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Fino Payments Bank CEO Rishi Gupta on why they won’t be a digital-only bank

“There will be about four sources of income for the payments bank. One is the balances in the accounts. Second is the remittance business. The third revenue stream will be coming in from the Banking Correspondents and lending business. The fourth is the insurance cross-sell and other cross sales,” Rishi Gupta, CEO of Fino Paytech told MediaNama in an interview. “The revenue pattern will change over a period of time,” he added. Fino Paytech recently got the final license from Reserve Bank of India (RBI) to set up a payments bank, called Fino Payments Bank.

Excerpts from MediaNama’s interview with Gupta:

What kind of bank accounts? 

Gupta: We will offer both saving accounts and current accounts. And our mission is to target the underserved market. Our target segment will be in the mass- market segment. So we will offer them banking solutions. It will be a fix of both digital and physical channels. We’re the largest business correspondent in the country so we already have a large system.

Interest rates

Gupta: It will be similar to the rates in the banking industry. Our business model does not support high-interest rates. So it will be around 4%. It is the same offered by a majority of other banks.

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(Editor’s note: Currently, Airtel Payments Bank offers one of the highest interest rates on deposits and gives 7.25 % per annum  for savings accounts.)

Physical and digital network

Gupta: We are in the process of setting up around 400 branches in rural areas and top 30 cities in the country. We will have a healthy mix of physical channels. Digitally, we are working on a mobile based solution. By the end of one-and-half year, we will have somewhere around 500 branches and 50,000 access points. For all our customers, we will offer them digital solutions on smartphones as well as feature phones. The digital offerings will include the national assets such as Aadhaar Pay, eKYC and the UPI. Our focus is both on the people with smartphones as well as feature phones. In the long run, it will also include merchant acquisition and also look at shops which sell groceries, vegetables, and others.

On Airtel Payments Bank 

(Editor’s note: Airtel Payments Bank is trying very hard to be a digital bank. It has made a conscious decision to not issue a physical debit card for account holders. It will, however, issue a virtual debit card from MasterCard which can be used for online purchases. It is looking to avoid cash transactions as much as possible and is also charging customers as much as 0.65% on cash withdrawals.)

Gupta: Their customer segment is different from our customer segment. We are looking at more at the mass market. This is not completely on a digital platform There is an initiation to make it digital and it will happen over a period of time. Our accounts will have a debit card feature which can be used for withdrawal.

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But we would be looking at more physical transactions in rural India to start with. Here the digital push will happen over a period of time. Right now, more physical transactions will happen over digital. But we are ready with more kinds of transaction.

We want to provide good quality of service and we don’t want to limit them by saying that digital will be offered. We will offer whatever we can to the customer. And we will let the customer choose what kind of transactions they want to adopt.

On cash withdrawal limits and charging customers

Gupta: When you look at our business, in that scenario there is a cost to the business. Now the question is that whether you will recover that cost and what form you will you recover that cost. So if we have to make it business, it has to be long term sustainable. In that scenario, you will have to charge the customers.

Now the questions comes if you have to charge on the basis of a monthly average balance or from the point of withdrawal. Or in some other manner. At the end of the day, there will be some charges but they will be at a reasonable level.

The customer sees value in the business and they see if they are adding value to their business, in that scenario, they will be ready to pay.

Business correspondents (BCs)  in FINO Payments bank

Gupta: Right now we are at around 30,000-35,000 numbers. We plan to take it to 50,000. One service we offer is banking account services for our clients that will continue in the same manner. We will also offer BC solutions as part of the infrastructure. We will also be looking at merchants and other people who will come to our point and undertake BC transactions.

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I don’t have the details on the commission business correspondents make, but I can say that they will be working on a variable model where every transaction – whether it is account opening, cash withdrawal, cash deposit, cross-sell of insurance or recharges – they will get a commission.

And that commission should be a reasonable sum for them to be incentivized to work with us. So we would expect that BCs who would get appointed will be not working only for this particular business. This will usually be supplementary to their existing business.

Cross selling loans and insurance products

This is very important to us from a business model perspective. Payments bank by nature can only take small deposits. And we can’t offer any other banking services on the asset price. But being a business correspondent, we can do BC lending plus we have tie-ups with insurance companies ICICI Prudential, Exide Life Insurance. We also have tie-ups with banks for lending purpose.

There will be some products like home loans or vehicle loans which could be a lead generation business, but some other products like microloans or micro insurance, it will be both lead generation as well as fulfillment.  Fulfillment will be something like I will issue an insurance policy where I will be collecting the claims and processing claims and probably collecting the premium as well.

For insurance, commissions are set by the IRDA regulations and different products have different pricing.

Treasury department and revenue

It will be the same as any other bank. The only thing is that it will not be that big as we can only invest in government securities and commercial banks. We have hired a few people to work in the treasury department. In terms of revenue, it will not be big. There will be about four sources of income for the payments bank. One is the balances in the accounts. Second is the remittance business. The third revenue stream will be coming in from the BC and lending business. The fourth is the insurance cross-sell and other cross sales.

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The revenue pattern will change over a period of time. You will see revenue coming in from the remittance and our existing BC business. In the long term, it will move towards CASA and cross selling products.

Remittance business

The remittance business took a hit following demonetization during that period. But we are seeing the numbers coming back. We should be hitting our pre-demonetization numbers by the end of April. So the average amount in the remittance business is around Rs 4,000 to Rs 5,000. And we charge around 1% of the amount sent as for the remittance service.

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