Regulations and fintechs aren’t oxymorons: Aishwarya Jaishankar, Co-founder and COO, Hyperface

Hamsini : Hello and welcome to a brand new edition of the Current Account Podcast.

Amidst ecosystem and whether the regulator is pro-fintech, anti-fintechs, and all that kind of debate that’s happening around us, especially in the last one, two months, we have with us, Aishwarya Jaishankar.

For the banking sector, Aishwarya is nobody new. She has a long history of having worked with banks, but if I were still to introduce her, I’d say she’s the co-founder and COO of a fintech, though she prefers to call herself or her company a regtech, www.hyperface.co.

Now, Aishwarya is here to decode whether RBI is really a helper in the process of growing and innovating products in the financial landscape, or is it a deterrent. Well, having worked with banks and built products with banks, Aishwarya believes it’s the former and not quite the latter.

Listen in to this interesting conversation that I had with Aishwarya in this edition of the Current Account Podcast.

Hamsini: Hi Aishwarya, thank you so much for joining in for this edition of the podcast.

Yours is a very special journey. You’re a banker turned entrepreneur, and you turned entrepreneur at a time when fintechs were just about beginning to understand what is the whole implication of regulations tightening in the industry.

As a founder, how do you balance out the dilemma? Regulations or growth or capital?

Aishwarya : What gives me confidence right from my banking days, you know, when I built the Digital Savings account for Kotak Bank, we doubled the user base in 18 months.

Journeys like this, what I actually saw happening was that technology is the one checkpoint for ensuring regulatory compliance. More often than not, man-made processes could fail, could slip. But when you’re trying to do something right and scale it using technology, you can’t really go wrong.

Maybe if I’d been starting up a B2C, I would have got second thoughts on regulation. Being a B2B, from day one, in fact, after me and Ram, the third employee of Hyperface is the Head- Legal and Compliance. We were very clear that we are building a product that’s going to be scalable, that’s going to be meeting the regulations to the ‘T’, and help banks and our client partners, co-brands, achieve compliance in a very simple manner.

How do we achieve that? Something as simple as, I mean, it has just come recently that co-brands cannot see the data, they can only display it. Our stack has always been built for that. The SDK that we provide the co-brand or the progressive web app that ixigo is using does not show customer data to the co-brand.

The co-brand doesn’t have any access. But if a co-brand can say that I want to show a nudge to the customer who’s inactive, we take care of it for them. So the way we have thought of product is – regulation is a reality.

Let’s face it, you know, if you’re building in fintech, you’re not going and building an open-ended Google map or open-ended entertainment platform. You’re building a financial product for the users, necessary guardrails have to be adapted. The way you need to think of technologies is an enabler that helps you meet regulations.

And I would say go two steps higher than what the regulation asks you to do so that you’re future-proof as well, especially when it comes to data, when it comes to security, when it comes to authentication, because again, wearing the banker hat, stepping back from all this, where is this concern coming from?

Hamsini: Let’s just come back to this conversation in a minute, okay? I want to address another point that you made about regulation. Regulation and doubling a product base, regulation and doubling a customer base are seen as oxymorons in the world that you come from. Do you agree or disagree?

Aishwarya: I couldn’t disagree more because every example I can give you of the products that I’ve built are all products which have given 100x growth to the organization I’ve been part of.

And to me, regulation or meeting regulations has never been a dampener. The dampener is not thinking through what the user wants. The dampener is building a bad user journey.

Just because you ask the customer to check a couple of text boxes, I don’t think the customer is dropping from the intent if you’ve sold your product right. The thought process, Hamsini, I keep giving this analogy of checking the route in the map, right?

I want to go somewhere, I check the route. It will tell me currently 25 minutes. It will also show me a few shortcuts and tell me minus or plus 3 minutes, 5 minutes. I think taking a detour on regulation is something like that. More often than not, you take the detour and you’re stuck for another 15 minutes.

