Union Finance Minister Nirmala Sitharaman, while moving the Finance Bill 2023 last month in Lok Sabha, said credit card payments for foreign travel will be brought under the purview of RBI’s Liberalised Remittance Scheme (LRS) to ensure that such expenses do not escape Tax Collection at Source (TCS).
According to moneyHOP CEO Mayank Goyal, if credit card payments are brought under LRS, the burden will fall on individuals who lack appropriate information about TCS and the additional fees of credit cards for foreign currency transactions.
In an email interview with Anjaly Raj, Goyal said he foresees a million students travelling in this financial year for education overseas. He also talked about Remittance-as-a-service (RaaS) and said it has the potential to transform cross-border payments, making them faster, cheaper, and more secure.
Excerpts:
Q. If credit card payments for foreign travel are brought under LRS, how will individuals be affected? Will it be any different from current remittance methods for Indians?
Goyal: Tourists continue to often use credit cards as a form of payment, mostly because they are unaware of the additional fees that credit card use for foreign currency transactions entails. Yet, since TCS under LRS counts as Tax Credits, the burden should only be placed on individuals who lack appropriate information. LRS will raise the cost of these payments. The government should thus take action to educate these people so that the full impacts of the plan are disclosed and the taxpayers are not harmed. Any investments made by an individual in foreign securities, real estate, etc. shall be categorised under the LRS regulations as capital account transactions.
People are becoming more at ease using increasingly more digital mechanisms for transacting, which was consistent with the Indian government’s larger economic agenda to create a paperless, cashless society and digitise the financial ecosystem while imposing a tax of up to 20 per cent even though it is refundable at the time of filing taxes. In light of this, many people would view this as a chance to produce a parallel cash system, which could indicate that we are going backwards.
Q. What is the one policy change that you think could potentially catalyse the remittance business?
Goyal: For us [India] to truly emanate as a global power and for the rupee to become one of the notable settlement currencies universally, the money movement both for individuals and businesses multi nationally when dealing with India has to be effortless and far more digital while ensuring the compliance of such transactions is preserved both in spirit and as a paper exercise. For such to happen, it is important that India starts slowly and gradually looking at becoming a “Free Float Currency” and removing the capital controls a round rupee.
We appreciate that this is a bold move and does require a large period of time for implementation but individuals in the leading position should contemplate these lines for India to truly transpire as a global power. Another major policy change that we could foresee would catalyse the remittance landscape is about the Indian Resident Businesses and individuals having foreign currency in the “India Domicile Foreign Currency Account” enabling full fungibility between foreign currencies and the rupee while still residing in India.
Q. What makes moneyHOP stand out from its competitors such as Revoult?
Goyal: Revoult is a multinational inordinately successful Fintech start-up which has outperformed in offering cross-border bank accounts for businesses and individuals in the European market. We are distinct from Revoult by the pedigree of what we have built. India is a very diverse market when it comes to implementation and distribution.
Phygital [physical plus digital] model works better in India and given it is a financial product, understanding the consumer psyche in implementing the solution for that specific use case is acutely paramount to offering a generic solution. We believe we understand our customers better and hence are able to build a product which is more in tune with what any external players coming to India do.
Q. Post covid, are there specific segments that are seeing an uptick? What are your expectations for cross-border banking services and remittance flows for the current fiscal year?
Goyal: The majority of enterprises are now digital, which has unquestionably taken centre stage in the post-COVID world. Individuals have very evidently understood that in today’s DNA age, any businesses that do not accept digital payments or do not have an online presence will not be able to endure over the long term. We have witnessed in the Ed Tech, Health Tech, and AgriTech sectors, domestic payments that were already aware of UPI and demonetisation were included in the digitisation of payments. It is also witnessed in the cross-border sector presently. The government has also been supportive and agreed to the digitisation norms for people transferring money overseas.
Certainly, we anticipate over the coming years cross-border payments becoming a very natural phenomenon as domestic payments are today. We certainly foresee a million students to be travelling in the financial year for education overseas. We also envision both leisure and corporate travel to accelerate, as it will be the first year outside of covid where we will observe individuals travelling without any apprehensions. Looking at these reasonings, we envisage the cross-border payments both on the inbound and outbound side from India to boost the minimum range from 15 per cent to 18 per cent.
Q. What is the potential for RaaS (Remittance as a Service) in the coming years?
Goyal: The potential for RaaS is towering as we are witnessing advancements in the digitisation of cross-border payments. RaaS empowers businesses to incorporate cross-border payment prospects into their products and services, catering more seamless and dynamic know-how to the end customer. All the ecosystem players which in some way or form execute these cross-border payments want to obtain a part of the pie.
They might not have the expertise to build an end-to-end solution thus, RaaS is acting like an international payment gateway which can be very easily integrated into the journey that the consumer undertakes. By bolstering established licensed service providers, RaaS allows collaboration between new entrants to influence the existing infrastructure and licensing, thus enabling them to white-label the services under their own brand. So, the existing platform of the partners and RaaS enables them to tag on additional revenue sources by getting the transaction process on their platform.
Q. moneyHOP operates in India and the UK. How is the UK market for financial transfers and how it differs from India? Plans to enter the UAE market?
Goyal: The UK market is a land of large numbers of foreign nationals living in the UK. If you take London as an example, around 40 per cent of the people living in London are not Britishers which makes it a melting pot for several cultures. London in the UK happens to be more of a sending economy than a receiving; where people make money or send money back home for the maintenance of their families, vis-a-vis. India is much more a receiving country than a sending country. About $100 billion dollars comes into India every year, which is predominantly sent home by $35 million NRIs who live overseas as opposed to about $25 billion that leaves India and that is also primarily for travel and education.
The UAE has slightly different demographics of the people who are part of the remittance ecosystem. Since the amount of infrastructure development, road, electricity, etc has been tremendously high in UAE for the last three decades, a substantial part of the individuals who are members of the construction industry happens to be from nearby developing countries including India, Pakistan, Bangladesh, Sri Lanka, etc. We have also seen a considerable amount of people in tourism which happens to be another ruling industry in Dubai and the UAE come from Southeast Asian countries such as the Philippines, Indonesia, and Australia, and hence we see that the amount that leaves the UAE to go to these developing nations is high.
$25 billion come from the UAE into India every year. The UAE is the second largest country sending money to India under the C2C (consumer-to-consumer) category. There is a substantial part of the Indian diaspora which is present in the UAE be it blue-collar workers who have moved there for construction or quite well-to-do professionals in the financial services industry or the tourism industry. And also people who have been in independent businesses such as the LuLu Group International etc. So, moneyHOP certainly has plans to enter this market and make the money movement between the UAE and India as simple as sending a domestic transfer.
Q. What are the company’s expectations and goals for the current fiscal?
Goyal: This year is going to be the full fiscal year where we will try to grow our market share both in the HOP [Human and Organisational Performance] card and the remittance segment. We also intend to increase our offering by starting inbound remittances into India. We are foreseeing incorporating several automation tools and also bolstering several domestic payment rails in our recipient countries to slow down the latency of delivery and also decrease the cost of remittance. We intend to process at least $500 million dollars in the current fiscal year.
