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Category: fintech

  • Sharan Hegde’s Financial Advisory Venture—A Litmus Test for SEBI’s Regulatory Framework

    In the ever-evolving landscape of financial advisory, Sharan Hegde’s burgeoning empire stands at the intersection of innovation and regulation, challenging the boundaries set by the Securities and Exchange Board of India (SEBI). The journey of Hegde, who ascended from a management consultant at PwC to a financial influencer with a staggering six million followers, epitomizes the meteoric rise of ‘finfluencers’. By July 2024, his financial advisory business has amassed an annual revenue of ₹60 crore, predominantly driven by his ‘One Percent Club’. However, this ascent raises pivotal questions about the regulatory implications for social media influencers venturing into registered investment advisory (RIA) territories.

    The core of this debate lies in the appropriateness of social media influencers dispensing financial advice through RIA entities they own. The Securities and Exchange Board of India’s (SEBI) advertising code for RIAs now faces unprecedented scrutiny. Traditionally, finfluencers like Hegde were bankrolled by brokers and financial firms, often without transparent disclosures to the public. Hegde himself was previously admonished by the Advertising Standards Council of India (ASCI) for an undisclosed promotional post about Cred (Dreamplug Technologies).

    The crux of SEBI’s regulatory challenge is the unregistered status of many finfluencers. While offering financial advice for a fee without SEBI registration is prohibited, free advice dispensed through social media remains a grey area. This ambiguity persisted until SEBI took decisive action in August 2023, aiming to delineate financial influencers from the regulated financial system.

    In a significant development, Hegde’s business received ₹10 crore in funding from Nikhil Kamath, co-founder of Zerodha, in October 2023. Subsequently, Hegde registered One Centurion Ventures Pvt. Ltd, which acquired an RIA license under the brand name ‘Personal CFO’. This entity, along with ‘Finance with Sharan’ and ‘One Percent Club’, forms a connected ecosystem under Hegde’s stewardship.

    Yet, SEBI’s new directives in June 2024, barring regulated advisory firms from collaborating with unregistered influencers, present a formidable challenge. Hegde, lacking the requisite experience and qualifications to be an RIA himself, relies on the credentials of Diksha Shukla, a former portfolio analyst at INDmoney. Despite this, Hegde harbors grand ambitions for Personal CFO and One Percent Club, envisioning a demand for thousands of finance experts.

    Hegde’s plans, however, are fraught with regulatory pitfalls. The website “thepersonalcfo.in” lacks crucial information mandated by SEBI, such as the RIA license holder’s details, complaint mechanisms, and the Investor Charter. Harsh Roongta, a SEBI-registered advisor, highlights these omissions, questioning the transparency and compliance of Hegde’s operations.

    Suresh Sadagopan, principal officer at Ladder7 Wealth Planners, elucidates the precarious nature of SEBI’s advertising code for finfluencers. The code requires meticulous compliance to avoid any content being construed as unauthorized investment advice. This stipulation underscores the inherent contradiction in Hegde’s model, where his personal social media following indirectly fuels his RIA business.

    Hegde’s reliance on his personal brand, despite his non-registration with SEBI, creates a murky regulatory landscape. His substantial following serves as a funnel for his RIA, Personal CFO, necessitating strict adherence to SEBI’s advertising code. Every social media post could potentially be classified as an advertisement, necessitating prior SEBI approval.

    This regulatory conundrum was exemplified by a recent social media post from Hegde seeking to hire finance experts. The post, devoid of mandatory SEBI details, sparked controversy over its classification as an advertisement. Naveen Fernandes, Public Interest Director at BASL, underscores the imperative for compliance, citing potential investor misdirection and legal contraventions.

    Ultimately, Hegde’s business model poses critical questions for SEBI. Can a finfluencer, bypassing stringent advertising codes, effectively act as a lead generator for an RIA? SEBI’s June 2024 decision reaffirms its stance on separating regulated firms from unregistered influencers. However, in Hegde’s case, the symbiotic relationship between his personal brand and RIA entity presents a unique regulatory challenge.

