The Financial Technology sector in India has been growing significantly over the past one decade because of a supportive environment by the RBI, government policies and increased affordability of smartphones and data. People are now more receptive towards digitalisation.
However, in order to attain maximum positive results, here are some expectations from the Union Budget 2020.
There is a significant opportunity to fuel the Indian economy by widening the acceptability of MSMEs by the BFSI sector. Fintechs are going to be instrumental in bringing new data analytics and solutions for this opportunity. Fiscal incentives for Fintechs building such solutions would be welcomed.
India has more than 50 million small and medium enterprises who face the problem of liquidity crunch. Out of which only 15per cent of them get access to formal credit due to the trust deficit that exists and they lack collateral. They find it to be “risky investment”. And for the ones who get access to formal credit, they have to wait for four to six weeks to get their loan processed at a staggering rate of 16 per cent - 24per cent.
This scenario creates a debt-financing gap of $1 trillion in the market and hence these small and medium enterprises are under-banked and underserved. The gaps in the market of the loan deficit only can be addressed if the lenders have valuable data-points of these small and medium businesses in order to bank them.
Several fintechs providing payment solutions have requested for incentives for setting up data centres given the need to expand their services to Tier 3 cities and beyond. This will allow them to scale faster at an economical cost. However, the biggest challenge is the setup cost, which happens to be is 10 per cent higher when compared to Singapore and Japan.
As digital trade is fast becoming a central feature of modern commerce, demand for data localisation has been counter-productive in this regard.
Reducing cross-border flow of data will impede the growth of fintechs in India. Additionally, when we talk about The Data Protection Bill, the Reserve Bank of India (RBI) and the Securities & Exchange Board of India are yet to release separate, comprehensive guidelines for the FinTech sector. Hence, ambiguity over regulations continues to be a matter of worry.
With standardised rules in place, even the smaller companies will have to adhere to practices that are on par with international standards. The Data Protection Bill once implemented is expected to give the fintech sector its required fillip.
The announcement by RBI in January allowing VideoKYC for on-boarding new customers has been positive, allowing financial institutions to scale their operations digitally.
Additionally, if Budget2020 allows uniform stamp duty on every state for digital documents will create ideal situation for the industry. Also, there should be no or less Dividend Distribution Tax on Fintech and NBFCs companies.
There is a demand for more disclosure by GSTN without consent allowing lenders to receive early signals of distress from counterparties. Any further disclosure will be helpful in building solutions around this. Enhanced fintech resolutions can be made if data is available with guarding against misuses of the data.
The online world is constantly at shift, with the advent of new services and business models powered by newer and newer technologies. Hence, it will be an ideal situation if the policy makers involve technologists in the framing process to have a forward-looking regulation that will stand the test of time.
With data security, privacy and compliance coming under scrutiny, the government should encourage the private sectors to establish data centers in the country. And continue to emphasize on technologies that encourage digitization and creation of data infrastructure.
The government should test regulation in a sandbox first before making it a mainstream policy. They should invite users to participate and observe the effect of a given regulation on the overall service and should tweak the same if need be to get desired results. This leaves little to guesswork and make sure the regulation is both watertight and accommodative in nature without hampering innovation in the industry.
The author is the Founder and CEO, CrediWatch