In a bid to develop the fintech and digital banking ecosystem in India, the Government is looking at introducing tax subsidies for merchants that accept a certain proportion of their business revenues from the use of digital payments as opposed to cash.

The Reserve Bank of India, in a detailed report, has mentioned that the government may soon consider providing tax subsidies to merchants conducting business through digital payments.

The report was conducted by the conducted by an inter-regulatory Working Group, which was formed in 2016 to study the entire gamut of regulatory issues relating to the financial technology and digital banking in India.

The report said that the governments in the developed countries such as Hong Kong and Singapore are investing in fintech and start-ups by backing these disruptors in a way of introducing more competition and transparency and preserving competitiveness of their financial service industry.

“Government may take supportive approach to fintech / start-ups like other sovereigns in Asia,” the report stated, adding that to promote Singapore as smart financial centre, its Government through MAS has committed $160 million during the next 5 years to the fintech and innovation scheme. Similarly, Hong Kong Government announced in November 2016 a $370-million VC Fund investment as part of their drive to position HK as Asia’s fintech hub.

The report also mentions about a need to develop a deeper understanding of various fintech products and their interaction with the financial sector, before regulating this space and to identify sector specific fintech products and study regulatory approaches by various financial sector regulators, frame regulatory approach. It also recommends to provide an environment for developing fintech innovations and testing of applications /APIs developed by banks and fintech companies.

It also stresses upon the need to have an appropriate framework to be introduced for “Regulatory Sandbox/innovation hub” in India and says that IDRBT is well placed to act as regulatory sandbox in collaboration with RBI for enabling innovators to experiment their solutions for eventual adoption.

In an 84-page report, the Working Group has mentioned that the financial sector regulators should engage with fintech entities to chalk out appropriate regulatory response and re-align existing regulatory and supervisory framework.

The Committee had representation from all the financial sector regulators, namely, the RBI, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA), as also National Payments Corporation of India (NPCI), select banks and a rating agency.

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