    The resolution of this issue hinges on SEBI’s regulatory rigor. Will it enforce its advertising code unequivocally, or will the lines between finfluencers and RIAs continue to blur? For Sharan Hegde, the choice is equally profound: to delineate his roles as an educator, influencer, or RIA. The future of financial advisory in India rests on these pivotal decisions.

  • Paytm UPI Shares Consistently Decline—A Financial Freefall

    In January, Paytm faced a major setback when the Reserve Bank of India (RBI) ordered Paytm Payments Bank Ltd. (PPBL), its banking affiliate, to cease operations. This regulatory blow has significantly impacted Paytm, leading to a 55% drop in its shares. Furthermore, RBI mandated the removal of Renu Satti as the chief executive of PPBL, citing concerns about her leadership capabilities in the banking sector.

    The regulatory challenges have taken a toll on Paytm’s position in the unified payments interface (UPI) market in India. Once a leader, Paytm’s market share has been declining for four consecutive months, dropping to 8.1% in May from 13% in January, as per data from the National Payments Corporation of India (NPCI).

    UPI, managed by the NPCI, facilitates instant money transfers by linking banks with fintech apps like Paytm, PhonePe, and Google Pay. Despite the setback, the UPI network recorded a staggering 14.04 billion transactions in May, a 5.5% increase from the previous month. However, Paytm’s struggles have allowed competitors to gain ground, with PhonePe holding a dominant 49% share and Google Pay capturing 37%.

    In response to the RBI’s order, Paytm’s founder and CEO, Vijay Shekhar Sharma, has sought to stabilize the company through strategic partnerships with top Indian lenders such as Axis Bank Ltd., HDFC Bank Ltd., and State Bank of India Ltd. These alliances aim to facilitate the instant money transfers that PPBL previously handled. Despite these efforts, the company acknowledges the financial impact of these disruptions. In the latest earnings filing, Sharma highlighted the anticipated short-term effects on Paytm’s revenue and profitability due to the regulatory challenges faced in Q4.

  • Pine Labs The Emerging Force in Indian FinTech, but no IPO in the current situation says CEO Amrish Rau

    Pine Labs, a prominent player in the realm of digital payments, has now aligned itself with the emerging trend among technology enterprises to defer their initial public offerings (IPOs). In an exclusive interview with ET, Amrish Rau, the CEO of Pine Labs, firmly expressed his decision to withhold the planned IPO, citing the tumultuous state of global markets. With sagacious foresight, Rau asserts that the present juncture does not provide a conducive window for an IPO endeavor, a statement imbued with unwavering conviction.

    Unwavering in its financial fortitude, Pine Labs stands in a position of fiscal robustness, having already garnered a substantial influx of more than $1.1 billion. Rau confidently reaffirms the company’s steadfast stance to refrain from hastily pursuing an IPO, remarking that there is no urgency to embark on such a venture. The fiscal year 2023 concluded on a prosperous note for the company, boasting net revenues amounting to Rs 1600 crore and a commendable positive EBITDA. Such fiscal accomplishments reflect the company’s sound financial foundation, which Rau eloquently expounds upon.

    The annals of Pine Labs’ history are embellished with its association with Sequoia Capital and Mastercard, which have significantly bolstered its position in the payments domain. It is noteworthy that the unicorn, backed by these stalwart entities, has now shed light on its IPO strategies. The veil of secrecy shrouding its intentions was lifted when it submitted a confidential IPO filing worth $500 million to the US Securities and Exchange Commission in January 2022. Akin to a wise mariner, Pine Labs has steered its course with deliberation, postponing its listing plans as the global economic landscape took a somber turn.

    The visionary ethos governing Pine Labs’ course of action has been unequivocally articulated by Rau. Cognizant of the tempestuous nature of the financial realm, he opines that Pine Labs, akin to a ship of substantial worth, should not set sail in stormy waters. The prevailing sentiment is to await a propitious breeze and a favorable climate for the IPO. Rau’s leadership, culminating in his ascension to the CEO role in 2020, has steered the fintech group with prudence and circumspection.

