India is fast developing a robust and vibrant ecosystem for the financial technology (fintech) industry. The technology-led innovation that fintech is bringing to India has the potential to deliver significant benefits to financial services — such as enhancing competition (for the benefit of consumers), driving efficiency and convenience, reducing the cost of delivery of financial services, and promoting financial inclusion among the underserved.
The government has undertaken several initiatives to support the burgeoning fintech industry in recent times, and it is felt that the following measures in the upcoming Budget 2023 will provide further fillip to the fintech industry and upscale the Digital India initiative:
Investments for the Development of Corporate Digital ID: India has reaped immense benefits from the development of individual digital ID in the form of Aadhaar. However, for non-individual entities, there is no similar service available. Therefore, the process of KYC, verification, and associated due diligence largely remain manual and paper-based. Consequently, fintechs have generally struggled to serve this segment of the market effectively, and it remains one of the key market segments that fintechs would like to deliver digital financial services to.
Corporate Digital ID verification mechanism will help to accurately identify firms through a common data repository and shall ensure confidentiality, integrity, authenticity and non-repudiability of information obtained thereof. Investments to create corporate digital ID verification infrastructure will digitize the non-individual onboarding process and bring in similar efficiencies in terms of cost benefits, convenience, better access of financial service, speed of delivery and shall further financial inclusion, among MSMEs.
Incentivise Credit Bureau Partnership With Fintechs: A large section of the Indian population does not have formal credit history and, therefore, have a non-existent credit score with the credit bureaus. Since the formal credit sector assesses creditworthiness based on credit scores, these sections of society by virtue of having minimal credit records, are not able to access formal sector credit. The Budget can provide for framework and incentives under which credit bureaus can partner with fintechs to develop an appropriate scoring model using alternate data sets that fintech have access to.
As of now, fintechs are harnessing alternate datasets using proprietary AI/ ML models to underwrite customers. A standardised credit scoring model developed in partnership with credit bureaus has the potential to open access to formal credit sector to the under and unserved segments of our country. Further, this development shall also address the concerns that the regulator has raised regarding proprietary AI models involved in making decisions about consumers which may have an inherent bias, discrimination, lack of fairness or inadequate management and oversight of these issues.
Encourage Fintech To Drive Digital Financial Literacy By Allocating Funds: Digital delivery of financial products is the most appropriate channel for our country given our demographic of young population due to which it shall lead to faster adoption, and it being cost-effective, shall address the constraint imposed by relatively low Indian household incomes. Fintech is accordingly increasingly seen as a key stakeholder in the financial inclusion initiative of the government.
They are well placed to develop highly intuitive, engaging, contextual digital financial literacy programs and can deliver it at scale in a cost-effective manner. The Budget may consider offering financial incentives to fintech for undertaking such initiatives. This will help prepare for a better future and further deepen financial inclusion in times to come.
Support for the Digital Infrastructure: As Fintech industry scales up, managing and protecting data is getting increasingly complex and expensive. Data centers are key digital infrastructures for the country and were accorded the infrastructure status in October 2022, in accordance with the announcement made in Budget 2022.
The upcoming Budget 2023 can provide further impetus to this industry by subsiding the development of data centers by Indian entities through the number of interventions such as tax breaks, subsidized acquisition of land, power subsidies, regulatory support and by funding and supporting the development of robust cybersecurity infrastructure to protect data centers from cyber threats.
Fintech holds immense promise for a country such as ours. To help deliver on this promise, the Budget 2023 can incentivise and provide the impetus to the fintech movement through a comprehensive development of Digital ID, enable superior credit rating methodology for the under and unserved Indians, and make the country future ready through the deployment of scalable digital financial literacy programmes and by enhancing the country’s digital infrastructure.
(The author is leader (fintech risk) at Grant Thornton Bharat LLP)
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