Fintechs are expecting measures to strengthen digital payments and partnerships with banks in the upcoming Budget 2023-24 for the growing sector.
According to an EY report on fintech, the sector in India is expected to reach $1 trillion in assets under management (AUM) and $200 billion in revenue by 2030. The report revealed that the neo-banking space has seen a five-fold uptick in funding in the last year and is expected to hit the $215 billion mark by 2030.
Industry experts who spoke to Business Standard highlighted that finance minister Nirmala Sitharaman is likely to announce additional allocations and sops for the fintech sector considering the much-needed capital infusion. With emerging technology and increased adoption of digital payments networks, here are some of the things industry players are hoping will be announced in the Budget:
Higher incentives for payments
Mihir Gandhi, Payments Transformation Leader, PwC India, said one of the main contentions of fintechs in India over the past years has been the zero merchant discount rate (MDR) regime for unified payments interface (UPI) and RuPay debit card transactions. It was announced by the finance minister in 2019 to boost the acceptance of digital payments. To make up for the losses, in Budget 2021, the government announced a Rs 1,500 crore scheme to promote digital transactions. Earlier this month, the Union cabinet approved a Rs 2,600 crore incentive scheme for FY24 for RuPay debit card and UPI transactions which will be reflected in the upcoming Budget. According to Gandhi, it will be good for last-mile connectivity for fintechs such as Google Pay and PhonePe, which have been working to grow the payment acceptance infrastructure across the country through quick-response (QR) codes.
However, Gandhi highlighted that the industry needs more than twice the approved incentives.
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“UPI payments that are happening are currently at zero charges. The government of India typically subsidises the banks and fintech for low-cost UPI transitions. In a normal scenario, the UPI transaction would be charged to the merchant for accepting the payment and a certain fee would be split across the banks as fintech processes the UPI transaction. Those transactions of UPI have now increased a lot in the last year. Thus, if the government continues with the zero MDR, i.e. pricing zero for all merchants, the UPI reimbursement to be provided to the industry would be Rs 5,000 to 6,000 crore,” he said.
Increased allocation towards boosting acceptance in rural areas
According to Gandhi, the fintech sector also sees an increase in acceptance because of the centralised funds created by the Reserve Bank of India (RBI) which is the Payment Infrastructure Development Fund (PIDF). PIDF had an initial allocation of Rs 300-400 crore. This was established to reimburse the accepting entities which include the technology companies that would set up the point-of-sale terminal of the QR code at the last mile in the tier-2 and tier-3 locations.
“So, this year too, in the effort to increase digital payments and fintech presence in the rural areas, we expect an additional Rs 400-500 crore to be set up through the corpus. The aim is to increase acceptance to the last mile,” said Gandhi.
Rohit Arora, CEO and Co-founder, Biz2credit and Biz2X said the industry is looking forward to some relaxation in the tax regime and hopes to see better financial inclusion in Budget 2023.
He said, “Broadly, we are expecting liberalisation of the tax regime, especially with respect to GST. We expect the government to bring in more relaxations in the employee stock ownership plan (ESOP) criteria. In the last budget, major tax relief was given to start-up employees to solve the dual taxation and relieve the tax burden that employee stock ownership has on employees. However, as the qualification criteria is quite rigorous, only a very limited number of Indian companies could benefit from it. So, we can expect that the government will look into this and provide tax relief to budding FinTech start-ups and their employees.”
Measures for better partnerships with banks and financial institutions
Arora highlighted that the fintech sector is expecting announcements related to measures for better partnerships with the banks and a level playing field for both the online and offline lenders. “It is also imperative for the Government to help small NBFCs and fintech companies which are working in Tier 2 and tier 3 cities with sufficient co-lending limits and rates. This will play an instrumental role in fostering financial inclusion by relieving stress for both the lenders as well as the borrowers,” he said.
Gaurav Jalan, Founder and CEO, mPokket said India’s journey to financial inclusion is being paved by exceptional financial solutions provided by FinTech companies. He added, “The work that we are doing to make financial services accessible to all is a major positive outcome of digitization. FinTech will continue to grow at a faster rate and penetrate deeper into the country only if rural areas have a strong digitisation network. This sector expects more assistance from the government to develop strong partnerships with banks and financial institutions in order to foster better financial inclusion.”