Budget 2023: fiscal support for digital payments ecosystem to continue

Highlighting achievements of the Union government, she said that the economy has clocked 7,400 crore digital payments worth Rs 126 lakh crore through unified payments interface (UPI) infrastructure in 2022.

“In 2022, they (digital payments) showed an increase of 76% in transactions and 91% in value. Fiscal support for this digital public infrastructure will continue in 2023-24,” the FM said.

Apart from support for digital payments, fintech associated announcements included – the expansion of the scope of documents available in DigiLocker for fintechs; common solution for reconciliation and updating of identity and address of individuals; an ‘entity DigiLocker’ service as well as a push to make the know-you-customer (KYC) ecosystem more ‘amenable’ to digitisation.
Budget 2023: Key takeaways for tech, startups from Nirmala Sitharaman’s speech

For the fintech industry, these announcements are another step forward in removing friction for onboarding new users, while improving trust and reducing fraud through a centralised verification directory such as a DigiLocker.

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This will fintech firms easier access to documents of customers, rather than a complicated onboarding process through uploading different documents.Assurance to digital payment players
While the FM did not specify the final allocation, budget provisions for the digital payments industry for 2023-24 under the expenditure budget of the Ministry of Electronics and Information Technology (Meity) is Rs 1,500 crore.

The allocation is provisional and may change or be revised during the course of the year.

The digital payments industry has been asking the finance ministry for an overall corpus of Rs 8,000 crore, which includes Rs 6,000 crore for UPI and Rs 2,000 crore for RuPay debit card transactions to cover the loss, and offset of merchant discount rate (MDR) to merchants.

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MDR is a cost charged by banks and payment service providers from merchants for providing digital payment transactions.

“Overall the Budget gives a big boost to the entrepreneurial ecosystem and allows ease of doing business through Aadhaar-PAN Card to Digilocker linkages. From a digital payments perspective, we have been stating that the corpus provided (by the government) for offsetting MDR is not reaching fintech firms, with banks appropriating all of the funds,” said Vishwas Patel, chairman of Payment Council of India (PCI) and executive director, Infibeam Avenues Ltd. “It would have been much more supportive if the government could have accommodated the payment industry demand of Rs 8,000 crore incentive.”

Patel also highlighted that there is also a need for getting MDR back for bigger merchants.

“The corpus that the government is providing is at the end of the day taxpayers’ money. We would recommend that larger merchants which can pay for MDR on payment railroads such as Mastercard and Visa, should also be made to pay for UPI transactions. Taxpayers’ money should be utilised to grow the digital payment infrastructure in the hinterland,” added Patel.

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One of the main contentions of Indian payment fintechs over the past years has been the zero merchant discount rate (MDR) regime for unified payments interface (UPI) and RuPay debit card transactions, which was announced by Sitharaman starting in December 2019.

Easier compliance
In her speech, the FM said that the KYC process will be simplified by adopting a ‘risk based’ instead of a ‘one size fits all’ approach

“The financial sector regulators will also be encouraged to have a KYC system fully amenable to meet the needs of Digital India,” said FM Sitharaman.

Additionally, she added that a one-stop solution for reconciliation and updating of identity and address of individuals maintained by various government agencies, regulators and regulated entities will be established using DigiLocker service and Aadhaar as foundational identity.

“While different (financial) industries have tried different KYC and verification models, it now feels like a logical convergence of all these methods. The biggest benefit is that the accessibility cost to reach the most far-off customers will come down. Also, an entity DigiLocker for MSMEs and trusts will play as a credible repository, especially when it’s from the government. It can also play as a massive source of insights and analytics on these businesses,” said Anurag Jain, cofounder of invoice discounting platform, KredX and executive committee member, Digital Lenders Association of India (DLAI).

According to Jain, KYC costs depending on the manual touch points required can run anywhere between Rs 25 to Rs 200 for consumer fintechs.

With DigiLocker access, fintechs will be able to serve customers with far less friction and onboarding cost.

“The Union Budget 2023 has given a big focus to digitisation and readies India for the next secular bull run. The real magic of India-stack rails will be that KYC and verification from a customer standpoint will be easy and will significantly reduce onboarding friction for platforms like ours,” said Varun Sridhar, chief executive, Paytm Money.

According to Sridhar, trading platforms like Paytm Money see 50% falloff during the onboarding process, due to complicated paperwork processes.

The FM also announced that for business establishments PAN will be used as the common identifier for all digital systems of specified government agencies. She also announced the setting up of a national financial information registry to serve as the central repository of financial and ancillary information.