The Budget re-enforced the role of the FinTech sector in financial product distribution and included some key announcements for FinTech. The Finance Minister has earmarked INR 1500 crore for a scheme to give financial incentives to promote digital payments. The risks of COVID-19 prompted many consumers to switch to digital modes for making payments. The budget allocation of INR 1,500 crore will certainly fuel this growth in digital payments. The Government should focus on investment in digital payments infrastructure particularly on last-mile delivery and on expanding internet connectivity in Tier II and Tier III cities. Another critical requirement to push the next wave of growth in digital payments will be investing in financial and digital literacy schemes. The Government should consider allocating part of the budget funds earmarked for digital payments to providing incentives to FinTech platforms that implement financial and digital literacy initiatives. Given that the capital outlay requirements for financial and I digital literacy programs are significant, appropriate Government incentives will be key. Digital payments has been the first point of contact for many consumers to access a much wider set of financial products – credit products, small value loans, insurance and investment products. The Government’s Budget announcement to push digital payments infrastructure will increase the reach of not just payment products but lead to wider financial inclusion and improve access to financial services as a whole.
The sector is also hoping the scheme will include some rationalization of the zero MDR policy. Making digital payments viable from the supply and product end is important to encourage innovation and growth.
There was an expectation that the Budget would discuss the possibility of bringing back Aadhaar based eKYC to non-bank FinTech players, but there was no discussion around KYC and customer on-boarding costs.
The Finance Minister also announced that a “world-class Fintech hub” will be set up at GIFT City to encourage innovation in technology and product development. This is an extremely welcome step for two key reasons: (i) it emphasizes the importance of technology going forward in distribution of financial product and services; and (ii) lays the foundation for many more such hubs that will push FinTech growth.
All in all, Budget 2021 clearly recognizes the role that FinTech plays in the Indian financial services market and sets a very positive tone for push in digital infrastructure and technology, both of which are cornerstones of FinTech growth.
This article was originally published in Business World on 19 February 2021 Written by: Shilpa Mankar Ahluwalia, Partner. Click here for original article
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