With one brand new piece of legislation unveiled and another one conceived, 2022 would have to be a watershed year for the country’s digital ecosystem. No piece was left untouched.
The ubiquitous Unified Payments Interface (UPI) continued to blaze a trail, clocking values of around `11-12 trillion a month. By one estimate, digital payments, which took off during the pandemic, now account for close to 40% of retail transactions.
There’s much to look forward to in the new year — the Digital India Act, for example. A few new platforms — built on the Indiastack — can also be expected including a couple in the logistics, health and skills spaces and also a big one to facilitate business.
In 2022, even as the crypto crashed, India rolled out pilots of a Central Bank Digital Currency (CBDC) and also an Open Network for Digital Commerce (ONDC). Continuing digitisation of the credit space saw nearly 100 participants clamber on board the Account Aggregator (AA) mechanism.
Not all of them might meet with instant success though. The AA seems to be stuck because banks are reportedly reluctant to share financial transaction data of their customers. Expected to democratise credit, the AA has got off to a slow start; 3.12 million accounts have been linked and 3.05 million consent requests have been fulfiled but experts point out the penetration is woefully below potential. They’re hoping the presence of the GSTN, which has now become a financial information provider, would give the platform more momentum.
It’s also clear that the ONDC, being simply a network or a facilitator, is not going to be able to draw customers like other retail marketplaces have. The start in Bengaluru has been a slow one and while a host of big names — banks, payments firms, FMCG players and telcos — are all on the network, a full-scale rollout doesn’t look imminent. As of now therefore, the CBDC looks most promising and likely to gain traction in 2023. However, the digi currency will likely be used primarily by companies for cross-border transactions and by the government to disburse subsidies. The use case for individuals at this point is less compelling given how Indians are now adept at transacting on their smartphones.
In fact, the payments pace is tipped to become even better in 2023 as more payments aggregators (PA) get going. This should have happened in 2022 but many candidates missed the deadlines to meet the net worth criteria. Now under the regulator’s purview, PAs — Pine Labs, Stripe and others — are expected to make life easier for merchants and e-retailers by handling all kinds of digital payments from customers.
Digi banks have been nixed by the regulator after the Niti Aayog made a case for these fully electronic lenders arguing that high costs are making today’s commercial banks inefficient. Drawing from examples in the western world, Niti argues that digital banks could be used to empower under-banked small businesses. While the Reserve Bank of India (RBI) may have its reservations, some rethinking on the subject is called for, especially as most fintechs cannot lend following the new, tighter norms. To be sure they can, and probably will, partner increasingly with banks and NBFCs in the coming year.
However, even those fintechs which have adopted the NBFC model to lend are likely to be constrained by limited capital. Even otherwise, with the regulator disallowing lending by non-regulated entities, the space should see a fair bit of consolidation next year with many fintechs shutting shop. As such, it might be worth looking at digi banks.
There’s a new IT Act in the making. In a first, the government is planning a clear-cut differentiation between the many online intermediaries such as social media sites, e-commerce entities, fact-checking portals and artificial intelligence (AI)-based platforms and to prescribe separate regulations for each. The reasoning is that there are no pure play intermediaries any longer — most must be considered digital service providers. Consequently, the regulation would need to address more than just the liability of an intermediary. The new all-encompassing legislation, called the Digital India Bill, is also expected to introduce new criminal offences, propose a regulator for the digital space; regulation for metaverse and blockchain is also on the cards.
Meanwhile, a simpler, pragmatic and business-friendly Digital Personal Data Protection (DPDP) Bill should be passed in the Budget session. Companies may lobby for easier rules but the government should ensure the clauses requiring detailed consent from users for collecting and processing data are retained. Also, the legislation must build in independence for the Data Protection Board; the provisions in the Bill do not inspire confidence that the Board will be functioning autonomously.
Amidst a tech meltdown and a funding winter, it’s been a harrowing year for startups who’ve discovered business isn’t so easy. Not even with $55 billion of capital. One safe prediction for 2023: there aren’t going to be many startup IPOs.