Budget 2017: Is there any substance behind the sheen for fintech?

2nd Feb 2017
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Budget 2017 may have come off fairly well on the whole, with the Sensex and NIFTY closing at 485 points up and 155 points up respectively, but the fintech ecosystem might have a slightly different outlook on the issue.

While the session did see Finance Minister Arun Jaitley speaking about formalising the economy, the importance of digital infrastructure in the country and the banning of cash transactions over Rs 3 lakh, the moves didn’t seem all that new, given what we had heard over the past few months of demonetisation.

You can read more about the government’s announcement on the digital payments infrastructure in the Budget here.

The entire ecosystem may have cheered for initiatives like Aadhaar Pay and the rolling out of more PoS devices, as well as new digital and cyber-security initiatives, but there was still a feeling of some things being left out.

While speaking to YourStory, Abhijit Bose, Co-founder and CEO of Point of Sale (PoS) and payments services company Ezetap, said,

To be honest, there wasn’t anything surprising. A lot of activities that were mentioned in the budget have already being going on since November 8th, post-demonetisation. However, from the industry, it was heartening to see that all the things we were working on were brought in.

Abhijit, however, accepts that the Indian budget essentially puts across newer propositions and technologies like Aadhar Pay while also looking at traditional systems.

Further, he stated that although the government has formalised cashbacks, along with other moves, he didn’t see anything that would really accelerate the already growing digital infrastructure.

Commenting on the removing of taxes on PoS machines, he said,

The tax removals will bring down the cost for suppliers, which can be passed on to merchants now. But that’s not a driver, as the decision itself wouldn’t accelerate the deployment of PoS machines, since there is already an active need for this infrastructure.

Moreover, when asked whether the government’s launch of consumer payment app BHIM (Bharat Interface for Money) jeopardises the private players, he states,

“There have been private entities that have done better than government-owned PSUs and vice versa. As long as the government acts as a catalyst and breaks walls, it’s doing the right thing. The government can do it (BHIM) at a better scale, but the market will always decide. And the consumers will also choose the better value.”

He adds,

“It’s very rare that the private sector doesn’t provide the right solution. There are certain areas where the government can become dominant. But as long as the government is creating new markets and not inhibiting the growth of the private sector, it is good.”

Having said that, Abhijit believes that the government should be commended on the fact that they are thinking like a private sector company and trying to catalyse the digital payments infrastructure, which is critical.

Varun Rathi, COO and Co-founder of Bengaluru-based expense management solution Happay, also said,

“The government is working more like a startup and is quick to introduce incentives and continual iterations to ensure mass adoption, which is much needed for the large population sitting on the fence.”

What was impressive

Nithin Kamath, Founder and CEO, Zerodha, said,

"There were no drastic changes proposed in Budget 2017, nor were there any disappointments. So net-net, this makes it positive for markets.”

On the other hand, the players in the lending system seemed to be looking at formalisation to be a positive impact in disseminating credit.

At the same time, Sashank Rishyasringa, Co-founder and Managing Director, Capital Float, believes that incentivising cashless transactions at fuel stations, hospitals and railways, rolling out one million PoS terminals by March, and proposing a payment regulatory body to the RBI will help create a robust architecture for digital transactions as well as deepen the digital footprint.

For Harshvardhan Lunia, CEO and Co-Founder, Lendingkart Group, the incentives don’t just stop at the digital initiatives. He states,

SMEs in India are credit-starved. In this regard, the increase in the limit of the Pradhan Mantri Mudra Yojana (PMMY) for banks and NBFCs to Rs 1.80 lakh crore is a positive step towards bridging the financing gap existing in the SME segment.

Additionally, he believes that the presumptive taxation scheme turnover limit being extended to Rs 2 crore will bring relief to a large number of assessees in the MSME category.

On the other end, Bipin Preet Singh, Founder and CEO, MobiKwik, felt that under digitisation, startups could have been represented better,

“I commend the Budget’s recommendation on upgrading digital infrastructure to support cashless transactions in rural and semi-urban areas. However, we feel that the government should have also considered promoting startups in the digital payments and digital security areas. Secure digital transactions are the only way to sustain India's habit of cashless payments.”

More misses than hits?

However, the Budget, as we all know, isn’t as hunky dory a picture as it is often portrayed to be.

Bala Parthasarathy, CEO and Co-founder, MoneyTap, thought that the Budget wasn’t anything earth-shattering. According to him, the spotlight on setting up a cyber-security emergency response team to work with financial regulators was a good move. He said,

“There is bound to be hacking, and it’s not a question of 'if' but 'when'.”

But he goes on to say that the above wasn’t completely addressed. He highlights the following misses:

  • No mention of the data privacy law

Bala said that all apps (financial or otherwise) get the permission to read your SMSs and suck in most of your data, making the infrastructure lose out with no laws. He adds,

“The first time there is or will be a fraud, the government reacts in panic, with Parliament in a mess. Often, the government might think it (regulations) out poorly in the beginning. And whenever there is no law, there are higher chances of something draconian being put in that will kill digital payments.”

He calls out the need for having a world class data privacy law, which the government might need to give some teeth and pass in Parliament.

  • Nothing related to education of digital payments

This, Bala highlights, is the second major miss from the Budget, especially at a time when there is a sudden inflow of new users on the digital payments infrastructure, who seem to be lost otherwise.

  • Extend the cashback and referral programme to all players

Under the BHIM app, the Budget did announce the introduction of a cashback and referral programme. However, the message could be tweaked to mention that it was for any UPI app, which puts the government in a spot where they might be promoting BHIM over other players, which might not have been the case ultimately.

In conclusion, Bala added,

Honestly, I wouldn’t be super excited about it. But they didn’t think of anything worse, which is good.

Also speaking to YourStory was Sanjay Swamy from Prime Venture Partners, who added,

The budget seems to be more in continuation, formalising things that were done during demonetisation in an adhoc manner. Although we were expecting an even smaller cash ban limit (than three lakhs), it’s understandable that the infrastructure for digital payments isn’t completely there yet. So to speak, there hasn’t been anything draconian introduced.

Further, Sanjay believed that this year, for the Budget, it was more about investing on the foundation, so that the results can be reaped after 24 months.

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