I would rather find the straight route and take the time it takes to reach. Yes, it needs a certain willpower but it’s not impossible to achieve because regulatory guidelines, let’s segregate, right? There is malintent. There is a genuine malintent of acquiring customer data.

Let’s assume for a moment that’s not the case here. Any businessman, any fintech entrepreneur who wants to start up, today starts up genuinely wanting to solve user problems. If you’re genuinely going out there to solve user problems, you have to find the right journey that is compliant with regulations, the right product with the right guardrails so that you are able to scale that product to the customer instead of stopping it one day.

While as difficult as it sounds for a startup to wear that long-term hat, if you try and wear a long-term hat from a user point of view, you’ll be able to appreciate regulation more. I was just sharing with you an example of account closures, right?

Hamsini: Right.

Aishwarya: I mean, one thing is to say, okay, the regulation has to say you’re closing the account. But wearing a user hat means what happens to the user if they want to come back? What if they walk into the branch tomorrow? What happens?

So that’s where I feel, I hate it when fintech product managers or anybody tells me, “Oh, regulations!” I feel if that’s how you’re going to think about it, maybe you have no business building a product in fintech.

Hamsini: If I’ve understood you well, you’re saying that, you know, when you’re building a product in the fintech space, don’t think of yourself as a builder.

Think of yourself as a customer who would use the product.

Aishwarya: Absolutely. Wear the customer’s shoe. Think that you’re an enabler because it’s money you’re dealing with.

Let me give you another example.

Your nani is trying to decode a banking app. How carefully would you try and explain to her about that? That’s the level of sensitivity we need to wear when we are building products for users. Not only is it important to empathize, but it’s important to respect the fact that it is their money we are dealing with. We need to think of data guardrails.

We need to think of tomorrow when they want this, will it be accessible or we’ve seen situations where products have been shut down overnight and customers are suffering. Which is where I think a long-term view on regulations is required.

Hamsini, instead of trying to look at it as a short-term pain, think that this is how the product has to be sculpted. Regulation is intrinsic to what I build and build around that rather than trying to supersede and thinking that you have solved for it.

Hamsini: Perfect. But what is also increasingly happening, Aishwarya, is that what was yesterday is getting changed in six months to a year. And when you’re building a product, you’re building it for the long term. You think that this product is going to live basis this regulation, the test of time. Where do you draw the balance? How agile should the product then be to adapt to new changes?

Aishwarya: You know, Hamsini, again, I think the advantage that I have or the vantage point that I have is I’m building a B2B infrastructure platform.

Very early on, for example, we have built a core system for credit card. The interest computation, how is the number of days decided? We quickly realized that the RBI needle could be moving here.

Another example is grace period, right? Earlier it didn’t exist. Suddenly the regulation said. So at least from my point of view, the B2B product that we have built is configurable. This is what I originally told you, that technology can take care of a lot of things.

Instead of hard coding interest computation, in the Hyperface stack, we allow for the number of days to be defined for each program. What does this mean? There could be a program tomorrow that a bank could launch with totally different revolving periods and interest computation period as well. And to be regulatory compliant, if a regulator changes this three days tomorrow to five days, it just becomes a configuration in the system.

Whereas if this was a manual process or if it was a hard coded mainframe process, which is why I’m repeating, in my experience, technology makes it much easier to comply with regulations if you think it right. You know, from a product point of view, when there is a product that doesn’t exist, it is better to take a long-term view and say, why doesn’t it exist? Take first principles and say, why am I solving this problem for the user? Is there another way I can solve this problem for the user? For example, co-branded credit cards, right? I was talking to a fintech up and coming, you know, they’ve got a fantastic distribution going on. They have very good engagement with their user base.

And all the stress on co-brand is happening. Then I asked them a question when they said, “We want a co-branded card, take us to a bank”. I told them, “Do you necessarily need a co-branded card? Or is your user happy with the right product that you’re giving for them?” They took a step back and they said, “Co-branded card is my worry, but you’re right that I need to give them the right card because that’s what is going to build my engagement.”

