COVID 19 has led to increased use of both digital payments and digital lending products. People have found transacting digitally is a contact-free and safer way to make payments and access financial products. This shift from physical to digital is likely to be a permanent one as FinTech platforms continue to innovate giving consumers access to more convenient and customized financial solutions.
The FinTech sector in India is at a critical juncture. Stresses of COVID-19 have affected revenues and made growth capital expensive. There is a big expectation that the 2021 Budget will provide appropriate incentives and an enabling policy framework to give FinTech entrepreneurs and players the support they need to be able to enter the next phase of growth.
The NBFC sector, particularly some of the smaller digital lending platforms faced an acute liquidity crunch in 2020. There is an expectation that the Government will continue and supplement its credit support programs to give this segment access to capital at affordable rates. Targeted liquidity schemes would be welcome.
The industry is hoping for lower GST rates on financial services which will lower costs of distributing financial products and allow platforms to tap into wider consumer markets.
As Fintech is expanding its reach into Tier II and Tier II cities and more remote geographical areas, it is critical that the industry invests in digital literacy and financial literacy programs. The Government should consider offering adequate incentives and tax breaks to platforms that invest in these initiatives. This will significantly increase the reach and accessibility of financial products and push the financial inclusion agenda of the Government.
There is an expectation that this budget will emphasize the role of technology in delivering financial products and services and will include a continued commitment by the Government to invest in internet infrastructure particularly in Tier II and Tier III cities.
Building a centralized database that can be accessed by financial institutions to complete KYC procedures on clients should be a focus area and can become a game changer for the FinTech sector. High customer on-boarding costs have been one of the biggest challenges facing FinTech over the last few years. There is a big expectation that digital payment platforms and FinTech NBFCs be allowed to utilize Aadhaar based e-KYC to on-board customers.
Updated and real-time GST data is another important database. Giving lenders access to reliable GST data will allow for cash flow based credit to the SME and MSME sectors. The SME and MSME segments are in critical need of formal credit at affordable rates and a Government policy that streamlines data flow and access to information can help banks and NBFCs better understand credit risk and provide working capital to these entities.
As we transact digitally, we generate more data. There is an increasing need to protect customer data form unauthorized use and ensure that platforms that access sensitive customer data have the technology and security systems to safely handle such data. It is expected that the Personal Data Protection Bill, 2019 will become law soon. The Government should, however, also be mindful of the risk of “over-regulation”. The new data protection framework needs to find the right balance between protecting consumer data and ensuring access by FinTech platforms to data to be able to innovate, analyse credit risk and customize financial solutions.
The Personal Data Protection Bill, 2019 talks of a “data score” given by an independent audit agency that represents how effectively a platform is able to protect and safely handle consumer data. The Government should consider a policy where access to Aadhaar based e-KYC and centralized databases are linked to the “data score” of a FinTech platform, where a high data score gives the platform increased access to data.
The FinTech sector is looking to the Government to provide the relief and incentives needed to be able to effectively mitigate the economic stresses of 2020 and plan for expansion and growth in 2021.
This article was originally published in ET Now News on 31 January 2021 Written by: Shilpa Mankar Ahluwalia, Parter. Click here for original article
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