From Paperwork to Pixels: Startups disrupting compliance

Traditional law firms, Chartered Accountancy (CA) firms, and Company Secretary (CS) firms have long been the primary providers of compliance services. 

Legal, tax, finance, and compliance services were expensive, fragmented, and inconvenient for a billion individuals and millions of small—to medium-sized businesses (SMBs).

Birth of the Compliance Wizards

The landscape began to shift in 2011 with the incorporation of ClearTax, a Y Combinator startup that automated employee income tax filing. 

A typical CA firm files an average of 3,000 income tax returns annually. In stark contrast, ClearTax facilitated the filing of 300,000 returns in 2014 alone, a remarkable achievement. 

At the time, ClearTax's main competitor was the government's tax filing software, which was notoriously user-unfriendly. With the government's transition to mandatory online income tax filings by 2016, ClearTax identified a substantial market opportunity.

Simultaneously, in South India, Vakilsearch (now Zolvit) was established, offering an online platform for legal services. The founder, National Law University lawyer, was solving the problem of legal services for individuals and SMBs.

IndiaFilings entered the scene two years later, assisting companies with incorporation processes. This period marked the birth of "ComplianceTech" in India.

Seed Money Surge

By 2016, prominent venture capitalists had taken notice. 

Kalaari Capital invested in Microsoft back accelerator, VakilSearch (now Zolvit). Sequoia Capital-backed ClearTax. IndiaFilings, however, chose to bootstrap until 2022.

Government’s e-Governance Extravaganza

Indian Reg-tech startups journey was accelerated on the back of the government's commitment towards leveraging technology.

Starting with Indiastack’s disruption of identity in 2010 with Aadhar, e-KYC, e-authorisation; and digital payments disruption in 2016.

The digitisation of direct taxes paved the way for indirect taxes. Unification and centralisation of  indirect taxes across India in 2017 led to digital infrastructure(GSTIN) for GST online registration, e-filings, e-way bills, and e-invoicing. 

Government’s other digital initiatives includes (1) MCA21: Streamlines corporate filings (2) EPFO's Unified Portal and UMANG App: Simplify provident fund services. (3) Shram Suvidha Portal: Integrates labour law compliances, (4) ICES and SWIFT systems: Aid customs processes among many others. 

This shift has replaced traditional, ad-hoc, and manual processes, allowing users to file returns and challans directly from digital platforms.

GOI made strides in digitising the compliance process, promoting end-to-end digitalisation through straight-through and API-based filings, allowing RegTech startups to plug in.

Growth Fund Frenzy

 The startups saw the opportunity and attracted significant strategic investments

Clear: Raised $54 million in 2018 from Composite Capital. Doubled down on SaaS, ClearTax initially expanded its offerings to include ITR filing software, GST software, and e-invoicing software. With $75M from Stripe in 2021, clear forayed into credit, wealth management and merchant lending in international markets.

IndiaFilings: Launched ledgers accounting software in 2019 to manage clients' GST compliances. In 2022, it secured $4.3 million from ICICI Ventures, continuing to serve over 100,000 SMBs profitably.

Zolvit (formerly VakilSearch): Raised $10 million from InCorp in 2022, for building a comprehensive platform for various compliances, including business formation, GST filings, accounting, trademark filings, and legal documentation; and building their case management tool for lawyers (LIBRA).

AI Is Doing Your Job

As of 2024, 

Vakilsearch (now Zolvit) registers 10% of all Indian companies, equating to one company every nine minutes. Files a trademark in a few minutes, resulting in registering 1 Lakh+ trademarks. It has served 500,000 customers till date (for perspective an audit firm serves a 1000 customers). Provides 500 different compliances with filings for as less as Rs 399/-. 

Clear has facilitated over 6 million tax filings and uploaded 250 million invoices. Its compliance stack is used by 1,200 enterprises, and it boasts a tax partner network of 60,000 consultants. Claimed over 35,000 retail investors in 2024

ClearTax, Zolvit, and Indiafilings dominate 90% of the online filings market!

The Beginning of an Era, Not the End

Archit Gupta (ClearTax), Hrishikesh Datar (Zolvit), and Charles Lionnel (Indiafilings) have transformed the compliance sector traditionally dominated by law firms, CA firms, and CS firms. 

Their obsession to solve the problem for Individuals/SMBs has demonstrated the power of technology to replace manual processes, delivering speed and transparent pricing once thought unattainable.

Despite 90% of the compliance market still being offline, a significant shift towards automated compliances presents an opportunity for all founders in the RegTech space.