More than 65% of the fintech firms in India have been set up over the past five years alone. One of the key drivers of this growth has been the accelerated pace of digital transformations. The crucial technologies these companies are betting on include blockchain, artificial intelligence, machine learning and biometrics. According to a report by Boston Consulting Group and FICCI, financial technology companies in India have raised about $10 billion from investors over the past five years, which led to the sector's total valuation swelling to $50-60 billion.
With offerings including digital lending, mobile banking, and payment gateways, the fintech sector has played a major role in expanding and promoting access to financial services and meeting the needs of underserved consumers with greater convenience. While there are opportunities in terms of financial innovation that lie ahead for the world’s fastest-growing fintech market, there are potential challenges that the upcoming budget should help address. Some of the key enablers that fintech leaders expect from the upcoming budget include infrastructure, conducive policy framework, and a pipeline of a sizeable talent pool. Enablers from both supply-side - including computing power, internet penetration, and demand-side - including inclusive financial services, reduced costs and reliable services, should be considered holistically to keep up the momentum of the fintech revolution.
The push for digital infrastructure
The new fintech division at the Reserve Bank of India is a step in the right direction and the government should now address challenges associated with it and address them in a timely manner. The budget should push for further digitization to widen the digital payment ecosystem and ensure financial inclusion. Women, the oppressed castes, and other consumers from the underserved segments do not get as much benefit from the fintech revolution.
Companies that are spending on technology to serve the unbanked category to stimulate the adoption of digital payments must be duly recognised. “It is one of the important ‘Shared Services’ that would help connect and promote digitisation in Indian agriculture, Indian MSMEs and informal economy”, says Praveen Dhabhai, COO, PayWorld. It is imperative to provide a conducive environment to both new and existing fintech companies, Praveen adds.
The payment and security infrastructure in cities, especially Tier-II and Tier III ones, aren’t adequate and this is where the government should intervene. The explosion of digitalisation, remote work, and greater use of third-party services have opened up avenues for cyber threats such as ransomware.
Relaxation in tax norms
Because of the benign taxation for self-service digital customers, we saw a good impact on digital payments. To ensure the benefits reach the tech-illiterate citizens, the government could waive GST and TDS for financial inclusion services at Business Correspondent outlets across the country. “A TDS or GST waiver will lessen the cost of offering financial services and help high-end tech reach the technology-savvy segment. We stand with the government's plan of taking digitisation to the last mile and passing the GST waiver benefit to end-users as this will push for greater financial inclusion and a digital economy in the country,” says Anand Kumar Bajaj, Founder and MD & CEO, PayNearby.
“Peer-to-Peer lending plays a crucial role in enabling small businesses in India. Returns from investments in P2P lending could be exempted from tax under Section 80C of Income Tax law. Or a separate provision could be created to reduce tax rates such as tax exemption for gains below Rs 20,000,” says Bhavin Patel, Co-founder & CEO, LenDenClub. This will encourage people across geographies to invest in P2P lending, making funds accessible on multiple platforms, adds Bhavin.
"Low-income citizens are mostly catered to by low-earning retailers who barely cross the value of taxable income, and hence, do not file IT returns to claim a refund of TDS. TDS is not a refundable deduction, rather a cost for them because they are not aware of the process to take a refund by filing returns. We hope that TDS for income below ₹50,000 a year can be waived off. We are positive that the budget of 2022 will consider changes to strengthen the community that has been crucial in driving financial inclusion and democratisation of digital payments in the country," adds Kumar.
Focus on skilled talent pool
The pandemic has resulted in significant job losses across sectors and the emerging fintech sector today is facing a scarcity of future-ready tech talent. For the fintech startups to move to the next level, there is a clear need for professionals with technical and financial competence. “Setting up avenues for advanced technical education, for instance, could help it drive so much further,” says Bhavin. More institutions that provide formal education and certifications are needed to create a skilled group of individuals to take the fintech revolution to the next level, Bhavin adds.