FinTech - Gaining Greater Acceptance

With the Budget 2018 speech, the word "FinTech" was mentioned for the first time in an official capacity, and suddenly all the doors were opened. It was a testimony that FinTech is finally gaining the recognition that was denied to it for a long time. The debate on the future and scope of FinTech has finally started.

About FinTech

FinTech, or Financial Technology, is an umbrella term for all the technologies that could be used to deliver financial services.

In India, FinTech is still trying to find its roots, largely because of the overwhelming majority of businessmen still preferring the traditional way for their financial needs. Yet, there are some major players who are actively changing the FinTech landscape. PayTm has already established itself to be the leader, while global giants like Google and Amazon are also entering the Indian FinTech landscape.

However, the most exciting part is that FinTech is growing and how! According to data as per 2015, more than 12,000 FinTech startups emerged globally, collectively worth $19 billion, this is expected to reach $45 billion by 2020. Out of this roughly $2.4 billion is expected to come from the Indian FinTech industry.

The 2014 RBI regulations that pertained to FinTech industry saw some revisions in 2017, and the Union Budget of 2018 further brought some interesting turns along the way. Let's take a look at some of these changes.

Need for FinTech in India

In India, small credit is the most common form of loans, the kind of which banking institutions fail to provide. Only half of the population in India has a bank account, while almost three-fourths have never used a credit card. On the other hand, about 80% MSMEs rely on self-financing or seeking loans from friends, family and small lenders. All of this point towards the need for P2P lending, one of the retail aspects of FinTech.

The other aspect is the growth in the digital economy, much of what happened since 2016. Since then, e-wallets, digital transactions and soft invoices became common terms in daily business. FinTech has a huge potential pool in front of it that could really use some innovation.

Driving Digital India

Let's first talk about the fundamental force that drives FinTech, a digital economy. Over Rs. 3,000/- crore was allocated for the Digital India initiative. This budget focused on expanding existing telecom infrastructure under BharatNet. The project aimed to provide 100Mbps speed and 5,00,000 Wi-Fi hotspot to 5 crore rural citizens, along with developing 5G support in India.

Another attraction was the attention given to Artificial Intelligence and Internet-of-Things. Finance Minister expressed his commitment to research in AI, IoT and similar fields to aid in converting Indian cyberspace into "center of excellence".

Relaxation on Taxation Laws

In 2014, Reserve Bank of India had relaxed the need for KYC on transactions up to Rs. 20,000 per month. This relaxation had drastic impact in 2016, when demonetization led to the cash crunch and wallets like Paytm offered the path to rescue via online transactions. However, Prepaid Payment Instruments (including e-wallets) were later excluded from this and KYC was made mandatory.

In 2016, P2P lending was categorized under Non-Banking Financial Company, which was the first step to organize the unstructured P2P lending scenario in India.

On the way forward, the government is soon planning to provide further relaxation on taxation laws in a bid to promote FinTech. According to reports, the government may soon provide tax subsidies to businesses that use online transactions for the purpose of payment.

Online Loans for MSMEs

Finance Minister announced that sanctioning loans to Micro-Small-and-Medium Enterprises would be easier now, with new guidelines regarding non-performing assets. Allocation of easy funds to MSMEs would indirectly boot the FinTech industry as it would open new avenues for them.

Boosting MUDRA loans

Launched in April 2015, the Pradhanmantri MUDRA Yojana aimed to provide microcredit to small business, up to Rs. 10 lakh. The project was one of the biggest successes of the current government and reached out to 10.38 crore people. Out of these, 76% were women and around half belonged to the reserved quotas. The initial success emboldened the government to increase the target from Rs. 1.8 trillion to Rs. 3 trillion. Again, more enterprises with easy finance would contribute to the expansion of FinTech industry.

Blockchain as digital asset

Despite government's continued resolve to consider cryptocurrency as invalid tender, the term "blockchain" was finally acknowledged by the government. Not just that, the Finance Minister hoped to leverage the blockchain technology in improving the existing financial infrastructure.

For FinTech industry, support of the government in researching and utilizing blockchain technology means a lot. With more FinTech startups using blockchain technology to create public ledgers, the government support would give a further boost.

Summary

The FinTech industry was not in the spotlight earlier, but things are changing now, it is persistently making its presence felt. As the economy gets more digitalized and capitalism takes the front reins, we will see FinTech playing a more active role in the industrial development of the country. The support from the government is just one hurdle that has been overcome. Many challenges lie ahead, so FinTech would need to keep up the pace and adapt according to the ever-changing scenario of business.