It is impossible to make any categorical statements or predictions about the effects of demonetization on the economy, and the fintech space in particular, in the absence of updated and accuratedata.
However, it is safe to say that the implementation of this transformative initiative has been far from smooth with businesses and individuals being hard hit by the unprecedented scale and character of this change, and markets and investors too echoing this uncertainmood.
The government will need to offer many spoonfuls of sugar in the forthcoming 2017 Budget to help the more bitter parts of the demonetization medicine go down.
FULL COVERAGE: UNION BUDGET 2017-18
There are high expectations that the budget will usher in universally popular changes in personal income tax and corporate taxes to compensate for some of the hardships brought on by demonetization.
The government is expected to provide some much-needed cheer for the tax payer and boost consumer confidence by raising the tax exemption bar from the present amount of Rs. 2.5 lakhs and, further, by reducing income tax rates for all income slabs. The government will also hope to pass some version of GST this year, however diluted, to bolster general business confidence.
FULL COVERAGE: RAILWAY BUDGET 2017-18
The Modi government will also continue its particular attention to the rural economy that has been deeply affected by demonetization. Continuing in the line of crop insurance and the conversion of more than 3 crore Kisan cards into RuPay cards post-demonetisation, the Budget will maintain the NDA government's focus on development schemes for the rural and agrarian sector.
We can also expect generous incentives to promote greater adoption of digital usage in the transition to a cashless economy. Demonetization has ambitiously attempted to create fundamental change in the economic behaviour of 1.2 billion people and we can expect an aggressive and attractive set of incentives to drive the generalpopulacetoembrace this new landscape.
Current Fintech market post-demonetization
With 86% of currency notes banned in an economy where roughly 80% of all transactions take place in cash, a general climate of economic uncertainty and lowered consumer confidence is no surprise. This kind of massive transformative change has expectedly caused aneconomic slowdown as people come to grips with this unfamiliar new financial dispensation. The Fintech sector too has not been immune from this general dip in consumer sentiment.
However, the new cashless normal and increased digitization will provide numerous opportunities in the payments, wallets and credit space.
Challenges in the Fintech space
While the pain and inconvenience brought on by demonetization is unquestionable, the anticipation is that this slowdown is temporary and that the Fintech space will benefit in the long run. However despite the generally positive long term prognosis, several significant challenges remain to be addressed.
Foremost is the security of the digital transactions. Hundreds of millions of Indians will be either encountering a digital economy for the first time or using it far more pervasively, post demonetization. It is vital that security of these financial transactions is given top priority to ensure that the transition to a digital, cashless economy is not dragged down by fraud or by other inefficiencies.
Fintech is also dependent on robust infrastructure and any breakdown can have a devastating impact on a sector that is almost completely reliant on fast and efficient connectivity. The recent example of Cyclone Vardha is sobering - it took days for Chennai, one of the largest cities in India and a tech hub, to regain power and mobile/ internet connectivity.
A third significant concernis the dearth of financial data and the attendant risk of lending to millions of undocumented and unverifiable Indians. Much hope is being placed on the JAM stack (Jan Dhan, Aadhar and Mobile) to address this issue and it will requiretime and resources to overcome this challenge.
Finally, fintech players need to develop a fresh crop of relevant financial products and services that will cater to the huge number of Indians who are not digitally and financially literate. Co-opting these many millions into the fintech space will be one of the biggest challenges as well as one of the biggest triumphswaiting to be scripted in this sector.
Ranjit Punja, CEO & Co-Founder,Creditmantri