Fino Payments Bank plans to use its network of merchants as the first set of customers to lend to, while also using them as loan collection points, if the regulator approves its proposal to convert into a small finance bank.
It applied for a small finance bank licence in December 2023 and has about 1.8 million merchants who provide financial services as agents of the bank. Rishi Gupta, managing director and chief executive of Fino Payments Bank, said in an interview that a significant portion of these merchants can be used to collect loan repayments.
Gupta added that the merchants would be used as loan collection points while the bank would also cater to the credit demand of these merchants. They run the bank’s touchpoints and provide services like opening of bank accounts, cash withdrawal, and more. The other target base is its current base of 13 million customers, he said.
Fino Bank has a majority (34%) of its merchants in the eastern part of the country, 32% in the north, 21% in the west, and 13% in the south.
Conceptualised by a committee headed by former RBI board member Nachiket Mor, payments banks are supposed to reach out to the under-banked and unbanked masses, accepting deposits of up to ₹2 lakh per customer. The primary difference between them and small finance banks is that payments banks cannot lend. There are six such banks and include Airtel Payments Bank, Fino Payments Bank, Jio Payments Bank, India Post Payments Bank, NSDL Payments Bank and Paytm Payments Bank.
“Some questions have started to come from RBI and we are answering them as they come. If and when RBI gives us an approval, it will be in the form of an in-principle nod and we will get 18 months to actually convert into an operating bank,” said Gupta. “We want to convert within one year of that nod.”
According to Gupta, the conversion would entail changes to three things: team, technology and capital. “We do not need capital right now as we have higher capital than what is required. On the technology side, we are already migrating our old systems to a completely new Finnacle system, while on teams, some people have shown interest in joining us at a later date.”
Gupta also said the bank will build teams required for lending.
“For collections, we also have a cash management services vertical within Fino where we do collections from agents and some customers also come and deposit money at our points,” said Gupta, adding that the bank will have to build teams for credit appraisal, credit sales and even collection. These teams, he said, will be built over 12-18 months following RBI’s in-principle approval to convert to a small finance bank.
Analysts at Nirmal Bang Institutional Equities said that while waiting for the regulator’s go-ahead for SFB license, the bank is in the process of building the technology, liability, doing some pilots around credit like merchant loans, gold loans as well as partnership-based lending portfolio.
“The management indicated that post getting converted into SFB, the bank would still continue to derive the majority of its business from payment based services (around 75%) and remaining would be from the lending business,” they said in a note to clients on 22 November.
Others said that a conversion to a small finance bank would allow Fino to start lending operations and undertake cross selling of other financial products. “We have modelled lending revenues to start kicking in from FY27 and estimate the assets under management at ₹1,500 crore,” analysts at Ventura Securities Ltd said in a note on 4 October.
Ventura Securities said that Fino’s entry into the lending business is set to be both cost-effective and smooth, leveraging its established merchant network and existing technological infrastructure. However, companies like Fino primarily operate through their merchant networks, which can be poached by competitors, it said, adding that Fino has established strong relationships with its merchants, making such occurrences unlikely.
Key Takeaways
- A significant portion of Fino Payments Bank’s merchant network can be used to collect loan repayments.
- The bank will also cater to the credit demand of these merchants.
- The other target base is its current base of 13 million customers.
- Fino Bank has a majority (34%) of its merchants in the eastern part of the country, 32% in the north, 21% in the west, and 13% in the south.
- The conversion would entail changes to three things: team, technology and capital.
