The Open Banking initiative in the UK allows banks to securely share your data (with customer's permission) through standard systems. This has led to new and innovative financial services while keeping customer data safe. Over 4 million people in the UK now use these services, showing what's possible when innovation and regulation work together.10
Ÿ Sesame Credit in China: Ant Group started as a simple payment platform called Alipay in China but has grown into a full financial ecosystem. Thanks to innovations like Sesame Credit, people can get loans based on their digital history, even if they've never used a traditional bank. This shows how technology can make financial services more accessible to everyone.11
Ÿ UPI in India: India has its own success story with UPI. It has transformed how people make payments, from street vendors to luxury stores, with over 8 billion transactions in January 2023 alone.12 UPI is not just a payment system; it's a digital revolution bringing millions into the formal economy.
However, for every success, there's a warning. Take China's P2P lending boom. What started as a way to make lending more accessible turned into a chaotic mess. By 2015, over 3,500 P2P platforms were operating, many running as scams. When regulations finally tightened in 2018, the whole sector collapsed, leaving many investors with huge losses.13 This shows how dangerous it can be when innovation moves faster than regulation. As India's fintech story unfolds, these global examples serve as lessons. They remind us that building a fair and safe digital financial system isn't easy. It needs a careful mix of new ideas, strong rules, and education. With its mix of tech skills and diverse challenges, India is uniquely positioned to make this happen.
In the next section, we'll explore how India can learn from these global experiences to find a path forward using a hypothetical fintech company. We'll look at practical steps for fintech developers, policymakers, and users to make digital finance work for everyone while avoiding its dangers. The future of India's financial landscape is at a crossroads, and the choices we make today will shape the lives of millions for years to come.
As the sun rises over the busy streets of Mumbai, Arjun, the CEO of a small fintech startup, sips his morning tea and thinks about the challenges ahead. His company's app, which offers small loans to business owners, is growing fast. But Arjun knows that running a fintech company in India takes more than just a good idea and coding skills.
Ÿ Empowering the vulnerable
Arjun's first priority is to protect his customers. He remembers Rajesh, a carpenter who faced harsh lending practices. “We need to do better,” Arjun says to himself. In this scenario, we recommend that Arjun focus on consumer awareness and ethical business practices to enhance the value of his company. We suggest that Arjun implement a three-step strategy to achieve this.
users manage their loans according to their financial situations.
Through these solutions, Arjun can imagine his customers feeling supported instead of pressured.
To address the technical challenges, Arjun must ensure that the company is equipped to manage high demand and prevent app crashes, especially during busy holiday and festive seasons. He plans to discuss several key solutions with his CTO, Priya.
First and foremost, they need to consider scalable technology. By leveraging cloud services, the company can effectively handle increased traffic during peak times, ensuring that its infrastructure can adapt to sudden spikes in usage.
Additionally, recognising that internet access can be unreliable in various regions, developing offline features for their application is essential. These features would allow users to interact with the app even without a stable internet connection, syncing data once they are back online.
Moreover, prioritising cybersecurity is critical, so establishing a dedicated team of ethical hackers can be a vital part of their strategy. This team would proactively identify and address potential security vulnerabilities before they escalate into more serious issues.
Lastly, integrating old and new systems is vital for seamless operations. Arjun and Priya must devise a solution that connects their innovative technology with existing banking systems, ensuring a smooth transition and interaction.
With these plans in place, both Arjun and Priya feel a sense of confidence. They are not just developing an application but laying the groundwork for a robust digital infrastructure that will support India's financial future. See figures 1 and 2 for a high-level blueprint and suggested operating procedure for building this digital fort.
Scalability
features security Infrastructure
Source: Developed by authors based on their research
Arjun's company is preparing for an important meeting with his legal team to navigate the intricate landscape of fintech regulations. Aware of the need for proactive measures, Arjun recognises that hiring a Regulatory Officer is critical. This individual will be responsible for building relationships with regulators and ensuring the company stays informed about any policy changes that may affect their operations. In addition to securing the right talent, Arjun understands the importance of embedding compliance into the design process of every new feature. Each proposed addition will undergo a thorough review to evaluate its implications on existing regulations before moving forward with development.
Furthermore, to comply with data storage laws while maintaining high service quality, the company must invest in the establishment of local data centres. This investment will not only meet legal requirements but also enhance reliability for their users. Finally, Arjun recognises the value of a collaborative approach within the industry. He proposes the formation of a group comprising other ethical fintech companies, aimed at establishing industry standards and collectively influencing future regulations. After discussing these strategies with his legal team, Arjun feels empowered, knowing that his company is not simply conforming to rules; they are actively participating in the creation of a responsible fintech environment.
Source: Developed by authors based on their research
As evening falls, Arjun must now go over the costs. Making these changes isn't cheap:
Ÿ The education program: Rs 50 lakhs for development and ongoing costs.
Ÿ Tech upgrades and security: Rs 5 crores upfront, with yearly maintenance expenses.
Ÿ Regulatory compliance: Rs 1 crore yearly for staffing and legal work.
Implementation costs reflect the comprehensive nature of these recommendations (costs are based on the authors' knowledge and judgment of the industry and mostly based on RBI guidelines for digital lending).14 While substantial, these investments represent essential foundations for sustainable growth in the fintech sector.
