Budget 2023: Fintechs demand more allocations, tax reforms and bank partnerships

Representative image. (Credit: Forbes.com)

Fintechs are expecting Finance Minister Nirmala Sitharaman to offer them some measures to strengthen partnerships with banks alongside easier tax rules in the budget she will unveil on February 1.

Industry experts who spoke to Moneycontrol also emphasized the need for more capital infusion by the government for fintech entities to build a level playing field with competitors.

Research by global financial company EY has predicted that fintech in India is set to achieve $1 trillion in asset under management (AUM) and $200 billion in revenue by 2030.

The report mentioned noted that funding for fintechs, which peaked in 2021 to Rs 780 crores, fell in the first few months of 2022.

"Several factors could have played a role in this decline, including macroeconomic and geopolitical factors such as the Ukraine war, increase in inflation, and uninspiring financial and public market performance of major FinTech companies, creating a dent in investors’ confidence in future exit prospects," the report said.

Fintech executives said the sector would need more budgetary assistance not only to sustain the existing pace of growth, but also to accelerate it.

"Fintech has witnessed fast track growth and expansion, driven by new-age technology over the last few years. Budgetary allocations to boost the digital payments ecosystem and further bolster our world-leading digital infrastructure would strengthen the fintech industry," said Nalin Negi, Chief Executive Officer (CEO) and Chief Financial Officer (CFO), BharatPe.

Stressing how easy credit access could boost the sector, Negi said: "To facilitate furthering financial inclusion, the government should roll out measures to boost the liquidity flow to fintechs."

Other than this, industry entities also expect initiatives from the budget that would strengthen the existing digital infrastructure to promote financial inclusion.

"We would expect the government to allot funds towards setting up of digital infrastructure focused on building citizen-centric facilities and address various issues pertaining to digital payments," said Swapnil Jambhale, co-founder of SafexPay, a payment fintech.

Apart from microfinance institutions (MFI), fintechs have played a major role in financial inclusion in the interior parts of India. They want some tax reforms for the industry to boost financial inclusion.

Dilip Modi, founder of Spice Money, a lending fintech, said: “The digital payments space has proved its mettle as a stable growth avenue during the pandemic. A positive impact was seen on digital payments due to benign taxation for self-service digital customers.”

“To ensure the same benefits änd reach the less digital-savvy citizens, our government could waive Goods and Services Tax (GST) and Tax Deducted at Source (TDS) for financial inclusion services at business correspondent (BC) outlets across India.”

With access to funding growing in late 2022 and early 2023, industry executives expect the budget to unveil some tax reforms so that fintechs can stay focused on plans for business expansion.

If tax reforms are put in place, major fintechs can focus on funding and innovation, among other things, Negi said.

“Tax benefits and incentives will encourage fintech startups to focus on innovation, and invest in research and development to build new, disruptive products,” Negi said.

Partnerships with banks play a pivotal role for fintechs as they get access to a broader market. In turn, banks receive access to fintech players’ tech-savvy platforms and services.

Banks and fintechs have been joining hands. For example, Axis Bank tied up with Open, a digital banking enterprise, and DBS Bank partnered with Gofrugal Technologies, a platform offering Enterprise Rsource Planning solutions to adopt an Open Network for Digital Commerce to its enterprise customers.

These partnerships help both banks and fintechs. Aniket Dani, Director of Research at CRISIL Market Intelligence and Analytics, said: “Banks and fintech partnerships leverage each other’s strength and provide a more comprehensive suite of financial services to customers. It helps in making banking services digital and user-friendly.”

Some experts say the Budget is an opportunity for banks and fintechs to focus on Priority Sector Lending to expand financial inclusion.

“The Budget is an opportunity to motivate banks to further PSL by partnering with last-mile-focused fintechs and this is possible only if banks remove the rating criteria that continues to favor larger fintechs. Partnering with smaller and last-mile focused fintechs is the right way for banks to forward-lend to PSL, which benefits both the lenders and the borrowers,” said Hardika Shah, founder and CEO of Kinara Capital, a lending fintech company.