Hamsini: But it’s very few times that somebody even asks such questions. Yeah. I mean, isn’t it?

Aishwarya: In fact, if I were selling, I shouldn’t have asked the question.

This was a friend. So I, and I also know what is the elasticity that banks have. So I’m in that vantage point.

I keep joking that we are the Netflix matchmakers for credit cards and banks now. But I feel a lot of times, right, when we go in thinking this is the product I want in fintech, right? You’re always working backwards from there. You’re trying to make that product work.

It is better to say, this is the problem I’m solving for. A card is one of the way it could get solved. Can I go create, for example, an overdraft account with the bank, which can be attached to the UPI OD? This is where I have to step back. I have people say – I have a fantastic card design ready. Let me take me to a bank.

I just think a whole anvil of banking products are up and available for you instead of getting fixated on this is what I want to offer as an end product and trying to work around the regulations. The product person in me would say, go back to the problem you’re trying to solve for the customer.

If it is that I have this data, this data, and this data coming in, how do I underwrite them better? Maybe there are better answers. So I think, like you said in the beginning, it needs a good amount of user understanding. I would say it needs a good amount of long term thinking, as I told.

And lastly, it needs a good amount of, you know, going by first principles, bottoms up and trying to say, is there a better way to solve this problem instead of being fixated on a solution and working backwards. I feel a lot of short-cut to regulations happen when you’re fixated that this is what I want to offer. My card design is ready, I want to give you a card. That is a very wrong thought process in my mind.

Ideally work forward from a customer problem you’re trying to solve.

Hamsini: Two things here. I’ll take the fancier part first. You’re a new setup. You’re a new entity. You’re a new fintech in the making. You have VC money already. You might want to do another round of fundraise down the line. That’s a different conversation.

But when you tell your investors that, you know, this is how I’m building. And when they want to juxtapose your example with some things in the past that they might have seen, they would find that the variance or the route to the IRR that they expect could be a little longer with you versus something else. Right?

So how do you convince an investor by saying that these are the three things I’m doing right. So hold on, I’m a good candidate. How do you do that more often than not?

Aishwarya: I think, again, there is a larger context. I’ll come to the personal context. We have been very lucky to have chosen the right investors, is how I would put it.

Our lead investor is 3one4 and they come from the Indian ecosystem, right. Some of their LPs are banks. So it is very rooted in them to be compliant and to be appreciative of regulations.

So the thought process has never been to try a shortcut. The short thought process has been that this is to be built for the long term. Keep talking to the larger banks, build something that will scale.

But having said that, the other pressures, I mean, I am in touch with the larger ecosystem as well. Hamsini, I would say the perspectives are shifting. If today a VC is deciding to put money into a fintech infra.

Just yesterday, I was part of a panel at the Startup Mahakumbh and there was a VC moderating and the whole panel agreed. They were all fintech infra players like us and everybody agreed that this is a 10 year game. There is an appreciation coming in that fintech infra is not something that you can quickly go and kill.

This is something that needs scale. And I’m sure this will trickle down to fintech B2C players as well. Earlier the excitement was about getting some quick customer acquisition and have a showcaseable product ready.

Now, the questions are going to be – How many bank partners do you have? What is the kind of regulation that plays? Is there any risk area that you foresee? So before you sign the cheque, you are going to be asking these questions. Once you have signed the cheque, they would rather wait and see the returns.

And third, I feel, there might be some rationalization and expectation.

What this could mean might be more long term players coming in who are ready to wait it out versus the people who want to recirculate in two years for another deal. This will have to settle down. I’m not taking away the repercussions of everything that’s happening around us.

But I think, see, the need is there.

Today you go to a bank. Do they need fintech infrastructure? Absolutely.

Hamsini: Absolutely, yes.

Do they need innovative fintech partners to distribute products?

Hamsini: Totally, yes.

Aishwarya: So when there is demand, it’s necessary that there is a supply that matches the demand.

