Budget 2022: expectation on digital lending and neo banks to be regulated in the fintech industry

Indian FinTech’s raised a record $9 billion in 2021, setting the tone for the funding and growth boom to continue in 2022.

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Budget 2022: expectation on digital lending and neo banks to be regulated in the fintech industry

With Fintech adoption rate at 87% against the global average of 64%, India has emerged as one of the largest digital markets in the world. Indian FinTech’s raised a record $9 billion in 2021, setting the tone for the funding and growth boom to continue in 2022.

The FinTech industry is looking for a favorable 2022-23 budget with India’s Digital Economy burgeoning, as more and more consumers and small businesses join to adopt digital means to access payments and financial services.

Also Read: Budget 2022: ROSHNEE scheme to be introduced to support India’s climate commitments made at the COP-26

India’s financial technology companies are poised to become three times as valuable in the next five years, reaching a valuation of $150-160 billion by 2025, according to BCG and Ficci. It is estimated that to meet this ambition, India’s FinTech sector will need an investment of $20-25 billion over the next five years. 2021 was the strongest year of IPO listings, with over 2,388 deals totaling nearly $453 billion. Stripe, Plaid, and Chime are the 3 big IPOs to look out for in 2022. In order to make these IPOs a blockbuster, in 2022, the government should focus on assisting startups towards a favorable investment climate in tier 2 and tier 3 cities and tax exemptions in foreign direct investment.

Another FinTech trend that caught the storm last year and is expected to boom further is Neobanks. At least five major consumer neo banks were launched in the year 2021 alone. Four neo banks in this segment including Niyo, FamPay, Jupiter, and Fi cumulatively raised $230 million last year. The AA framework and consent architecture adopted by RBI is a major step in enabling data sharing in privacy-preserving and fostering innovation in a highly secure manner. The next logical step would be providing a proper regulatory structure for neo banks in India.

In this budget, we can expect digital lending and neo banks to be regulated, as per recommendations by the Reserve Bank of India (RBI) and Niti Aayog. A robust Digital banking license would help Neobanks to make full use of IndiaStack.

The Upcoming budget also holds the answers to the much-expected bill on the possible ban on Cryptocurrency. Despite the lack of clarity on crypto taxation in India, the Indian tax authorities have already been going after cryptocurrency exchanges for alleged tax evasion. The lack of regulations in the crypto industry has created a cloudy future for investors. RBI has set up a new fintech department to supervise and regulate fintech activities along including issues related to Cryptocurrency.

As consumer data protection takes the centre stage, the risk of payment fraud and data leaks has been magnified by the absence of a data privacy law. Finding the right balance between data protection and innovation would be a challenge for RBI as well as the government.

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Budget 2022: expectation on digital lending and neo banks to be regulated in the fintech industry
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Indian FinTech’s raised a record $9 billion in 2021, setting the tone for the funding and growth boom to continue in 2022.
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THE POLICY TIMES
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