Budget 2018: What lies ahead for the Indian fintech industry under ‘Digital India’ programme?

Budget 2018 will prove to be a test for the government whether it will be able to finally appease the fintech industry this time, which has been demanding a better regulatory policy, reduction in corporate tax, and inclusion in Mudra scheme

Even though most fintech companies had a rewarding 2017, they still feel high and dry for the lack of policy support, something that the industry has earmarked as a wishlist item for the Budget 2018

Budget 2018: When Finance Minister Arun Jaitley presents the Union Budget for the next financial year in parliament, India’s fintech industry will be hoping for some measures that can facilitate a better ecosystem and framework under the government’s ambitious ‘Digital India’ programme so that they can roll out digital payments solutions more seamlessly. Even though most fintech companies had a rewarding 2017, they still feel high and dry for the lack of policy support, something that the industry has earmarked as a wishlist item for the Budget 2018.

The fintech industry saw a wave of optimism last year with the government bullish about the digitisation process, including online payments and banking solutions. However, there is a long way to go as several marquee factors for digital payments still remain seemingly inaccessible to the industry. The fintech industry is hoping for some major changes to bring about a policy initiative that can transform India into a global fintech hub. The government has so far announced several online and digital payments solutions such as Unified Payments Interface (UPI), Bharat Interface for Money (BHIM) app, e-KYC, and Indiastack among others. However, there is still lack of an effective policy to unify and regulate them.

Aadhaar concerns

In the wake of recent concerns raised by industry experts, UIDAI’s Aadhaar programme falls back on the track of digitisation. The government needs to overhaul the security framework for Aadhaar, alongside ensuring that the related verification methods such as e-KYC get a boost. In order to do so, the monetary limit in the e-KYC process should be raised to foster the adoption of paperless e-citizen services such as DigiLocker and Electronic National Automated Clearing House (e-NACH). This will, in turn, strengthen the financial digitisation in the country. This is on top of the long-standing incentivisation programme run by the government for customers and merchants. “For the Budget 2018-19, we hope that the government will continue to push digitisation of financial services and encourage consumers to use digital platforms for transactions. Initiatives such Aadhaar and UPI provide a good opportunity for banks, insurers, and fintech players to expand India’s efforts towards financial inclusion,” said Gaurav Hinduja, co-founder of Capital Float.

Corporate tax

The fintech industry is also pinning hopes on the reduction of corporate tax for fintech startups and other small firms that fall under the SME (or MSME) category. The tax is set at 25 percent currently for Small and Medium Enterprises. Moreover, the people involved in the process of encouraging digital platforms should get some concession from the government in the form of personal tax reduction. There should be a multidisciplinary innovation hub created for these people who can seamlessly share their ideas, the industry experts believe. Another huge demand that the fintech industry holds in the wishlist for Budget 2018 is that the fintech companies are deemed eligible under the government’s Mudra, SIDBI, and the credit guarantee schemes to receive low-cost funding from the government. “Fintech firms have not been brought within the purview of government schemes such as Mudra and credit guarantee schemes. Therefore, to foster the economic growth, we would recommend that the upcoming budget should revise Mudra and other existing credit guarantee schemes to cover Fintech firms,” said Shailendra Naidu, CEO, Obopay, a payments processing platform.

Fintech lending

In addition, the online lenders who are currently working with various banking institutions to offer loans to customers for online purchases are demanding that their presence be felt in the fintech sector. While the government has previously recognised the potential of these online lending firms, it has not done much to appease them. As pointed out by Shailendra Naidu, “In the upcoming budget 2018, we look forward to the government taking more initiatives to promote digital transactions and provide sizeable incentives to Fintech firms in India. Fintech firms that have partnered with banks and the ones who are implementing healthcare projects should be given increased incentives such as tax holiday for initial three years and tax rebate among others.”

“Partnerships between payments and lending companies typifies what can be collaborative model going forward wherein payment companies rich in transaction data can monetise the same for lending; such a partnership can help lower acquisition costs. Developing a policy framework and allocating budget to enable small value lending without excessive documentation can further help small businesses,” said Charlie Lee, CEO, True Balance, a digital wallet company.

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