FinTechIntellectual Property RightsIP Financing in the FinTech Industry

January 17, 20220


FinTech refers to the amalgamation of Finance and Technology wherein technology is used to streamline or develop traditional financial services. It includes software, algorithms, applications, and in some cases hardware too. It helps business owners to better manage their financial operations and processes, using these software.

India is not alien to the development and growth of FinTech. Several companies have now come up with FinTech services in India, including UPI Payments, Pre-Paid Insurance payments, Payment Banks, Digital Lenders, Payment Aggregators and Gateways, and also Peer-to-Peer Lending Platforms.

Since this sector is relatively new and emerging, the services offered by it are unique. In light of the same, it becomes essential to obtain protection and safeguard those services or products to capitalise on the innovation and also contribute to the growth of companies.


1. Patent

The FinTech companies should obtain patent protection for any software which has been developed by the said FinTech company. Even though computer programs and software are not directly eligible for patent protection under the Patent Act, 1970 (hereinafter referred to as the ‘Patent Act’). The same can be patented only if it is attached along with unique and unusual hardware and can be put to industrial use.  Filing a patent will not only give exclusive access to provide a particular product in the market but also ensure that the company has a competitive advantage in the market.

2. Trademark

Protecting the image of a brand is an extremely important part of growing a business or a company. Thus, FinTech companies must also focus on building their brand value by getting their name/logo/brand protected under the Trademark Act, 1999 (hereinafter referred to as the ‘Trademark Act’).

3. Copyrights

A FinTech company can also get copyright protection over visual user interface functions, computer code, video instructions, and other works, under the Copyright Act, 1957 (hereinafter referred to as the ‘Copyright Act’). The companies must also protect ideas that can be expressed in some form or another.

Since the primary appeal offered by a start-up company is through its software or website, through which the consumers get to know about the product, such companies must focus on getting the protection of their services under the Copyright Act.

The advantage of Intellectual Property (hereinafter referred to as ‘IP’) protection can be availed by the FinTech companies at the time of seeking investments or mergers and acquisitions with another company. Investors will be confident about investing in those companies which have a strong IP portfolio; hence, IP protection serves as a boon to FinTech companies.


IP Financing refers to the practice of using IP assets to gain credit. IP rights can drive the company’s asset value exponentially and help top management take informed decisions pertaining to investment and marketing. Traditional methods of IP Financing include:

1. Licensing

2. Assignment

3. Sale

WIPO lists out the following ways that are contemporary and often used by IP owners to retain the exclusivity rights and simultaneously raise more credit. These methods include:


Auctioning helps IP owners to liquidate their assets faster and also sell their assets and it also creates a market for potential buyers, which may have not existed earlier. Auction houses hold live or online auctions for the sale of IP Rights.

Using IP as Collateral

Using assets as collateral to secure debt is not a new practice. However, in cases of IP, the benefit available to the holder of assets is that they can secure a higher amount of debt. When borrowers keep their collective IP rights as collateral, it increases the value of assets, subsequently allowing more money to be borrowed in exchange.


Keeping the intangible asset as a security against a debt is a common and safe practice. However, in such cases, the IP Rights then go to the lender, who has control over such rights. Thus, this source of finance is not suitable for business owners who want to retain control over their IP Rights and exclusivity.

Since FinTech companies are a part of an emerging sector, there is a need to raise capital. Instead of raising capital through loans or other means, the FinTech companies now have an option to raise funds using their IP assets. The capital raised by these FinTech start-ups not only helps in starting the business but also expands and grows their operations.

Using IP assets as collateral aids in securing an enhanced value of debt, as compared to any other capital assets. Thus, using IP assets is a more convenient and pragmatic form of financing for start-ups in the FinTech industry.

India does not yet have a specific law in place to govern the recent growth of IP-based Financing, such as Singapore, which had the IP Financing Scheme in place. Indian laws currently deal with IP-based financing in the form of charge created on an IP asset. The relevant provisions on charge created on IP include:

1. Section 68 of the Patents Act provides that an interest may be created in a patent, provided it is in writing and registered with the Registrar of Patents.

2. Section 30(2) of the Designs Act, 2000 also permits the creation of a security interest, through mortgage, license or other interest, provided that it is in writing and communicated to the Registrar of Designs in the prescribed form.

3. Trade Marks Act allows creating an interest in IP only through assignment of a Trade Mark.

4. The Companies Act, 2013 also allows companies to create a charge on its property of asset, which may be tangible or intangible.

5. The SARFAESI Act, 2002 allows creating a security interest over a property, and includes mortgage, charge, hypothecation and assignment.

India has  taken positive steps towards increasing the commercialisation of IP through several measures including drafting the legal framework in compliance with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement.

India also has a National IPR Policy in place, which suggests that financial support must be provided for developing IP assets, through banks, venture capital, angel funds, etc.


The IP Financing schemes and frameworks around the globe is discussed hereunder briefly:

1. Singapore had an IP Financing Scheme in place from 2014-2018. Its primary goal was to smoothen IP transactions and boost the transactions marketplace in Singapore wherein the scheme allowed IP owners to use IP assets as collateral to obtain debt from the participating financial institutions.

2. In 2019, China launched its IP-Pledge Financing Framework. Its basic goal was to optimize and strengthen its IP pledge financing service system. Further, China has a China National Intellectual Property Administration  to coordinate IPR protection across the globe.

3. The Korean Government is actively promoting the growth and development of IP in its country. The Government supports various programs for IP development, protection and IP related financing. The Korean Development Bank has advanced a loan of about $100 million to IP-rich companies as collateralised loans.

4. Malaysia has an IP Financing scheme in place, implemented by the Government to boost the development of IP in their economy and incentivise innovation. They provide loans to companies for expanding their business and using IP as collateral against the loan extended.

5. In the United Kingdom, securities can be transferred through mortgage but it also requires transferring the title of the asset from the right holder to lender. In such cases, option of Special Purpose Vehicle (SPV) is available wherein IP rights are assigned and transferred to the SPV in return of a lump sum payment made to the owner.


The IP Financing is relatively at a nascent stage in India. There is a need to have a specified regulatory framework in place, especially for IP Financing, to help owners of IP assets secure loans and exploit their position in the market.

A mechanism to accurately assess the value of intangible assets needs to be put in place, to secure the interests of lenders, as often it becomes difficult to assess the resale value of IP assets.

The FinTech industry is rapidly growing in India and offering creative solutions and services to users. The FinTech companies’ current necessity is, therefore, to first, focus on creating a strong IP profile and second, to capitalise on this profile through securing finances for growth and expansion, to gain a competitive edge.

-Team AMLEGALS assisted by Ms. Gahna Rajani (Intern)

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