The FinTech industry hopes for a host of measures ranging from e-KYC to tax benefits and ease of doing business. For FinTechs to thrive, the FinMin should consider formulating clear policies around data, and allocate more funds to boost their. growth.
FinTechs are rising and so are their demands. From payments to lending, and wealth management to operational challenges, FinTechs are bringing in innovative solutions with speed. But to continue with the same speed, they want the government to resolve key issues related to KYC, help them get access to funds and create a common digital infrastructure for all the FinTechs.
Dearth of liquidity for lender
Considering the current NBFC crisis and the rise of FinTechs in lending space the sector is eyeing the budget with big hope.
“NBFCs funding to the MSME segment needs to be supported by the Government through multiple funding windows. We expect the Budget to bolster MSME funding activity through multiple initiatives across taxation, digital lending and borrowings,” said Piyush Khaitan, Founder & MD, NeoGrowth Credit.
He added, ECBs should be allowed even for onward retail lending to MSMEs and lending upto ₹1 million to MSMEs should be considered as priority sector lending.
The liquidity crunch has not only affected well established players but the new age digital NBFCs as well.
“NBFCs are no longer a niche side business. Any measures to ease capital flow will go a long way towards easing the liquidity crunch in the market, such as relaxing the FPI norms. And extending TDS exemptions for interest payments to NBFCs, just as banks and insurance companies enjoy,” said Hardika Shah, Founder & CEO, Kinara Capital.
KYC – Make it easy
Aadhaar could empower new age FinTechs and financial institutions to acquire the customers with E-KYC as this made customer acquisition easy. In fact, most of the FinTechs and wallets were born due to Aadhaar-enabled e-KYC. But Supreme Court verdict and regulatory changes restricted its use. FinTechs are expecting the government to address this issue in the budget.
“If the government can bring effective mechanism to verify users, lot more people can be covered under the digital financial ecosystem. This will also reduce dependency of people on middlemen who sometimes mislead them or charge extra fee,” said Bhavin Patel, Co-Founder & CEO, LenDenClub.
Angel tax may not be an Angel for FinTechs.
The debate around Angel Tax has been there for a while. The startup/FinTech industry want it to be simplified if it doesn’t go away.
“Though the government has tried addressing concerns related to angel tax, it is difficult to understand for a layman or a startup founder who does not come with finance background. The mechanism should be simpler to understand and follow,” added Patel
Angel tax is referred to income tax payable on capital raised by unlisted companies through issue of share where the share prices are seen in excess of the market value. This excess is considered as income & hence taxed under Income Tax Act 1961.
Public digital infrastructure is a key business enabler for FinTechs providing last mile solutions in the urban areas or hinterlands. A robust digital infrastructure benefits the FinTech ecosystem to achieve higher scalability levels and wider reach. Recently, in a report on Deepening Digital Payments in India, Nandan Nilekani also made recommendations to empower the digital infrastructure.
“Government should focus on allocating more resources towards Wi-Fi hotspots in the rural and semi-urban areas,” said Abhishek Ray, Head – Legal & Compliance, ePayLater.
Government has already provided Wi-Fi hotspots at railways stations and public places. Under Modi government’s Bharat Net project, so far 1.19 gram panchayats have been connected. The government is inching closer to meeting its goal of Internet services for all.
Ray added that entry-level smartphones upto a particular price-range and technical specification should be exempted from taxes. There could be further encouragement for enhancement of UPI rails including QR codes push for retailers, the introduction of mandate features, digital invoicing on UPI, etc.
FinTechs believe that the digital infrastructure would be a win-win situation for the whole ecosystem.
“The idea to create 1 lakh digital villages in the next 5 years in the interim budget was one step towards creating a framework which will work towards making India a less-cash society. We expect that the upcoming budget will have more emphasis on financial literacy, push towards creating technology-led infrastructure and additional distribution channels in rural areas for last mile access,” said Rustom Irani, MD, Hitachi Payment Services.
FinTechs have their expectations and government has a budget. Government’s steps to make India a digital-first economy will give a sustainable push for the FinTechs.