Budget 2023: Fintechs expect subsidies for growing digital payment networks
Fintechs are expecting measures to strengthen digital payments and partnerships with banks in the upcoming Budget 2023-24 for the growing sector.
According to an EY report on fintech, the sector in India is expected to reach $1 trillion in assets under management (AUM) and $200 billion in revenue by 2030. The report revealed that the new banking space has seen a fivefold increase in funding over the past year and is expected to reach $215 billion dollars by 2030.
Industry experts who spoke to Business Standard highlighted that Finance Minister Nirmala Sitharaman is likely to announce additional allocations and sops for the fintech sector in view of the much-needed capital injection. With emerging technology and increased use of digital payment networks, here are some of the things industry players hope will be announced in the budget:
Higher incentives for payments
Mihir Gandhi, Head of Payments Transformation, PwC India, said one of the key claims of fintechs in India in recent years has been the zero merchant discount rate (MDR) regime for Unified Payments Interface (UPI) and RuPay debit card transactions. It was announced by the Minister of Finance in 2019 to increase the acceptance of digital payments. To compensate for the losses, the government in Budget 2021 announced a Rs 1,500 crore scheme to promote digital transactions. Earlier this month, the Union Cabinet approved an incentive scheme of Rs 2,600 crore for FY24 for RuPay debit card and UPI transactions which will be reflected in the upcoming budget. According to Gandhi, it will be good for last-mile connectivity for fintechs like Google Pay and PhonePe, which have been working to expand payment acceptance infrastructure across the country through quick response (QR) codes.
However, Gandhi highlighted that the industry needs more than twice the number of approved incentives.
“UPI payments that happen currently cost zero. The government of India usually subsidizes the banks and fintechs for affordable UPI transitions. In a normal scenario, the UPI transaction will be charged to the merchant to accept the payment and some fee will be shared across by the banks as fintech processes the UPI transaction.These transactions of UPI have now increased a lot in the last one year.Therefore if the government continues with zero MDR i.e. pricing zero for all merchants, the UPI refund to be given to the industry will be Rs 5,000 to 6,000 crore,” he said.
Increased allocation to increase acceptance in the districts
According to Gandhi, the fintech sector is also seeing an increase in acceptance due to the centralized funds created by the Reserve Bank of India (RBI) which is the Payment Infrastructure Development Fund (PIDF). PIDF had an initial allocation of Rs 300-400 crore. This was created to reimburse the accepting entities which include the technology companies that would set up the last mile QR code POS terminal in the tier-2 and tier-3 locations.
“So, this year too, in the drive to increase digital payments and fintech presence in rural areas, we expect an additional Rs 400-500 crore to be set up through the corpus. The aim is to increase acceptance to the last mile,” Gandhi said.
GST exemption
Rohit Arora, CEO and co-founder, Biz2credit and Biz2X said the industry is looking forward to some relaxation in the tax regime and hopes to see better financial inclusion in Budget 2023.
He said, “Broadly speaking, we expect liberalization of the tax regime, especially with respect to GST. We expect the government to put in more relaxations in the criteria for Employee Stock Ownership Plan (ESOP). In the previous budget, huge tax breaks were given to start-up employees to solve the double taxation and relieve the tax burden that employee share ownership has on employees. But since the eligibility criteria are quite strict, only a very limited number of Indian companies can benefit from it. So we can expect the government to look into this and give tax breaks to budding FinTech – start-up companies and their employees.”
Measures for better partnerships with banks and financial institutions
Arora highlighted that the fintech sector expects announcements related to measures for better partnerships with the banks and a level playing field for both online and offline lenders. “It is also important for the government to help small NBFCs and fintech companies working in Tier 2 and tier 3 cities with adequate co-borrowing limits and rates. This will play an important role in promoting financial inclusion by alleviating stress for both lenders and borrowers,” he said.
Gaurav Jalan, Founder and CEO, mPokket said that India’s journey towards financial inclusion is being paved by exceptional financial solutions provided by FinTech companies. He added: “The work we are doing to make financial services accessible to all is a major positive result of digitization. FinTech will continue to grow at a faster rate and penetrate deeper into the country only if rural areas have a strong digitization network. This sector expect more assistance from the government to develop strong partnerships with banks and financial institutions to promote better financial inclusion.”
