Fino Paytech will name its bank ‘Fino Payments Bank’, which plans to start operations in 2016 and is expected to break even in three to four years, Rishi Gupta, managing director and chief executive officer, tells Manojit Saha in an interview.
Fino PayTech had received a licence to start payments bank in August last year and you have 18 months to start operations. What are the steps you are taking to convert it into a bank?
It’s a transformational journey for us, from being a business correspondent (BC) for the last 10 years to a payments bank. We have the products, we know the market, and we are present in different geographies.
Now, we are handling clients on behalf of banks or the government. As a payments bank, we have to handle those customers of our own. So this is the transformation we have started a few months ago after getting the in-principle licence from the RBI.
We do remittance service of Rs 300 crore per month. We have 400 branches of which 250 are in urban centres and 150 in rural centres. Those branches do multiple products, bill payments, recharge, and cross-sell other products. We are already there as a payments bank, so to speak. Only thing is from a non-regulated entity we will become a regulated entity.
What are the steps you are taking to meet regulatory norms?
We are in the process of converting our existing BC company to a payments bank. We will also have to meet the capital requirement for the bank purpose.
The minimum capital requirement is Rs 100 crore of net worth which the bank has to maintain at any point of time. But looking at the total spend, and the time to break even, we will start the bank with Rs 500 crore. So, we are looking to raise about Rs 400 crore to Rs 500 crore. This is to take us to the break even level and meet the capital requirement.
How much time will you take to break even?
It will take three-four years.
What will be the structure of the new entity?
The name of the bank will be Fino Payments Bank, and Fino PayTech is the operating holding company of the bank. As per regulation, 51 per cent holding should be domestic for the promoter entity. In the bank, foreign shareholding can be 74 per cent. So there is higher restriction for the promoter and lower restriction for the bank.
Right now, Fino as promoter has 70 per cent foreign shareholding. That needs to be brought down. As we are raising Rs 400 crore to Rs 500 crore, this will help us reduce the foreign shareholding. We are planning to raise the resources from private equity, strategic investors.
When do you want to launch the bank?
The plan is to launch it this year (2016). We have not fixed the exact date because there are a few external factors like completing the regulatory piece as well as getting the final approval from the RBI. By the next quarter, we should be able to send the request for final approval.
What will be the key focus areas for the payments bank?
Fino has been working in this domain for many years and the objective is to reach the unbanked and the under-banked customers.
We will continue to focus on this business segment. We have already 400 branches, which are known as Fino Money Marts. We will convert all these into Fino Payments Bank branches. As of now, we have acquired 100 million customers: 45 million on the banking side and 55 million the one time acquisition that we have done on behalf of others like insurance companies. Out of the 45 million, roughly 25 million are active; serving them will be the focus.
One of the biggest challenges for payments bank is they are not allowed to lend. The revenues will mainly come from fee income for remittances. Will maintaining profitability be a challenge?
When we look at our customer segment, we realise they are ready to pay for their services if they see a value.
Customers who transact via mobile banking for example, take it as a free service. But if you move down the pyramid, customers are ready to pay for the services because till now they have not got the services. People value time more than money. They are ready to pay for a service rather than standing in line for three hours or if they have to travel 10 km. Payments banks will target customers who are ready to pay for their services.
You are allowed to raise demand deposits, though up to a certain limit, an activity which is new to payments banks. What is the strategy?
The biggest challenge for us is payments bank is a new concept. People are comfortable in depositing money in a traditional bank. The challenge is to how we build up trust from customers. We have to build the trust over a period of time. Bandhan Bank already raised Rs 5,000 crore since its inception in August 2015, which means people are ready to give money if you give them a good proposition.
Are you ready to offer a higher interest rate for savings bank deposits?
Bandhan has not offered anything higher. Some private bank offered a higher rate, but later brought it down. Most players in the banking sector have not offered a higher rate. Giving a higher rate of interest does not make sense for us as I cannot lend that money. The mobile wallets offer no interest rate on deposits, still people put money there.
How do you see competition from mobile wallets as far as raising deposits are concerned?
To me wallets are a very transient solution because you cannot take out cash; you don’t earn interest; they are not inter-operable. There are certain limitations like you can do a transaction of Rs 10,000 per month, in a semi-closed wallet. I don’t see any competition from wallet players.
