Payment Banks Case Study 2: Why They Got a License + Expectations [FINO PayTech]

In 2006, FINO PayTech started its operations after obtaining a license from the Reserve Bank of India to operate as a business correspondent. FINO PayTech is promoted by a group of 24 public and private sector banks, including ICICI Bank, and insurance companies such as the Life Insurance Corporation of India, ICICI Lombard, and ICICI Prudential. FINO PayTech operates the largest network of business correspondents in the country that help banks and reach out to customers in the countryside. In 2014, FINO generated an annual turnover of INR 3 billion, and 33% of the revenues came from remittance and micro-lending businesses, and the rest by selling banking products to its customers.

The company is mainly run by its vast network of business correspondents or agents. The agents are equipped with handheld devices that read the smart cards available to the clients to enable a financial transaction. Its key areas of operation are to provide branchless banking. In addition, FINO has developed an in-house, low-cost technology solution for customer acquisition, servicing, and monitoring. At present, FINO has about 45,000 transaction points (agents) spread across 26+ states in close to 500 districts across India. The firm has a customer base of 80+ million—mostly migrants, small-business owners, daily wagers, low and middle-income households, and in some cases, old-age pensioners.

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FINO—Moving From Being a Business Correspondent to an Enabler of Retail Businesses

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As mentioned earlier, close to 67% of FINO’s revenues are generated from acting as a bank’s business correspondent. However, FINO plans to generate about 50% of revenues through retail businesses (which include remittances, bill payments, recharges, ticket booking, and electronic commerce) over the next two years. A payments bank license helps FINO complement its existing business. For example, FINO PayTech recently tied up with the online travel portal Yatra.com to provide online ticket booking to serve the migrant population as a plan to diversify its offerings. With this tie-up, customers of FINO can book travel tickets online by visiting any of the FINO Money outlets or any FINO authorized agent. Likewise, FINO also partnered with Snapdeal, which enables its customers to use its physical outlets for placement and collection of their orders. FINO is also in talks with close to 10 to 15 e-commerce firms for potential tie-ups for its assisted e-commerce operations on its retail platform.

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Additionally, the firm plans to roll out a new mobile wallet or upgrade its existing wallet labeled FINO Money. Currently, the app is used by its agents to provide services for money transfers, bill payments, mobile/DTH recharges, and payment of insurance EMIs. With an existing partnership with Snapdeal (the firm which acquired FreeCharge, bill payment & recharge platform), it would be interesting to see how Snapdeal and FINO can benefit from each other. Moreover, FINO PayTech plans to double its Money Mart outlets from the current figure of 450 to about 1,000 in a year. FINO Money Marts are company-owned, neighborhood physical stores for all the financial and banking needs under one roof and are especially targeted at the migrant workers.

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There are three major revenue streams for payment banks:

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• Interest income (difference in the rates between what a bank gets to what a bank gives to its customers)
• Payment processing such as card transactions, remittances, bill payments, etc.
• Disbursement of insurance and other banking products

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FINO has opened more than 50 million new bank accounts, but for other banks. FINO can now open new bank accounts under its brand with the payments bank license, but this will cannibalize the revenues they get by selling banking products. Furthermore, it must be noted that banks have enough financial muscle to offer zero balance accounts. To attract new customers, a question that needs to be addressed is: will FINO be in a position to do the same? Even if it manages to do so, it will surely lose the interest income, which is another revenue stream for payment banks. Having said all of this, FINO has taken the right step to move towards payment processing. Payment processing can generate large volumes, and some use cases—such as booking tickets, enabling e-commerce transactions—are large ticket transactions. Going forward, it will be interesting to see how FINO proceeds with its existing partnership with banks, especially with ICICI bank, one of the largest investors in FINO PayTech.

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