Union Budget 2022: Big Push For Digital Banking, But No Relief From Zero MDR For Payments Startups

Focussing on the fintech and digital banking future of the Indian market, the Union Budget 2022 saw several interesting announcements from finance minister Nirmala Sitharaman. The FM announced that in 2022, 100% of post office banks will come under the core banking umbrella to boost financial inclusion.

Digital Banking & Financial Inclusion

Sitharamn said that this will enable financial inclusion and access to post office bank accounts through net-banking, mobile banking, ATMs, and also provide online transfer of funds between post office accounts and bank accounts. “This will be helpful, especially for farmers and senior citizens in rural areas, enabling interoperability
and financial inclusion.”

In order to boost adoption of digital banking services further, FM Sitharaman said that to mark 75 years of India’s independence, 75 digital banking units in distinct districts will be set up by scheduled commercial banks. It is as yet unclear what such an digital banking unit will entail. Coupled with the digitalisation of post office-run banking services, it is a clear sign that the government is looking to push digital banking in rural and semi-urban India.

Further, the allocation announced last year to boost digital payments will continue in 2022-23 as well, the finance minister added. Last year, Sitharaman had allocated INR 1,500 Cr to promote digital transactions and boost digital modes of payment in rural and under-served areas. The government will also look to boost the overall fintech ecosystem by promoting the use of payments platforms that are economical and user-friendly.

No Relief From Zero MDR

While the extension of the digital payments promotions scheme would be welcomed by the fintech startup ecosystem, the lack of announcements in regards to the zero merchant discount rate (MDR) for UPI and RuPay transactions would be disheartening.

The Payments Council of India (PCI), the largest industry body for the digital payments ecosystem, said the industry expects a loss of INR 5,500 Cr due to zero MDR. As of December 2021, over 72 Bn UPI transactions valuing $1.7 Tn have been recorded to date.

According to a Primus Partners report, the Indian market’s fintech adoption rate of 87% is much higher than the global average of 64%. The fintech market in India was valued at $50 Bn-$60 Bn in FY20 and is estimated to touch $150 Bn in 2025 and a large part of the fintech growth is attributable to UPI.

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