India now boasts of more than 7,000-plus fintech players, and majority of them expect further tax relief and the Union government's continued focus on digital innovation. Fintech startups and other stakeholders in the fintech ecosystem expect a positive budget 2023 and there is a broad feeling among the majority of players that the government will push for more digital-led innovation.
Measures such as better streamlining of Digital KYC, continued focus on digital banking units and continued invesments in infrastructure and new technologies such as AI and ML, blockchain, chip manufacturing, will help support the growth of the fintech industry by growing new sectors in the economy. At the same time, many players expect reduction in startup taxes with no GST until annual revenue of Rs 10 crore will further help the fintech players.
“Initiatives are expected in the digital KYC ecosystem. Digital KYC is subjected to security breaches and threats, the installation of security infrastructure is mandatory and the costs involved are hefty, also, there is a need to train the staff to use various technologies for Video KYC, hence, financial assistance in KYC compliance would be of much help,” said Sumit Chhazed, CEO and co-founder, OTO.
Fintech experts are of the opinion that the government’s focus on setting up 75 digital banking units in 75 districts should be continued this year as well. “The involvement of existing fintech players and especially corporate banking correspondents which are bank agnostic in driving digital banking units will help in further expanding necessary universal banking services to the last mile over restricting to one bank brand services and enable us to take a step further towards our goal of financial inclusion through rural empowerment,” said Dilip Modi, founder, Spice Money. He feels that there should be tax reduction in the upcoming budget that could help small merchants provide financial services to rural citizens. As this will help in minimising the cost of providing financial services and foster deeper financial inclusion in the hinterlands of the country,” said Modi.
Experts expect that strong focus needs to be laid on priority sector lending and credit access should be granted to those who are otherwise deprived of the facility. “Measures should be directed towards ensuring that market participants have enough liquidity to support the new to credit customers. Further, the government should implement the necessary measures for improved partnerships with banks,” said Vishal Bhatia, CFO, Balancehero India.
Bhatia further observes that the budget will contain supportive initiatives that will enable cutting-edge lending systems that can guarantee high-quality performance while preparing for the upcoming wave of transformation. “While the industry is working on providing direct benefits to borrowers of personal loans in the form of tax benefits, they demand indirect benefits for the fintech sector to be empowered with the ease of doing business. This would ensure that lenders extend these benefits to end users. The government should allocate funds to stimulate the creation of new ideas that would foster paperless digital lending and stronger partnerships. To improve customer and business experiences, credit quality, and expedite the expansion of financial organisations, we anticipate that the government will place a greater emphasis on the creation of digital infrastructure,” said Bhatia.
Many fintech stakeholders hope that the government would further alleviate concerns with regard to cash flow. The sector expects tax savings by depreciating the fixed assets utilised by fintech companies. Consequently, substantial tax relief if provided to startup employees can alleviate the dual taxation issue and lessen the financial burden that Employee Stock Ownership Plans (ESOPs) place on employees.
“The fintech sector predicts further support for improved bank partnerships that will support the existing paradigm. The experts in the field emphasised the need for fair playing conditions for both online and offline lenders. With this, the fintech industry implores the government to address the dire need for access to capital for startups and small businesses, including streamlining the process of obtaining loans and financing as well as providing avenues for funding through venture capital and other sources. Additionally, implementing adequate rules to manage the fintech sector will provide businesses in the sector with transparency and surely aid them in managing their finances. If India completely embraces digital technology, fintech will advance more. The government, therefore, could offer smaller NBFCs and fintech companies operating in Tier-2, Tier-3, and Tier-4 locations suitable co-lending ceilings and rates,” said Anubhav Jain, co-founder and CEO, Rupifi.
The fintech sector also anticipates some tax reliefs especially under Corporate Income Tax and rate of Goods and Services Tax (GST) which at present is 18 per cent. “Since the pandemic, the reduction in rates under income tax has become crucial. Broadening of the tax base has been an unaddressed issue which needs to be considered and reviewed. We also anticipate some reductions in startup taxes with no GST until annual revenue of Rs 10 crore. This will assist SMEs in strengthening the economy. The industry also requires a depreciation on the fixed assets used by fintech companies to save on taxes.
“Last year saw many regulatory disruptions for fintech players, leading to lesser fundings and business uncertainties for fintechs. We hope to see more policy certainty and a level playing field with banks and NBFC for fintechs. India has seen huge progress in B2C payments but B2B payments are still archaic and needs an overhaul,” said Manish Kumar, founder and CEO of KredX.
Kumar says that the budget should provide avenues to push digital B2B payments which can be faster and simpler with UPI integration. One of the key expectations of the fintech industry is for the government to provide a more enabling regulatory environment. He feels that the fintech industry operates in a highly regulated space and any changes in regulations can have a significant impact on the industry. “The government can consider providing more clarity on existing regulations, streamlining the process for obtaining licences and approvals, and reducing the compliance burden for fintech firms. We believe that this could help SMEs build a stronger economy and aid in creating more jobs. The budget should also focus on including measures to make it easier for fintech companies to access global markets. This could include measures to reduce barriers to entry and make it easier for fintech firms to compete in international markets,” said Kumar.