Fintech wants govt to improve KYC systems in Budget

Fintech companies want Finance Minister Nirmala Sitharaman to use the interim budget to promote financial inclusion for MSMEs, streamline the lending processes, launch incentives for financial inclusion and introduce tax breaks for the fast growth of the sector.

Fintech is among the fastest growing sectors in the country. Of the 14,000 startups founded between 2016 and 2021, almost half were in the fintech sector, according to a report by the Centre for Advanced Financial Research and Learning (CAFRAL). The report also said that lending by the fintech firms would outdo traditional lending routes of banks by 2030.

Fintechs want the budget to prioritise schemes and incentives that encourage them to extend their reach to underserved MSMEs, according to industry stakeholders. Fintechs also expect the government to promote partnerships with traditional entities and encourage innovative solutions while ensuring financial stability.

“Fintechs hope for initiatives like ‘One KYC’ repository and easier access to data for credit assessment to streamline lending processes. Besides, tax breaks or credits for technology-driven solutions, along with preferential credit access from traditional lenders, would significantly boost the fintech ecosystem and encourage further innovation,” says Manish Lunia, Co-Founder of Flexiloans.

Ashish Goyal, Cofounder & CFO, Fibe (formerly EarlySalary), says he anticipates strategic measures to foster a robust entrepreneur ecosystem. “We expect the government to remain a key catalyst in developing the startup ecosystem,” adds Goyal.

There is also an expectation of continuous government investment in artificial intelligence (AI). “This support would enable the sector to come up with innovative solutions and establish strong security measures in the digital landscape. Given the increasingly sophisticated tactics used by fraudsters, it would be beneficial for the government to establish a cyber fraud agency to safeguard customer interests and prevent losses from online scams,” says Ankit Ratan, CEO & Co-founder, Signzy.

Similarly, Prashant Muddu, CEO & MD, Jocata, talks about the need for the budget to introduce financial inclusion measures to increase credit penetration among unserved and underserved individuals in tier-2 and tier-3 markets and over 64 million MSMEs.

“We are anticipating that the government will simplify and crystalise regulations related to financial services and enable strong collaboration between traditional lenders and fintechs for innovative and risk-calibrated solutions for smarter and faster credit assessment using analytics and technology,” says Muddu.

Taxation & digital infrastructure

Industry stakeholders say that introduction of incentives such as tax breaks or credits for investments in technology-driven solutions would help nudge traditional lenders to provide credit to fintechs at preferential rates. Their expectations for the budget involve increased investments in digital infrastructure, including support for making customer experience for availing loans as seamless as a UPI transaction, which can enhance the efficiency of lending processes and make them faster and more accessible.

“Regulatory streamlining, promoting collaboration between dintechs and traditional entities, and clear guidelines for emerging technologies like blockchain are crucial for both innovation and consumer protection. This includes initiatives like ‘One KYC’, improved data access for credit assessment, and support for seamless loan experiences for MSMEs,” says Lunia.

Goyal hopes the government will continue to support the ONDC (Open Network for Digital Commerce) and the OCEN (Open Credit Enablement Network) to create incentives for investment in technology and R&D.

The government can also look to bring parity in tax treatment for unlisted equities, aiming to draw more investment into the startup sector, say stakeholders. “Allocating a budget for a digital consumer protection agency, tasked with enforcing privacy laws, would significantly enhance digital trust,” says Ratan.

The previous budget introduced various schemes for SME empowerment. This year, the fintech industry expects continued fiscal support for schemes like credit guarantees, the National Financial Information Registry and Skill India Digital. These initiatives would be essential to advancing digitisation and improving formal credit access for the SMEs, propelling them further as key drivers of India’s GDP and employment, says Gurjodhpal Singh, CEO, Tide India.

“The industry anticipates measures like GST rationalisation and process simplification, aiming to optimise the economy, stimulate growth and establish an efficient and transparent taxation system. Investments in infrastructure expansion and incentives for digital transactions are also highly anticipated, to further accelerate the adoption of digital payments across the nation,” adds Singh.

Muddu expects the budget to introduce special schemes to support MSMEs including a modified Emergency Credit Line Guarantee Scheme (ECLGS) scheme. “Regarding regulations, the focus will be on striking a balance between encouraging innovation and ensuring consumer protection. Special focus on strengthening digital infrastructure and bringing more MSMEs into the formal fold through Udyam Assist registration drives, bridging Udyam and GST registrations to connect the dots and improve access to credit are the need of the hour,” says Muddu.

Sundeep Mohindru, Managing Director, M1xchange, also expects the budget to introduce tax reforms that recognise the unique nature of receivables financing. “Favorable tax treatment for transactions facilitated through TReDS platforms could incentivise more businesses to adopt such innovative financing solutions, boosting liquidity and working capital efficiency,” adds Mohindru.

William Murphy

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