    Amid the contemporary landscape where regulatory scrutiny has enveloped Indian fintech giants like Paytm and PayU, Pine Labs’ strategic decisions have been sagaciously calibrated. While the decision to shift its corporate domicile remains pending for the Singapore-domiciled Pine Labs, the determinants are poised to be rooted in pragmatic considerations. Rau astutely differentiates between the calculus of valuation and taxation and the overarching vision of global versus domestic market orientation. Such discerning insights are emblematic of Pine Labs’ judicious approach, poised to discern the optimal course of action for the company.

    The company’s choice of listing, whether on domestic or global bourses, is intrinsically linked to the epicenter of its revenue streams. A careful examination reveals that nearly 15% of Pine Labs’ revenues emanate from the expansive domains of global markets, continuing to serve as lucrative profit pools. The subtle interplay between revenue dynamics and market orientation is deftly explicated by Rau, further emphasizing Pine Labs’ strategic acumen.

    In the prevailing macroeconomic context, where many fintech entities have adopted a defensive posture, Pine Labs emerges as a beacon of assertive growth. With strategic acquisitions spanning the years 2021 to 2022, the company has demonstrated an unwavering commitment to expansion. Bolstering its endeavors, Pine Labs intends to introduce its gift card issuance service, a pivotal revenue source, alongside its payment installment stack and QR code payment services, to the geographies of the United States and Europe. Rau, with his characteristic clarity, elucidates the imminent establishment of sales outposts in these regions, envisaging a dedicated push for the company’s technology.

    Pine Labs’ global aspirations are underscored by its recent foray into the United Arab Emirates, building upon its presence in five Southeast Asian countries. Rau’s narrative hints at a future marked by calculated growth strategies and judicious market entries, a testament to Pine Labs’ evolutionary trajectory. The company’s proactive stance in considering additional acquisitions for expansion resonates as a testament to its pursuit of new horizons.

    In a landscape where peers are pursuing lending licenses foray into the credit domain, Rau remains steadfast in Pine Labs’ distinctive course. With an eloquent negation, he dismisses any immediate inclination toward procuring an NBFC license, underscoring the company’s focused agenda. The strategic direction steered by Rau speaks volumes about Pine Labs’ clarity of purpose and its unwavering commitment to its chosen trajectory.

    While Pine Labs’ acquisition-driven strategy has momentarily deferred its path to positive PAT, Rau unveils the strategic intent to rectify this course by the culmination of the ongoing fiscal year. His candid assertion underscores that Pine Labs’ EBITDA profitability, currently standing at an impressive 20%, is a harbinger of the company’s resolve. The interplay of acquisitions and organic growth manifests in Pine Labs’ upward revenue trajectory, with Rau attributing a substantial 7-8% of growth to acquisitions in the fiscal year 2023.

    As Pine Labs endeavors to diversify its revenue streams, it tactfully steps beyond the confines of the PoS business. The company’s revenue matrix is enlivened by robust lines of revenue from gift card issuances, installment payment services, and payment gateway operations. Rau, with sagacious foresight, forecasts the impending fiscal year to be marked by nuanced strategies, optimizing EBITDA growth while navigating the challenges that macroeconomic conditions present.

    Pine Labs’ narrative, though adorned with achievements and astute strategies, anticipates a phase of tempered growth in the fiscal year 2024. Rau’s forthright admission reflects the company’s maturity in understanding the cyclical nature of markets. Sacrificing low-margin revenues in favor of high-margin pursuits, Pine Labs is poised to steer its course with prudent financial stewardship.

    In culmination, Rau’s narrative weaves a tale of strategic prowess, grounded in a sagacious understanding of the financial realm. Pine Labs emerges not only as a fintech entity but as a deliberate navigator, charting its course amidst global market ebbs and flows. Amrish Rau, at the helm of Pine Labs, personifies a steward steering the company with acumen and resolve, embodying the spirit of prudent growth and strategic finesse.