According to an EY report, India’s fintech market is expected to reach $200 billion in revenue by 2030 from $50 billion in 2021. It is expected to have assets under management of $1 trillion by 2030, says the report.
According to data from the National Payment Corporation of India (NPCI), the total number of UPI transactions in 2022 saw an increase of 91.11%. To further help it reach the masses, NPCI rolled out UPI123 last year, which would enable feature phone users to make digital payments without access to the internet.
Mandar Agashe, Founder and MD, Sarvatra Technologies, a technology provider for the banking sector, says banks are rolling out offline payments through feature phones with help from NPCI because the next user base in UPI will come from these users. “So UPI123 and UPI Lite, these are both useful not only for semi-urban and rural but also for the urban poor. So, urban poor who want to use UPI can use feature phones. It will proliferate very well over the next couple of years,” he says.
The upcoming budget should promote these services and that will enhance financial inclusion. He suggests that at the gram panchayat or at the village level, self-help groups (SHGs) can be roped in to promote the usage of offline payments through UPI.
“This will help the UPI to grow really fast. When SHGs start using the offline mode of payment through UPI, the confidence of the general public will start increasing. And, if such SHGs are provided with incentives for doing digital payments, that will be a huge game changer in the last-mile village,” he says.
Agashe points out that financial inclusion has always been the top priority in the previous budgets. He expects the momentum to continue in the digital payments sector. “In 2023, India is heading the G20. So, we hope that UPI spreads to all G20 countries. India is already a leader when it comes to digital payments. Being the chairmanship of G20 in India, the top G20 nations can take inspiration from India on how seamlessly India has adopted the various forms of digital payments. Taking UPI to G20 will be a big trend that will happen in 2023,” he says.In the last couple of years, many fintechs have emerged with the objective of financial inclusion. One such player is PayNearby, which partners with micro entrepreneurs such as kirana shops to provide financial services.
Anand Bajaj, MD and CEO of PayNearby, says there has to be some tax benefits for fintechs who are into financial inclusion. There are only 32,000 bank branches in six lakh villages, and banking correspondents are bridging the financial inclusion gaps here. They could do with some encouragement. “The work of one banking correspondent outlet in a village of less than 5,000 people is not an easy job. Large systems are required, such as infra security, the technology, the training of the sales teams, the whole cloud technology and the payment infrastructure. All of this warrants attention. If this is subsidised by the government, even by giving a small tax benefit, it would go far to deliver the government objective,” he says.
GST on financial services should be about 5% instead of 18% now, Bajaj adds.
NBFCs was solution for liquidity crunch
At the same time, non-banking finance companies (NBFCs) who operate digitally have also become an important part of the lending ecosystem in India. They have played an important role in enabling a large section of the people to get easier access to formal credit. However, NBFCs too are not spared from the challenges lenders have been facing in the last couple of years. The segment has been facing liquidity challenges for some time and it has deepened due to the IL&FS crisis.
The Mumbai-based IL&FS was a giant in infrastructure lending and was providing services similar to traditional commercial banks. In 2018, the NBFC defaulted on a few payments and failed to service its commercial papers on due date, indicating the company had a liquidity crunch. It was estimated that the crisis caused debt defaults of Rs 1 lakh crore. This led to a severe funding drought among NBFCs. Though some of these debt defaults were resolved, NBFCs still feel the impact of the crisis.
Anil Pinapala, Founder and CEO, Vivifi India, an NBFC, says that they have been hoping every year that the budget will infuse more liquidity into the NBFC system.
“It has been a good three-four-year period since the IL&FS scandal, which was followed by Covid, which was followed by loan moratoriums. While banks are flush with cash, they are not meeting the needs of credit-starved individuals. NBFCs have always played that role,” he says.
It will be a great initiative if the finance ministry can in the Budget prescribe some norms that will ensure the major banks infuse liquidity into the system through NBFCs and expand credit access.
Speaking on similar lines, Aditya Damani, Founder & CEO of fintech startup Credit Fair, says that a framework is required for this. He acknowledges that there are some liquidity-infusion-led interventions by the government and a few PSU banks like SBI lend actively to the NBFC sector. “However, to help the NBFCs to address credit under-penetration, the government needs to accelerate and further broad-based credit infusion into the sector. More banks should partner with NBFCs and fintechs. For that, the budget can propose a framework to build a robust liquidity support system for NBFCs, including more focused lending from the banks as well as schemes such as green bonds to encourage capital market investments into NBFCs,” he adds.