Fino Payments Bank says business model viable; eyes profitability by March 2020

Running a payments bank from kirana stores and a mobile app may have cracked the code for this erstwhile payments technology company that focuses primarily on financial inclusion. Launched in 2017, Fino Payments Bank is looking at ending this financial year with operating profits on the back of its variable cost-based business model.

“A big problem in the banking ecosystem is how to enhance access to banking services. How do you go rural, how do you service millions of customers and how do you make this business model viable for micro-payments where the value of the transaction is low, and volume is high. So, we followed the approach in which we employed merchants to bring down the entire cost as well as to handle high transaction volumes,” said Rishi Gupta, MD & CEO, Fino Payments Bank.

The bank has 125,000 merchants that serve as physical touch-points for its 1.2 million customers. These points include kirana stores, mobile repair shops, medical shops etc. They offer services like new account opening, deposits, withdrawal, money transfer, utility bill payments, and cash management services. About 50 percent of these points are micro-ATM enabled.

Rishi Gupta, MD & CEO, Fino Payments Bank

“Our journey as payments bank is going well. We have been able to create a niche. We are now touching $1 billion worth of transactions per month. It has grown by more than four times over the last two years,” said Gupta. The average balance in customer accounts is Rs 1,400.

Fino Payments Bank aims to double its customer base and merchant points by December 2020. It expects 40-50 percent growth in transaction volumes next year.

However, some ease in regulations could make the payments bank model sustainable in the long run, Gupta said.

“When the model was developed four years back, the payments ecosystem was at a very nascent stage. The focus was to create a liability and transactions oriented bank. But over the years, there is demand for micro-loans from customers as well as merchants,” Gupta said. “So, the idea is to offer more products like microlending. Some more liability products like Recurring Deposits, Fixed Deposits should also be allowed. In time, the deposit cap could also be revisited,” he added.

As per existing norms, payments banks are not allowed to lend. They are also not allowed to accept deposits of more than Rs 1 lakh per customer. There were concerns on the viability of the business model after Aditya Birla Payments Bank decided to shut operations in July. Of the 11 players that received the in-principle payments banking licenses, only five are operational currently as others dropped their plans to set up a bank earlier.

“The consolidated balance sheet of payment banks showed net losses during 2016-17 and 2017-18. Even operating profit of payment banks remained negative, although net interest income improved,” the banking regulator said in its Trends and Progresses report released in December. “It may take some time for payment banks to break even as they expand their customer base by offering their unique banking products,” the report added.