By Utkarsh Sinha
India confronts a once-in-a-lifetime moments in history; a potentially significant point of inflection in our global standing, provided we seize our moment amidst the phenomenal turmoil. Brexit is reshaping Europe, China’s internal issues and external tariff wars are challenging its dominance, while South America has its own growth hurdles. India can act decisively and lay the foundation for decades of leadership. The economy has digested most of the shocks of GST and demonetization, and as long as an enabling policy framework is laid down, we can surge ahead. Ms. Seetharaman’s budget this year will be a significant one.
We explore some of the immediate reforms the FinTech industry is hankering for: chief amongst which is the rollback of Zero MDR. The Merchant Discount Rate (MDR) is the fee charged to a merchant for accepting card payments, and helps compensate several players in the value chain that enable the transaction. Zero MDR threatens to halt the growth of the digital payment infrastructure in India. In the absence of market determined fees, there are no incentives for operators to expand their reach, which would serve as an immense impediment towards enabling a cashless India.
Additionally, the KYC burden on FinTech companies is not streamlined. We need to see greater use of eKYC, and the government can facilitate that. By enabling all regulated entities (not just banks and telcos) to use eKYC, and the consent based KYC sharing of customers who have been cleared, the onboarding costs would be reduced to a fraction, easing adoption and widening the FinTech net.
A similar opening up of consent-based sharing of banking data would enable FinTech companies to provide tailor-made products and services to a large number of customers. Open-banking through the account aggregator model knocks down the entry barrier barrier of data acquisition, which in turn makes the design of custom products feasible, and at a lower cost. It also places customers at the center of their own data, empowering them as decision makers who have mobility, and hence the ability to seek out the highest quality service at the best prices.
Policy intervention would also play a key role in accelerating the domestic saving rate, which has hovered around its present high mark of 10.8% for the past few years. FinTech - which has so far played a minimal role in consumer saving products - could be an enabler in this space, spurred on by policy initiatives. To start with, by permitting mutual funds to offer pension plans, we would unleash a wave of innovation and deepen penetration. Similar to the 401k revolution in US, this would bring forth more players into the fray, which in turn would also create an attractive new marketplace for FinTech disruptors.
On the taxation front too, there are several initiatives that warrant attention. To start with, angel tax is a cat with nine lives, and refuses to kick the bucket. Every month, I interact with at least 2 start-ups struggling under the weight of an unexpected angel-tax bill. This needs to be stopped: a tax evasion prevention tool is being deployed for filling tax shortfalls, against its intent. Other tax interventions include a minor (say, 2%) reductions in GST for UPI and other digital payments, and an extension of the TDS relief on card transactions.
Finally, India has been the first nation to formalize P2P lending in a world-class regulatory environment. It is perhaps time to expand that credit to MSMEs as well, which are suffering a financing crunch in the absence of growth stage equity capital, coupled with risk averse lenders. P2P offers qualified lenders the opportunity to price risk and take calls on their own investing portfolio, which can over time create a significant channel of growth capital.
The wishlist is ready, and come February 1, the FinTech and start-up community in India will be eyeing that red briefcase with keen and hopeful eye.
(Author is the Managing Director of Bexley Advisors)