The role of a modern state around the world has evolved from a benevolent entity to a welfare role to a regulatory entity. However, in India, being a society in transition, needs a state that holds the hands of fledgling startups and keeps the giants in check to create fair market conditions; the situation accentuates steeply when it comes to Fintech and the role of government in shaping, encouraging, and regulating FinTech industry is paramount.
Even on a general note, government’s role in the financial market is analogous to the conventional banking space in India. The Bank of Calcutta, Bombay, Madras in the 18th century started by the presidency government still stands tall albeit in a new avatar – SBI. Even while the RBI provides a robust structure for private banks, allowing the market forces to determine competitive quality of service and products to citizens, SBI remains one of the biggest commercial banks in Asia; underscoring the fact that the public at large prefer the ‘Sarkari Seal’ to Blockchain’s promise of irreversible crypto-hashed ledger.
Here are some ways in which the government is helping shape fintech in India.
Providing the building block of fintech
IndiaStack, a set of APIs designed and developed by iSpirit (govt powered think tank) is arguably the first step the nation took to go digital and cashless. The Open API team at iSPIRT has been a pro-bono partner in the development, evolution, and evangelisation of these APIs and systems. IndiaStack is being implemented in stages, starting with the introduction in 2009 of the Aadhaar. In this way, the government is gradually making a move towards a digital presence for all the citizens, which is like a snowplough clearing way for other cars to ply on an otherwise slippery road.
As a pioneer in the space of cashless economy
Euromonitor estimates that the advent of ecommerce India was primarily fuelled when two state run services went online – IRCTC and IT filing. This move ensured trust and credibility by showing people that online booking could save them from the long queues and the hooded travel agents. Even now, the combined push of demonetisation and the pull of the cash-less economy ensured that transactions through UPI catapulted from 0.1 million in October 2016 to 77 million in October 2017.
As a leveller for the market players
The government’s role cannot be denied in ensuring a fair and competitive regulatory framework, even in the emerging field of FinTech. A direct instance of the role of government in supporting the FinTech story is the government’s decision to reimburse the merchant discount rate to banks on digital transactions up to ₹2,000. This encouraged a large population of merchants who deal largely with petty cash for smaller transactions to move to digital payments.
Many other countries have leap frogged their way ahead in the FinTech space. Singapore has started a scheme which funds up to half the cost of promising fintech “proof-of-concept” trials. The scheme adds to other support programmes available to fintech players, such as Spring Singapore grants. The country is looking to become the hub for FinTechs, with rankings among the top four FinTech countries.
A highly developed infrastructure which allowed for early adoption of new technology coupled with government policies has encouraged an entrepreneurial and innovative climate in Sweden. Stockholm-based multinationals like iZettle, which offers a mobile payment solution, and Klarna, an online payment service for a simplified checkout, together have raised over $400 million in funding.
Norway too leads the way in the FinTech growth. Norway has a highly digital population with an 80 percent smart phone penetration, creating a compelling case for rapid user adoption. Digital savings and asset management is one of the arenas in which Norwegian fintech companies have a large potential. They have developed robo-advisroy services, virtual financial assistance and crowd-lending for SMEs.
China’s WeChat has built an infrastructure for mobile commerce within the walls of a singular app, which provides a seamless online experience to the country’s mobile first generation.
India has to go a long way to cover the distance between itself and other countries in the Fintech space. According to the KPMG FinTech 100 report, there are only three Indian startups that have made the cut among other countries. Since India is considered to have 21% of the world’s unbanked population, the nascent fintech industry in India is expected to grow bigger.
The slow, but sure beginning is a harbinger of the vast scope in the field. With platforms based on Aadhaar, eKYC, eSign & UPI and developments like IndiaStack and deep cell phone penetration, there is lot of potential to get the unbanked youth into the wealth creation fold.
Through the ‘Startup India’ initiative, launched in 2016, the government has launched a range of tax and surcharge reliefs, including income tax exemption for start-ups for the first three years, a credit guarantee mechanism through debt funding for start-ups as well as other exemptions. This is a great kickstart for FinTech startups.
Many state governments have facilitated small players. For instance, the government of Maharashtra, which launched a public cloud policy virtually mandating its departments to shift their data storage onto the cloud, creating a $2 billion opportunity for the industry. Whether it is Karnataka’s MobileOne or Andhra Pradesh’s FinTech valley in Vizag, FinTech startups need government’s hand-holding to grow and thrive.
Along with policy frameworks, there is also an institutional support from bodies like RBI and SEBI that creates a positive environment for FinTech. For example, Bank of India offers a wallet in collaboration with Paynimo that is powered by TechProcess.
The primary role that the government plays is building credibility for digital transactions. When the state does something, it becomes legit and trustworthy.
Come to Fintegrate to know more about the role of government in developing the space of FinTech.
About the author
Ajay Ramasubramanium is Director, Zone Startups India, which is a part of Ryerson Futures Netowork that operates accelerator programs around the World under the brand Zone Startups. We provide hands on strategic and tactical guidance for startups looking to drive market validation and customer acquisition as well as access to investors, corporate partners and advisors.