 "Budget 2023-24 Expectation: Boost liquidity flow to fintech and smaller NBFCs")
The new-age technology has fuelled the fintech industry’s rapid growth and expansion in recent years. The industry worldwide has grown significantly since the beginning of the COVID-19 pandemic, which restricted mobility and catalysed digital adoption.
The global fintech market is valued at $112.5 billion in 2021 and is projected to reach $332.5 billion by 2028. It is expected to grow at a Compound Annual Growth Rate (CAGR) of 19.8 percent over the forecast period. India has been one of the leading countries for fintech innovation and disruption. Moreover, 2200+ companies in India are working in the fintech segment, out of which 19 percent are in the payments sector, followed by lending and then wealth-building technology.
The Indian fintech market is recognised as the fintech hub globally and is estimated to reach assets under management (AUM) of $1 trillion by 2030, up 10-fold from its size of roughly $100 billion in 2021. At the same time, the industry was expected to generate revenues of $200 billion, a 10X jump from 2021’s $20 billion, according to an industry report.
Road to monetisation remains challenging
Even though the fintech business has had an impressive journey, the road to monetisation remains challenging. Using the current user base to distribute new financial products and broadening the addressable market from digital to ‘phygital’ is likely to bring about the necessary business model modifications for a relatively mature and durable fintech industry. In addition to the guidelines in the digital lending space, the sector is further afflicted by several other challenges, including the ongoing funding winter.
Advantages of UPI payments
The development is being driven by UPI, credit, and debit cards. The advantages of UPI payments extend beyond metropolises to Tier 2 and Tier 3 cities as well as rural areas. The major growth drivers for UPI, which is quickly becoming the de-facto payment method for millions, are untapped market potential, enhanced digital infrastructure, and, most crucially, the simplicity, confidence, and legitimacy of digital payment services. Due to the active use of digital payments for OTT subscriptions, in-store purchases (by QR code), online shopping, and other purposes by non-metros, Tier 2 and 3 cities are quickly becoming the new growth hubs for UPI transactions in the country. They frequently outperform Tier-1 markets in terms of growth from month to month.
Impact Shorts
More ShortsFocus on disruptive, scalable platforms of solutions
The mobile penetration in India, combined with the size and depth of SMEs, is an extraordinary hybrid of a plethora of potentially disruptive and scalable platforms of solutions that could undoubtedly be extended to global markets in the future. As an industry, this is where we need to focus as it will help us contribute towards the growth of FinTech in India. There is a need for traditional players to collaborate with new-age companies that are seeking to redefine the financial services industry with their innovative and customer-friendly solutions.
Flexible corporate laws needed
The industry anticipates the Union Budget 2023 to further strengthen India’s financial ecosystem and propel the burgeoning fintech sector towards an affluent future. An additional benefit for the sector would be flexible corporate laws. Tax benefits and incentives will, in turn, encourage fintech startups to focus on innovation, and invest in research and development to build new disruptive products that can further power the fintech industry.
Fintech and NBFCs that are working to bridge the gap and improve access to financial products among the unbanked populations must be supported with tax incentives to achieve their goal of building a strong, inclusive financial system across the country.
Partnerships between banks, NBFCS, fintech needed
Favourable initiatives and supportive measures around the facilitation of stronger partnerships between banks, NBFCs and fintech, would act as a force multiplier in expanding the reach of financial services across every corner of the country, while maintaining the right balance between innovation and regulation. Budgetary allocations to boost the digital payments ecosystem and further bolster our world-leading digital infrastructure would strengthen the fintech industry in line with the government’s Digital India vision.
It would be great if the Government considers rolling out measures to boost the liquidity flow to fintech and smaller NBFCs. This will, in turn, ease credit access to the underserved, thus furthering financial inclusion in the country. I also believe that in order to nurture the blooming startup ecosystem, the Government should provide significant tax reliefs to employees in startups regarding the burden around Employee Stock Ownership (ESOPs) on employees.
I am hoping that the announcements in the Union Budget 2023 will further aid the growth of the digital payments and fintech industry in India, and take us closer to the vision of building a cashless economy.
The writer is CEO (Interim) & CFO, BharatPe, a merchant payment company – @bharatpeindia. Views expressed are personal.
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