fintech: ETtech Budget Watch: Fintechs seek ‘priority’ tag, sops in 2023 budget

As the countdown to the Union Budget 2023-24 begins, Indian fintechs are scrambling for incentives to help expand their participation in the formal financial economy, industry bodies and fintech entrepreneurs told ET.

In his expectations from Finance Minister Nirmala Sitharaman, the fintech industry – which has seen several regulatory reforms in the past year – is seeking “priority sector” status to drive financial inclusion, along with sops to cover the costs incurred to grow digital payment networks in the country .

Fintech lending is also asking for newer funding opportunities either from public sector banks (PSBs) or inclusion in government infrastructure schemes.

“In the upcoming union budget, I hope this government gives the fintech sector an ‘infrastructure industry’ status, which will open up an arena for fintech players to raise money from various sources, including government infrastructure schemes, banks and other international lenders to be a priority sector,” said Vishal Mehta, CEO of Infibeam Avenues, a digital payments and software solutions provider. “Financial technology should be considered the next new age infrastructure,” he said.
Higher Sops for payment:

One of the main thrusts of Indian fintech in recent 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 from December 2019 to increase acceptance of digital payments.

The news came as a blow to payment fintechs such as Google Pay and PhonePe, which have been working to expand 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 Union Budget 2021. Earlier this month, the Union Cabinet approved an incentive scheme for RuPay debit cards and low-value UPI transactions, announcing incentives worth Rs 2,600 crore for FY23.

The industry demands 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 cards as MDR support,” said Vishwas Patel, chairman of the Payments Council of India (PCI), an industry body of digital payments companies. “This will further give payment service operators momentum to improve their last-mile infrastructure.”

Patel, who is also the managing director of Infibeam Avenues, said that 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 is important for the Hon’ble Finance Minister to ensure that all the money given reaches the true players growing this space,” he said.

Better access to capital:

With the rise in repo rates and the cost of borrowing for new-age fintech non-banking finance companies (NBFCs), industry bodies are seeking government intervention to reduce the cost of funds and create dedicated debt financing facilities for new age lenders.

“Indian fintech is the key enabler of financial inclusion, serving cohorts that do not have access to formal credit or many other financial services,” said Sugandh Saxena, CEO of the Fintech Association for Consumer Empowerment (FACE), an organization representing consumer lending fintech. “To accelerate progress, we would urge the Ministry of Finance 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, considered systemically important from a regulatory standpoint, are proposing co-lending arrangements with PSU banks to drive financial inclusion and drive more credit use cases.

“In an effort to continue sustained momentum in the financial economy, it would be helpful to allow fintechs to access capital from PSBs,” said Madhusudan Ekambaram, co-founder and CEO of KreditBee, a digital lending fintech. “Capital from PSBs is currently limited to microfinance, land loans, education and small business loans. However, opening up the credit use cases for PSBs to fintechs will be a big booster and help drive further financial inclusion,” he said.

The general online credit industry is also vying for further formalization and partnerships with digital banking units (DBUs) announced in the previous budget, as well as opening up the UPI use case for digital lending fintechs. Only RuPay credit cards can currently be linked to a UPI ID.

“There are close to 75 digital banking units (DBUs) that were announced in the last budget and our call from the finance ministry is to expand the scope (of these DBUs) to even fintech,” said Anuj Kacker, co-founder of the digital bank Freo and Executive Committee Member of industry body Digital Lenders Association of India (DLAI). “Another charter is to help open up the credit on UPI digital infrastructure to even lending fintechs. While the conversation right now is about allowing RuPay credit card holders to pay through UPI, the payment infrastructure should also be opened up to digital lending fintechs,” he said.

Simpler norms for Insurtech:

Last year, the Insurance Regulatory and Development Authority (IRDAI) and the government had implemented several reforms to make the sector more favorable 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 insurers from Rs 100 crore to a more flexible requirement depending on the type of license the insurer wants to apply for,” said Parimal Heda, chief investment officer at Digit Insurance. . “This will make it easier for smaller, specialized and niche players to enter the sector. The government should also push for a composite licence, where the insurance company can offer both life and non-life insurance coverage to its customers,” he added.