Converting to a small finance bank is an option: Fino Payments Bank MD

RISHI GUPTA, managing director and chief executive officer, tells Raghu Mohan that if payments banks are allowed to give loans, the business model will be more sustainable

Fino Payments Bank has beaten the odds stacked against players of its genre. It services customers through 150 branches and over 5.5 lakh touch points, putting through 35 million transactions a month totalling over Rs 12,000 crore. RISHI GUPTA, its managing director and chief executive officer, tells Raghu Mohan that if payments banks are allowed to give loans, the business model will be more sustainable. Edited excerpts:

Do you think the payments bank model has delivered? 

All the operational payments bank entities have contributed in their own way towards the intent of providing banking access to the under-banked. They have demonstrated their ability to be customer-centric, agile and innovative. There were and are naysayers, but we at Fino have proved these doubting Thomases wrong. The entry of payments banks led to an exponential growth in rural India’s banking infrastructure. From less than 36,000 bank branches and a few thousand automated teller machines (ATMs) a few years ago, there is now a banking point in almost each of the 6.6 lakh villages. 

We set up a network of around three lakh points consisting of mobile, kirana and other local stores, including over 8,000 outlets of our strategic partner, Bharat Petroleum Corporation Ltd (BPCL), and almost 80 per cent of these outlets are in the rural areas. Another 2.5 lakh points of our partners takes it over 5.5 lakh points. The elevation of the neighbourhood merchant as a responsible banker gives local people the comfort to engage and transact. Urban-to-rural remittances is the biggest use case. Pre-covid, we facilitated around Rs 4,500 crore in remittances a month, which is now at 80 per cent of that number. During the pandemic, micro-ATMs and the Aadhaar-enabled Payment System (AePS) network of payments banks proved crucial for cash withdrawal, especially for direct-benefit-transfer beneficiaries. We achieved our profitability target in FY20, less than three years after starting operations. In Q4 of FY19-20 and Q1 of FY20-21, we made net profits.

How has the transaction business been during the pandemic?

An estimated 500 million of the under-banked need quality banking services. We have adopted a “phygital” approach — comprising digital platforms and physical outlets. Distribution, technology and partnerships are the key pillars of our model. Since inception in July 2017, our transaction value grew by over eight times. Currently, our total network of around 5.5 lakh points facilitates 35 million transactions a month of over Rs 12,000 crore. We did over Rs 1 trillion crore worth of transactions last fiscal, largely driven by micro-ATMs and AePS.

This increase is also reflected in the Ministry of Electronics and Information Technology's digital transaction rankings for banks, where Fino did well consistently, competing with the big banks, and ending FY20 among the top five. The objective is to double the value of transactions in FY21. There is still lot more to do and we have only wet our toes in the ocean of this huge opportunity.

 In what way has technology shaped the payments bank model? 

Aadhaar has transformed the rural banking landscape. Millions of customers enjoy hassle-free banking with AePS transactions. With over two lakh devices, we have 65 per cent share of micro-ATMs. These devices help local merchants transform into “human-ATMs” and provide doorstep banking services to customers. Fintech collaboration helped enhance customer experience in terms of innovative products and improved service quality. Iris and facial recognition-based authentications will be the future of banking. Fino is working on pilots on these technologies that aim to bring more efficiency and promote “no-contact” payments. We are working on a near-field communication-based contactless payment solution for mass transit bus service systems and helping BPCL’s smart-fleet users recharge cards to pay for fuel digitally.

What tweaks to the current business model will make it more viable? 

A payments bank as a transaction-led business is good if executed well. We demonstrated the model’s profitability by keeping costs low and focusing on high-margin products to increase revenue. Not having an asset product makes the model risk-free as well. However, if payments banks are allowed to give loans, their business will be more sustainable. The opportunity for conversion into a small finance bank (SFB) is the way forward. 

On completing five years in July 2022, you can opt to become an SFB. Will you look at that option?

We are doing well as a payments bank and the vision is to do more and create value for all our stakeholders. Lending will open growth avenues. It is therefore a natural progression for Fino to become an SFB. We have a strong transaction business that is risk-free. When we become eligible and convert into an SFB, it will be like a payments bank-plus model — a model that has the payments bank business plus micro-loans plus term-deposits. We are excited, but still have two years to go. We will see what developments emerge and take an appropriate call.