In their expectations from finance minister Nirmala Sitharaman, the fintech industry – which has seen several regulatory reforms over the last year – is seeking ‘priority sector’ status for driving financial inclusion, along with sops to cover the cost incurred for growing digital payment net in the country.
Lending fintechs are also asking for newer avenues of financing whether from public sector banks (PSBs) or inclusion in government infrastructure schemes.
“In the upcoming union budget, I hope this government gives the fintech sector a ‘infrastructure industry’ status, which will open up a venue for fintech players to raise funds from various sources, including government infrastructure schemes, banks, and other international lenders on being a priority sector,” said Vishal Mehta, managing director of Infibeam Avenues, a digital payments and enterprise software solutions provider. “Financial technology should be considered the next new-age infrastructure,” he said.
Higher Sops for Payment:
One of the main contentions of Indian fintech over the past years has been the zero merchant discount rate (MDR) regime for unified payments interface (UPI) and RuPay debit card transactions, which was announced by Sitharaman starting December 2019 to grow acceptance of digital payments.
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The news came as a heartburn for payment fintechs such as Google Pay and PhonePe, which have been working to grow the payment acceptance infrastructure across the country through quick-response (QR) codes.To make up for the losses, the government announced a Rs 1,500-crore scheme to promote digital transactions in the country in the Union Budget of 2021. Earlier this month, the Union cabinet approved an incentive scheme for RuPay debit card and low-value UPI transactions, and announced incentives worth Rs 2,600 crore for FY23.
The industry is demanding more:
“The government has sanctioned only Rs 2,600 crore, but we expect about Rs 8,000 crore in support for the next fiscal, including Rs 6,000 crore for UPI person-to-merchant (P2M) transactions and another Rs 2,000 crore for RuPay debit card as MDR support,” said Vishwas Patel, chairman of Payments Council of India (PCI), an industry body of digital payments companies. “This will further provide momentum to the payment service operators to improve the infrastructure at the last mile.”
Patel, who is also executive director at Infibeam Avenues, said none of the money already dispersed by the government for UPI peer-to-merchant (P2M) and RuPay debit card transactions for the years 2020-2021 has reached any of the key players.
“With zero-MDR, it’s imperative for the honourable finance minister to ensure that whatever money is handed reaches the true players who are growing this space,” he said.
Better Access to Capital:
With the increase in repo rates and cost of borrowing up for new-age fintech non-bank finance companies (NBFCs), industry bodies are seeking government intervention on reducing cost of funds and creation of dedicated debt financing facilities for new-age lenders.
“Indian fintechs are key enablers for financial inclusion, serving cohorts which don’t have access to formal credit or many other financial services,” said Sugandh Saxena, chief executive officer of Fintech Association for Consumer Empowerment (FACE), an organisation representing consumer-lending fintechs. “To accelerate the progress, we would urge the finance ministry to look at dedicated intervention to support the availability of affordable and comprehensive financing facilities of various kinds, including equity, debt and others, to fintech NBFCs as it will help provide affordable loans,” she added.
Indian digital lending fintechs with licences, that are being considered systematically important from a regulatory standpoint, are suggesting co-lending arrangements with PSU banks to drive financial inclusion and power more credit use-cases.
“In a bid to continue sustained momentum in the financial economy, it would be helpful to allow fintechs to access capital from PSBs,” said Madhusudan Ekambaram, cofounder and CEO of KreditBee, a digital lending fintech. “Capital from PSBs is currently limited to microfinance, rural borrowing, education and small business loans. However, it will be a big booster to open up the credit use-cases for PSBs to fintechs, helping in driving further financial inclusion,” he said.
The overall online credit industry is also batting for further formalisation and partnerships with digital banking units (DBUs) announced at the previous budget, besides opening up the UPI use case to digital lending fintechs. Only RuPay credit cards can be currently linked to a UPI ID.
“There are close to 75 digital banking units (DBUs) which were announced in the last budget and our ask from the finance ministry is to expand the scope (of these DBUs) to even fintechs,” said Anuj Kacker, cofounder of digital bank Freo and executive committee member of industry body Digital Lenders Association of India (DLAI). “Another charter is to help open the credit on UPI digital infrastructure to even lending fintechs. While right now the conversation is on allowing RuPay credit card holders to pay through UPI, the payment infrastructure should also be opened to digital lending fintechs,” he said.
Easier Norms for Insurtech:
Last year, the Insurance Regulatory and Development Authority (IRDAI) and the government had implemented several reforms to make the sector more conducive for insurance providers and policyholders.
Now, insurance providers are looking for eased norms to promote participation in the sector.
“The government should look at changing the 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,” said Parimal Heda, chief investment officer of Digit Insurance. “This would facilitate smaller, specialised and niche players to foray into the sector. The government should also push for a composite license, wherein the insurer can offer both life as well as non-life insurance coverage to its customers,” he added.