It's a big investment, especially for a startup. But Arjun must see it as an investment in his company's future, not just an expense. Many challenges exist, such as changing the company culture, keeping up with technology, and competing with bigger, well-funded companies. But Arjun must have a plan to deal with the challenges, so we recommend he work on the following aspects:
| Ÿ | Cultural shift: Encourage responsible growth through leadership and incentives. |
|---|---|
| Ÿ | Partnerships: Work with tech institutes to bring in new talent and ideas. |
| Ÿ | Differentiation: Focus on trust and quality, believing that in finance, slow and steady wins the race. |
The strategies recommended above are designed for India and may not work in other countries. They depend on having good technology and regulatory support, which may change. And as fintech grows, new challenges will surely appear. By focusing on protecting customers, building strong technology, and working closely with regulators, his company is helping shape the new fintech. This may be the best Our comprehensive analysis of global fintech practices and local market conditions reveals critical pathways for building an ethical fintech ecosystem in India. Consumer protection must be the cornerstone of any fintech development strategy. These programs should be coupled with standardised disclosure formats in multiple languages and AI-driven early warning systems for default prevention.
Technical infrastructure demands equal attention. Our analysis shows that successful fintech operations require robust cloud services capable of handling seasonal demand spikes. Companies must invest in offline capabilities and establish dedicated cybersecurity teams to protect against emerging threats. Integration with legacy banking systems requires careful architectural planning to ensure seamless operations while maintaining security standards.
The regulatory landscape presents unique challenges that require proactive engagement. Local data storage solutions and participation in industry self-regulation groups have proven effective in maintaining compliance while fostering innovation.
Looking ahead, the success of these recommendations depends on careful adaptation to India's unique market conditions. Companies must consider the diversity of India's technological landscape and varying levels of digital literacy. Regular assessment of market conditions and continuous dialogue with regulators will be essential for long-term success. While these recommendations draw from global best practices, their effectiveness ultimately relies on thoughtful implementation within the Indian context.
Vidhu Shekhar is Assistant Professor in the Finance and Sanjogita R is a Doctoral research scholar at SPJIMR. Accounting department at SPJIMR. You can reach out to him at vidhu.shekhar@spjimr.org.
This article may contain links to third-party content, which we do not warrant, endorse, or assume liability for. The authors' views are personal.
We welcome your thoughts – drop us a note at mpi@spjimr.org.
Brinda Sampat, Emmanuel Mogaji, and Nguyen Phong Nguyen, 'The Dark Side of FinTech in Financial Services: A Qualitative Enquiry into FinTech Developers' Perspective', International Journal of Bank Marketing 42, no. 1 (1 January 2024): 38–65, https://doi.org/10.1108/IJBM-07-2022-0328.
2 Press Trust of India, 'Indian FinTech Industry Projected to Reach $420 Billion by 2029', Deccan Herald, n.d., https://www.deccanherald.com/business/economy/indianfintech-industry-projected-to-reach-420-billion-by-20293110668.
3 Press Information Bureau, 'Digital Transactions in India', Government of India, 8 February 2023, https://www.pib.gov.in/www.pib.gov.in/Pressreleaseshare.aspx? PRID=1897272. Authors' estimates.
4 Sandhya Keelery, 'India: Leading Digital Payment Usage Problems 2020' (1242353: Statista, 30 August 2024), https://www.statista.com/statistics/1242353/india-leadingdigital-payment-usage-problems/.
5 Reserve Bank of India, 'Annual Report of Ombudsman Scheme, 2023-24', Jaunuary 2025, https://rbi.org.in/Scripts/PublicationsView.aspx?id=23126#APP1 3.
6 George Matthew, 'Usurious Pricing by NBFCs, Apps: Why the RBI Acted against 4 Entities and How Borrowers End up Paying Excessive Interest', The Indian Express, 19 October 2024, https://indianexpress.com/article/business/rbi-nbfc-loanapps-excessive-interest-9626739/.
7 Siddharth Vishwanath, Dhruv Gupta, and Priyanjali Moulik, 'Beyond the Cloud- Navigating FinTech Cyber Threats and Fortifying Defences', Whitepaper (pwc, 2024), https://www.pwc.in/assets/pdfs/consulting/beyond-thecloud-navigating-fintech-cyber-threats-and-fortifying-defencesv3.pdf.
8
Keng-Boon Ooi et al., 'Guest Editorial: The Dark Side of FinTech: Unintended Consequences and Ethical Consideration of FinTech Adoption', International Journal of Bank Marketing 42, no. 1 (1 January 2024): 1–6, https://doi.org/10.1108/IJBM-02-2024-619.
9 Sampat, Mogaji, and Nguyen, 'The Dark Side of FinTech in Financial Services: A Qualitative Enquiry into FinTech Developers' Perspective'.
10 Competition and Markets Authority, 'Update on Open Banking', Press Release, 1 October 2021, https://www.gov.uk/government/news/update-on-openbanking.
11 Capital.com, 'What Is Sesame Credit', Online Investments, 24 December 2018, https://capital.comlearn/glossary.
12 National Payments Corporation of India, 'Unified Payments Interface (UPI) Product Statistics', n.d., https://www.npci.org.in/what-we-do/upi/product-statistics.
13 Chris Holmes, 'The Rise and Fall of P2P Lending in China: By Chris Holmes', Finextra Research (blog), 10 April 2019, https://www.finextra.com/blogposting/17107/the-rise-and-fallof-p2p-lending-in-china.
14 Reserve Bank of India, 'Digital Lending Guidelines' (RBI, Government of India, 14 February 2023), https://www.rbi.org.in/commonman/English/Scripts/FAQs.asp x?Id=3413.
Date article submitted: Sep 24, 2024 Date article accepted: Jun 25, 2025 Date article published: Jun 30, 2025
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