An Overview Of Fintech Sector’s Expectations From Union Budget 2020-21
The rise of fintech in India can be attributed to various macroeconomic factors, including favourable demographic profile, availability of cheap internet, penetration of smartphones and an enabling regulatory regime.
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Fintech businesses have emerged as a strong contributor to India’s digital economy across payments, lending, savings and technology. From ensuring financial inclusion in giving people access to an array of financial services, the fintech sector has made a significant impact on the country’s growth in the last few years.
The rise of fintech in India can be attributed to various macroeconomic factors, including favourable demographic profile, availability of cheap internet, penetration of smartphones and an enabling regulatory regime. Thanks to these driving factors, the total size of the fintech sector is expected to be over $100 billion by 2023. Share of personal finance in fintech will be ~2.5 billion by then, which currently is about $1.5 billion. However, the ability of the fintech sector to further penetrate financial services can receive a fillip with some tweaks at the regulatory level.
To begin with, there is a need to empower the country’s new working population including blue-collar workforce and self-employed masses by giving them access to customized financial products. A vast majority of them have incomes under Rs 25000 per month and often find themselves not meeting eligibility criteria of various financial products since they do not have well-defined credit histories.
In a bid to address this problem, fintech companies are hoping that unsecured loans up to Rs 50,000 issued to first-time borrowers or to those with no or inadequate credit histories may come under Priority Sector Lending accompanied with risk-based pricing. This will ensure large-scale penetration of credit instruments and spur demand in the economy by supporting consumption.
Further, in most cases, companies operating in the fintech space are liable to pay high fees for conducting KYC formalities, even for those consumers who opt for small-ticket loans of as low as Rs 10,000. This comes as a huge challenge for fintech players as it affects their revenues in the long run. A differentiated view on KYC fulfilment may be adopted for small-ticket personal loans and double KYC can be eliminated as banks do carry out necessary KYC process for account holders to avoid paying huge charges, especially when it comes to facilitating small-ticket loans for masses.
The fintech sector is also looking forward to a reduction in GST for financial services. Doing so will give a strong fillip to the entire ecosystem and benefit consumers by lowering the overall cost of such transactions. Eventually, this initiative would further accelerate the penetration of financial services products.
Also, if the government brings back the classical system of dividend taxation, in the hands of the shareholders while removing the Dividend Distribution Tax (DDT) liability on corporates, it will be seen as a huge positive since shareholders will be able to get a claim on such tax payments in countries of their origin. This would boost investments across the spectrum and in turn create employment opportunities.
While the fintech sector in India has grown appreciably over the last few years, if the upcoming budget addresses some of the aforementioned concerns, the sector will likely flourish further and create a spiral positive impact in the overall economy.
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