Fintech industry—in many ways—represents the confluence of finance and technology. It is all about how the power of technology is changing financial services at a pace not conceivable in the past. App-based broking, use of AI and analytics in financial planning, use of big data for portfolio analytics, smart payment systems, and the use of machine learning and Robotic Process Automation (RPA) for a better customer experience are segments where Fintech is taking off in India. So what exactly does Fintech want from the Interim Budget 2019?
Clarity on the Angel Tax issue
Many standalone Fintech companies have managed to raise funds from VCs at healthy valuations. But there is a challenge under Section 56 of the Income Tax Act which permits the imposition of tax when angel investors invest in a start-up at a premium to the fair value. This could be a huge disincentive for start-ups and investors.
Applicability of e-KYC
With the supreme court striking down the mandatory nature of Aadhaar, most Fintech companies may have problems using Aadhaar based e-KYC authentication of remote clients. The combination of universal banking and Aadhaar mapping had come as a boon to Fintech start-ups and also to matured Fintechs. It allowed them to expand their client base, economically, without investing in geographical spread. Any ban on usage of Aadhaar as an e-KYC tool may actually make a lot of Fintech models infeasible.
Linking GST rates to digital last mile delivery
This is something that had been discussed in the past. But due to delays in the stabilization of GST, it was put off. Since digital transaction is a big edge to businesses and to the government, the budget can look to incentivize the assessee with a concessional rate of GST in case of digital payments. For example, a 1–2% concession can be offered on the GST rate if the end user facilitates, fulfils, and pays for the transaction digitally. This can either be through digital banking or through UPI.
A calibrated approach to security
The government approach to security needs to be consistent and also conducive to business. For example, the government had recently insisted that all India-related customer data be maintained locally only. That could create a big data management issue for Fintechs and could be a disincentive for them. Security is critical, especially after the massive data breaches in Yahoo and Facebook. Since there is a financial implication, the security approach of the government must be foolproof. The budget may be a good starting point to this.
A policy and a central regulator
Today, Fintech is broadly regulated by the RBI to the extent that it pertains to transfer of money. However, it has been noticed that industries like telecom, insurance and pensions got a big boost only after there was a distinct statutorily authorized central regulator. That is the role that TRAI, IRDA, and PFRDA have been playing. It’s time for the government to think about a central regulatory mechanism for Fintechs, so that the regulator also gets to learn along the way. Also, the government needs to look at a full-fledged white paper and a policy document on Fintech to give it a more structured boost. The time may be ripe and the budget could just be that opportunity.