Fintech has become a buzzword of sorts in India over the last couple of years and for good reason. The rise of alternate lending platforms, digital payment providers, new avenues of investment and easier access to banking services for a vast majority of unbanked and underserved Indians has created a solid niche for this sector in the economy and the overall consumer psyche as well.
The National Association of Software & Services Companies (NASSCOM) reported that, almost 400 fintech firms were already operational in India from 2018 and it further predicted that India’s fintech market would touch a massive $2.4 billion by 2020. The writing on the wall, as they say, is clear – fintech in India is already a huge and highly significant industry. It is not just altering the way financial services are rendered & consumed, but also has a massive role to play in increased spending and saving, thereby giving a robust fillip to the economy.
However, like every other sector that experiences explosive growth & relevance, the fintech industry too is facing its fair share of challenges. Many of these can be overcome easily with some policy incentives and government support. Players in this space are expecting the upcoming Union Budget announcement to address some of their specific roadblocks to scaling and expansion.
The first & foremost of these is putting-in place the appropriate KYC or Know Your Customer mechanisms. While Aadhaar-based eKYC was an accepted norm, on-boarding new customers were much simpler for fintech platforms. However, since this modus operandi was struck-down by the Supreme Court last year, fintech players across the country have unanimously been asking for clarification on the use of Aadhaar for verification purposes.
In the absence of Aadhaar-based eKYC, many players have had to move to physical or in-person verification of customers, which has increased the per customer cost of loan processing by almost six times and has also increased the time taken for disbursements. A lucid & practical strategy and budget allocation for the Electronic National Automated Clearing House (e-NACH) and DigiLocker will further streamline the industry as a whole and is one of the key expectations of this sector from the Union Budget.
Further, the industry in unison is expecting a refined and long-term centralized vision for the fintech industry. If the Finance Minister can offer a 10-15 year perspective on what lies ahead for this space and what the government intends to do to strengthen the overall digital infrastructure of the country, many will consider it a blessing.
The government has given a solid thrust to the digital payments domain in the last two years. Further, it has made a good case for cashless modes of payment by discounting charges on card payments. This is encouraging users to adopt digital payments as they no longer need to incur charges for small transactions under Rs.2000. This will further propel the digital payments industry in the next 4-5 years, especially for smaller purchases.
In this year’s budget, we are looking forward to the government incentivizing other forms of financial services in the same manner. This is especially true in the case of P2P lending which is one of the most nascent sub-segments of fintech in India and one that has proved its potential in a definite fashion.
The government can encourage investment in this segment by creating tax-free slabs for specific sectors or small/marginal borrowers. Such incentives are sure to bring a lot of idle wealth of, say the Indian middle class, into the mainstream economy which can be channelized towards other segments which are in need for institutional credit such as India’s MSMEs. With greater access to capital and easier borrowing norms, MSMEs are more likely to be able to realize their full potential and contribute more agilely to the economy, making P2P incentivization a win-win for all.
A similar example that one can take inspiration from is that of the British economy. In cognizance of the potential of P2P lending, the UK government recently allowed lenders to invest up to GBP 20,000 a year tax free. The Indian government, too, could develop a similar framework to encourage more participation from individual lenders, and thereby increase the circulation of funds in the economy.
The Indian government has displayed its intention to promote the digitization of financial services quite lucidly. From the Union Budget, industry players are now expecting a few more concrete steps & sops that will truly revitalize the growth of the sector and help the P2P industry, in particular, to flourish. With adequate incentives and more investment being pumped into P2P lending and the fintech space overall, India can certainly realize its goal of becoming a $5 trillion economy much faster.
Bhavin Patel, CEO and Co-Founder, LenDenClub, brings along a decade-long experience in the lending business. His area of experience involves credit risk, financial operations, business development and fund raising