Will the right business models emerge? Will there be companies that will bring value? Yes, right now they seem to be open-ended but I think the good part that has come out of all this is everybody knows shortcuts are not going to work. The next company or the next unicorn that’s coming in fintech, as you and I speak right now,are doing things right within regulation. And they are going to scale.

Maybe we needed a few setbacks for us to go in the right path but I’m sure it will emerge because as an ex-banker and somebody who’s talking to banks, I know the demand is there. Which means, it’s a matter of doing it right, and, as you said, having the investors who support in it for the long term to move forward. But it has to happen increasingly.

Hamsini: How is your conversation with banks now versus what was about two years back? What are the things that they’re more keen to understand from you guys?

Aishwarya: So, in the last three years, we started off as an embedded finance stack. So when we went and pitched, we said, imagine any brand or business being able to offer your credit card. But today, I mean the banks are obsessed with CX.

They say customer experience is more important to them. User journeys are very important to them. The question they say is – Why should I just give it to my partners? Give it to my users. Give it within my mobile app.

So I’m seeing a thought process shift – maybe regulations have played a role there. There was a time that there was a thought process in banks that I can’t bring in those fancy UIs or I can’t do the fancy stuff those guys do. I have to put up with it.

Now the banks are getting more aggressive to say – I can build these fantastic journeys. I can compete with any fintech out there with partners who can build me the right infra and right platforms. So I am seeing that banks are also getting more ready,to sort of, combat.

They are also trying to think like fintech, which is the agility shift that has happened. They are clear that they will have to partner to get the best experience. I’m happy to do that.

So I would say that’s something that has changed. And when it comes to partnerships, banks have always been cautious. They are continuing to be cautious.

As I was telling you the example of one bank, right, earlier it might be a business decision. Now The Risk Head signs off. The security officer signs off.

I am loving it because every time a sign off happens, we are having an internal celebration in the team. It’s a validation for the tech that you are trying to bring in. So it is strengthening our thought process also, right.

So that means, yeah, I would say it’s getting tighter and strengthened in banks. See, once the confidence comes back, the scale will have to happen as an automatic thing.

Hamsini: Is it? Okay.

Aishwarya: I feel it’s a matter of time because, like I said, people can’t do without innovation.

Hamsini: Innovation. That’s true.

Aishwarya: People can’t do without newer customers. Now if you find a way to do it right, I don’t see any reason why this will lug down or slow down.

Hamsini: Perfect. So to wrap it up, you’re saying that it’s not an oxymoron to do it the right way. You can make money in this business by following regulations and regulations are not here to hurt you. They’re here to help you.

Did I get the gist of it?

Aishwarya: Absolutely. If you’re not believing that you can’t follow regulations and make money, please read quarterly reports of most of the banks. I would say they’re all very nicely profitable.

And that should tell us some truths that we need to hear.

Hamsini: Because of all the incidents that’s happened, you know, in the last six months, the highlight being what happened with 197, there is an opinion that the regulator is getting anti-fintech, that the regulator is getting a little more hesitant to promote the fintech growth. So much among even the fintech community.

Aishwarya: I’m not sure if I’ll agree to that Hamsini, because one swallow doesn’t make this thing right. If anything, as a smaller startup, the kind of support we see, NASSCOM will reach out, RBI Innovation Hub will reach out, there are sandboxes available.

NPCI co-creation program, I was in there yesterday. The kind of support the government teams are giving, right from Startup Mahakumbh.. I don’t think anything could be further from the truth. I don’t think the regulator is painting everybody with a broad brushstroke at all.

They are keen to support where we are doing things right, where we are innovating. They also want to innovate. So, I’m not thinking of it like that at all.

So, I might not agree to that statement. I’m not even worried that it’s happening, honestly.

Hamsini: Perfect. Just what I wanted to hear.

Thank you so much for this.

With that, it’s a wrap on this edition of the Current Account Podcast. I’m your host, Hamsini Karthik, signing off.