2022 is projected to be an exciting year for the Indian fintech industry, which is the world’s third-largest fintech ecosystem, trailing only the United States and China.
In 2021, timely and targeted policy initiatives enhanced this sector while paving the road for greater financial inclusion. I anticipate that the Union Budget 2022 will play a supporting and helpful role in sustaining this momentum.
Regardless of the present Omicron panic that the entire globe is dealing with, it is reasonable to say that the pandemic has accelerated the digital transformation of the Indian payments ecosystem by pushing us Indians to use cashless payments.
UPI transactions continue to establish new benchmarks and have played a significant role in bringing about this massive revolution in the Indian payments ecosystem. Allowing ‘credit on UPI’ would be a great move to maintain this momentum.
‘Scan now, pay later’ can appeal to a younger market that does not have a credit history or a pre-approved credit line. This facility, if made available to KYC-verified customers who are new to credit, would encourage higher spending while also establishing credit history in this previously neglected sector.
The government must consider to ‘transparently publish the reliability rate of various bank UPI, card processing systems.’ The increase in transaction failure rates and the resultant piling up of credit reversals are leading to the industry executives questioning the outdated digital infrastructure of some banks and card processing systems, which are unable to cope with the surge in transaction volumes.
Steps such as infrastructure level enhancements and system fine tuning, among others, need to be taken by the entire ecosystem to ensure increased reliability in digital transactions.
Another expectation from Budget 2022 is about ‘permitting tokenization in offline payments.’ For the unversed, tokenization involves replacement of the 16-digit payment card credentials with a unique identifier known as a ‘token’ which allows payments processing without exposing sensitive information that could breach the data security and privacy of the consumer.
While RBI issued an extended deadline for card on file (CoF) tokenization of online payments till 30 June 2022, permitting for implementation of tokenization in offline payments would extend the safety net of transactions to in-store Point of Sale (POS) payments.
GST, introduced by our Union Government in 2017, has unified India into a single market of 1.3 billion citizens, dismantling all inter-state barriers. Government may now want to focus on further ‘liberalising the tax regime for the lesser endowed participants such as small merchants by offering reduction in GST for adopting to digital payments’.
One major reason why small shopkeepers prefer to transact in cash is to avoid the tax net. With increased tax benefits in the form of GST rebates on accepting payments digitally and making digital payments to their suppliers, it will encourage increasing numbers of smaller merchants, especially in smaller towns and villages, to adopt digital payments.
This would push for greater financial inclusion and further penetrate our digital economy deep into the grassroots.
An increased focus to strengthen India’s digital infrastructure is another expectation that the Indian fintech industry has from the Union Budget 2022-23.
To pave way for the benefits of financial technology and digital payments reach the consumers in lower tier towns and villages, a focus on expanding the digital infrastructure including payment touchpoints and 5G internet connectivity to the remotest areas of the country is of paramount importance. This will facilitate speedy transactions and strengthen the real-time payments across the country.
The institution of a dedicated Fintech Division at the RBI is a welcome move. We look forward to the RBI not just fostering innovation in this area, but also identifying and addressing the difficulties and opportunities that come with it.
The Indian fintech industry is expecting for a favourable Union Budget 2022 that promotes wider financial inclusion by improving infrastructure to execute faster and more reliable payment transactions using tokenisation.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YS.)
