How Budget 2023 can help fintech market reach $200 billion in revenue by 2030
According to an EY report, India’s fintech market is expected to reach $200 billion in revenue by 2030 from $50 billion in 2021. It is expected to have assets under management of $1 trillion by 2030, the report said.
According to data from the National Payment Corporation of India (NPCI), the total number of UPI transactions in 2022 saw an increase of 91.11%. To further help it reach the masses, NPCI rolled out UPI123 last year, which would enable feature phone users to make digital payments without internet access.
Mandar Agashe, founder and MD, Sarvatra Technologies, a technology provider for the banking sector, says banks are rolling out offline payments via feature phones with the help of NPCI because the next user base of UPI will come from these users. “So UPI123 and UPI Lite, both of these are useful not only for semi-urban and rural but also for urban poor. So, urban poor who want to use UPI can use feature phones. It will spread very well in the next couple of years, he says.
The upcoming budget should promote these services and it will increase financial inclusion. He suggests that at the gram panchayat or village level, self-help groups (SHGs) could be roped in to promote the use of offline payments through UPI.
“This will help UPI to grow very fast. When SHGs start using offline mode of payment through UPI, public confidence will start increasing. And if such SHGs are provided with incentives to make digital payments, it will be a big change in the last mile village, he says.
Agashe points out that financial inclusion has always been a top priority in the previous budgets. He expects the momentum to continue in the digital payments sector. “By 2023, India will lead the G20. So we hope that UPI spreads to all G20 countries. India is already a leader in digital payments. With India chairing the G20, the top G20 nations can take inspiration from India on how seamlessly India has adopted the various forms of digital payments. Taking UPI to the G20 will be a big trend that will happen in 2023, he says. Over the past couple of years, many fintechs have emerged with the goal of financial inclusion. One such player is PayNearby, which partners with micro-entrepreneurs such as kirana stores to offer financial services.
Anand Bajaj, MD and CEO of PayNearby, says there must be some tax benefits for fintechs interested in financial inclusion. There are only 32,000 bank branches in six lakh villages and bank correspondents are bridging the gaps in financial inclusion here. They could do with a little encouragement. “The work of a bank correspondent in a village of less than 5,000 people is not an easy job. Large systems are required, such as infrastructure security, the technology, training of the sales teams, the entire cloud technology and the payment infrastructure. All this requires attention. If this is subsidized by the state, even by giving a small tax advantage, it will go a long way to achieving the government’s goals, he says.
GST on financial services should be about 5% instead of 18% now, Bajaj adds.
NBFCs were the solution for liquidity crunch
At the same time, non-banking finance companies (NBFCs) operating digitally have also become an important part of the lending ecosystem in India. They have played an important role in enabling a large part of the population to gain easier access to formal credit. However, NBFCs are also not spared from the challenges lenders have faced in the last couple of years. The segment has been facing liquidity challenges for some time and it has deepened due to the IL&FS crisis.
Mumbai-based IL&FS was a giant in infrastructure lending and provided services similar to traditional commercial banks. In 2018, the NBFC defaulted on a few payments and failed to service its certificates on maturity, indicating that the company was facing a liquidity crisis. It was estimated that the crisis caused debt defaults of Rs 1 lakh crore. This led to a severe funding drought among NBFCs. Although some of these debt defaults were resolved, NBFCs are still feeling the impact of the crisis.
Anil Pinapala, founder and managing director, Vivifi India, an NBFC, says that every year they have hoped that the budget will inject more liquidity into the NBFC system.
“A good three-four-year period has passed since the IL&FS scandal, which was followed by Covid, which was followed by loan moratoria. Although banks are overflowing with cash, they are not meeting the needs of credit-starved individuals. NBFCs have always played that role, he says.
It would be a great initiative if the Ministry of Finance could prescribe some norms in the budget to ensure that the big banks inject liquidity into the system through NBFCs and expand access to credit.
Aditya Damani, founder and CEO of fintech startup Credit Fair, says on similar lines that a framework is required for this. He acknowledges that there are some liquidity infusion-led interventions by the government and a few PSU banks like SBI actively lending to the NBFC sector. “However, to help the NBFCs address under-penetration of credit, the government needs to accelerate and further broad-based credit infusion into the sector. More banks should partner with NBFCs and fintechs. For that, the budget may propose a framework to build a robust liquidity support system for NBFCs , including more focused lending by the banks as well as schemes like green bonds to encourage capital market investment in NBFCs, he adds.
