Regulation and expansion of digital lending and alternative credit products also needs attention.
By ANKUSH JULKA
CEO, MufinPay
The Union Budget for 2025 is eagerly anticipated by the fintech and digital payments sector, with several key reforms expected to shape the industry’s future. Among the most awaited reforms is the introduction of a Merchant Discount Rate (MDR) for UPI transactions, which has become the backbone of digital payments in India. With fintechs and regulated entities handling over 90% of UPI acquiring, the absence of MDR has created challenges in covering operational costs, such as infrastructure, security, and transaction verification. Introducing a tiered MDR structure could provide a sustainable solution, balancing cost-effectiveness for consumers and small merchants while ensuring the viability of payment service providers.
Another critical area of focus should be the regulation and expansion of digital lending and alternative credit products. As non-traditional credit scoring models continue to gain traction, clearer guidelines around responsible lending, data privacy, and consumer protection are essential for fostering a balanced environment for innovation. Regulations that promote transparency in lending terms, ensure responsible borrowing, and secure data handling would build greater consumer trust and accelerate the adoption of digital financial products.
As India becomes an increasingly prominent player in the global economy, simplifying cross-border payments is essential for both individuals and businesses. The government could use the budget to propose international collaborations and innovations in cross-border payment systems, potentially through UPI and digital wallets. This would lower transaction fees, expedite payments, and make it easier for Indian businesses to operate globally. Strengthening financial corridors with countries in South Asia and the Middle East could also improve the ease of international payments.
Expanding the scope of India’s fintech regulatory sandbox is another critical measure. A regulatory sandbox allows fintech companies to test new products and services in a controlled environment, enabling them to refine their offerings without facing regulatory risks. Expanding this initiative through budget allocations could foster innovation while ensuring consumer safety. Additionally, providing financial support to fintech startups working on emerging technologies—such as quantum computing, biometrics, and cryptocurrency-based solutions—could further drive sector growth.
Lastly, the government can promote financial inclusion by incentivizing the adoption of digital payment systems among MSMEs and underserved regions. Providing targeted incentives for small businesses to integrate digital payment methods, coupled with initiatives to improve financial literacy, would ensure that the transition to a digital economy benefits all sections of society. Through these measures, India can continue to lead the way in creating a more inclusive, sustainable, and secure digital payments ecosystem.
By addressing these key areas, the Union Budget for 2025 has the potential to catalyze growth, innovation, and inclusivity within India’s fintech landscape, setting the stage for a globally competitive, digitally empowered economy.”
