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Fino Paytech plans to sell own products, focus on retail business

Livemint:  May, 2015

Mumbai: Fino PayTech Ltd, India’s largest business correspondent, will develop its own set of products that it will sell to its customers and reduce its dependence on fees generated from helping banks to service customers in remote areas, chief executive and managing director Rishi Gupta said.

Fino employees these days are helping the government roll out various social security schemes, such as the Pradhan Mantri Jan-Dhan Yojana, micro pension and insurance schemes, which Prime Minister Narendra Modi has announced over the past year, including customer verification and evaluating eligibility for these programmes.

Fino generates 80% of its Rs.300 crore annual revenue from commissions it gets from acting as a banking intermediary. In the next three years, Fino plans to generate 50% of its revenue from other businesses.

“We will never cease to be a BC (business correspondent). But the main driver of growth for us will come from our retail operations,” said Gupta.

Fino already has about 30,000 points through which it carries out micro-banking activities, but it has also built up 400 dedicated retail outlets—250 in rural and 150 in urban areas—that cater to small-value, high-volume transactions such as remittances, using low-cost technology.

Apart from traditional banking activities, the outlets, known as Fino Money Marts, provide services such as remittances, recharges, ticket booking, bill payment and even online shopping for their customers.

Fino has tied up with e-commerce firm Snapdeal with an understanding that goods bought from Fino outlets get a special discount. The outlets also act as the address point for customers, who otherwise may not have clearly marked addresses to their homes in slums. The firm also claims to have 10,000 merchant points and franchise outlets. The target group is mostly comprised of migrants, daily wagers, low-income households and small-business owners.

In 2014-15, the firm executed 4.4 million domestic remittance transactions, worth about Rs.1,650 crore. And the remittance business is growing 25% a year.

As an organization, Fino carries out more than 2.5 million transactions a month.

Fino is owned by a clutch of banks, including ICICI Bank Ltd. Some venture capital funds and development finance institutions also own stakes in the firm.

The company has applied for a payments bank licence. A payments bank is a niche bank that cannot lend but can accept demand deposits such as low cost savings accounts and no-cost current account deposits for up to Rs.1 lakh.

“The way we have evolved since our start, becoming a payments bank is our natural progression. It opens up a lot of opportunity for us and it helps us establish ourselves among the general public as a brand. Right now we cannot do it because we cannot sell our own products, but once we are a bank, we will have a plethora of products for our captive customers,” explained Gupta about the reason why his firm wants to become a niche bank. “It may not be apt to say that payments banks will end up disrupting existing banking model, but it will be a very serious competition, at least in the rural areas.”

According to Gupta, Fino’s payments bank will have a vast business opportunity just targeting the bottom of the pyramid.

There are about 175-200 million people below the poverty line in India. The bottom 75 million are bankable through government welfare schemes, but the other 100 million or so, even though officially categorized as poor, are bankable through various small-value but high-volume transactions, apart from government schemes.

The company is cash positive, earning revenue of Rs.300 crore in fiscal 2015, and it has enough funds to manage its existing operations. The last round of funding of Rs.150 crore came from Blackstone Group in 2011.

However, if the group gets a payments bank license, it will need to raise another round of funding. Some investors, even from outside its group of promoters, have already shown interest in capitalizing the company, said Rishi. Most of the funding will go towards converting the Fino Money Marts into payments bank branches, taking care of back-end technology and towards marketing.