Fintech and Payments Wishlist for India's Finance Minister: A Vision for Growth and Inclusion

EY has predicted that the fintech industry in India will reach $1 trillion in asset under management (AUM) and $200 billion in revenue by 2030. However, recent macroeconomic and geopolitical factors have led to a decline in funding for fintechs in India. This article presents a budget wishlist for the Honorable Finance Minister, Nirmala Sitharaman, to support the growth and development of the fintech and payments sector in India.

1. Incentives for Digital Infrastructure

The government can allocate funds to address these issues and build citizen-centric facilities for digital payments, especially in rural and semi-urban areas.

?? Why is it important? India's digital infrastructure is lacking in several areas such as device availability, access to banking, financial literacy, and trust in digital payments.

?? Potential Impact: Growth for individual digital payment users is set to triple in five years to 750 million, this requires continued support by the government to build trust in digital payments and financial literacy.

2. Give Fintech “Infrastructure Industry” Status

The government can give the fintech sector an "infrastructure industry" status. This will facilitate credit availability for firms, ensure better access to capital borrowings at a reduced rate since banks enjoy a relaxation in the maintenance of capital adequacy for infrastructure lending and will give a fillip to investment in the entire sector as a whole.

?? Why it's important? Fintech start-ups in India raised a total of $5.65 billion in 390 rounds in 2022, a drop of 47 per cent in terms of funding amount and 29 per cent drop in the number of rounds, as compared to 2021, according to data provider Tracxn. Fintech sector needs government support to continue its phenomenal growth in India

?? Potential Impact: Continuation of growth and innovation initiatives by Fintech instead of searching for capital infusion in the funding winters

3. Create the conditions for India's "UPI Moment for Insurance" to happen

• The government can open up the insurance sector, simplify regulations, and widen the reach of penetration in the country,
• The insurance industry is seeking a tax relief of up to Rs1 lakh for health and household insurance and basic protection plans to be taxed at the most in the 5% bracket.
• Change in current minimum capital requirement norms for insurance companies from Rs 100 crore to a more flexible requirement depending on the type of licence that the insurer wants to apply for

?? Why it’s important?India’s insurance penetration is low single digits across health, life and home insurances, lagging behind global counterparts. The sector needs government intervention

?? Potential Impact: Change in consumer insurance buying behaviour, while improving operational viability for incumbent and new players

4. Introduce A Stable Standard Operating Procedures for Digital Payments

The Zero Merchant Discount Rate (MDR) regime for Unified Payments Interface (UPI) and RuPay debit card transactions. Introduced in April 2016, has resulted in a sharp increase in digital payments across the spectrum.

?? Why it’s important? The government should ensure the money reaches the true players in the fintech space, working at the fringes and last mile delivery of financial services instead of over indexing on paybacks for consumer payments which have since reached saturation in the digital ecosystem.

?? Potential Impact: The major headroom for growth will come from players in this sector that need institutional help. They need support to set up infrastructure for SMEs, MSMEs, business correspondent (BC) outlets and micro ATMs, among others

5. Broaden use cases of public infrastructure projects to include fintechs

Expand the scope of Digital Banking Units (DBUs) to include fintechs.

opening up the UPI use case to digital lending fintechs

(loan disbursement through UPI and repayment through their bank accounts)

?? Why it’s important? The speed at which fintechs can solve complex problems sets them apart from other conventional FIs.

?? Potential Impact: faster time to market and scale services for intended consumers if fintechs come into the net, instead of working as outside players

6. Overall tax reforms (standard demand across industries)

• To ensure the same benefits and reach the less digital-savvy citizens, our government could waive Goods and Services Tax (GST) and Tax Deducted at Source (TDS) for financial inclusion services at business correspondent (BC) outlets across India
• The industry also hopes the Finance Minister will bring basic protection plans under the zero GST mark or tax it in the 5% bracket at the most.

7. Incentives for Startups , Ease of Doing business also remain pretty much the same every year