20 highlights
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RBI’s proposal to allow specialized, smaller retail banks in the form of payments banks (can facilitate payments, accept limited deposits, sell third-party financial services, but not lend) and small finance banks (fewer restrictions, can issue loans, must target “priority sector”) was a hit in a market where a banking licence had earlier been a rare opportunity.
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Paytm, which has over the years raised about $3.5 billion, according to Tracxn, accounted for about 70% of payments bank transactions (ATMs and PoS machines)
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Fino, which has raised about $100 million in total, accounted for 23%.
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The Mumbai-based company has been hailed as a “fintech bank”, and is the only profitable fintech company among those that have filed for an IPO this year.
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“We earn commission or fee income for each of the products and services offered by our merchants (including those that we cross-sell),” the company DRHP states. These fees and commissions account for most of the company’s turnover, at Rs 770 crore.
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MicroATMs (hand terminals used for deposits and cash withdrawals): Fino Payments Bank claims to hold more than 55% share of the country’s MicroATM market.
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The domestic remittance business is largely driven by migrant workers within India, who send money from where they’re employed to their homes. Remittances took a massive hit last year due to prolonged lockdowns in the wake of COVID-19.
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Cash management: The company presents itself as one of India’s top CMS players.
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On the whole, that Fino was able to grow total revenue by 14% in a pandemic-struck year is something investors might look to as a sign of the company’s potential for growth. Paytm and MobiKwik, both of which have filed draft IPO papers and operate largely in payments, saw revenue decline, despite a recovery in the second half of the year.
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The company’s frugal approach revolves around what it refers to as an asset-light model of payments and banking services.
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Fino Paytech, the parent company, has been a major remittance service provider for over a decade, and is a known name in the business correspondent industry; its investors include ICICI Bank, Intel Capital, private equity giant Blackstone and Bharat Petroleum.
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“Fino decided to change its branch-led model because that model had primary limitations for covering the entire country and there was no difference between the traditional banking model and the new model that we were trying to put together. So, a decision to move from fixed cost model to variable fixed model helped the company expand its reach,” says the Fino executive quoted earlier.
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Fino Payments Bank operates 54 branches and 143 customer service points as of 31 March 2021. Customer service points are physical banking outlets that operate similar to a branch but which do not require RBI approval. Fino had also earlier added transaction touch points at Bharat Petroleum Corp. Ltd petrol stations.
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There is no denying that the money muscle of some fintechs—which are now trying to jump into offline payments and services—can pose a threat. The Fino executive isn’t too fazed, though: “Our model is not very expense-oriented and investment-oriented, it’s not that we have to spend Rs 1,000 crore to earn Rs 300 crore of income. Other fintechs, you will see the income is a fraction of their net worth. They have a very high burning cost. We don’t run an asset business, which requires more capital.”
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The old question about payments banks crops up again, though: How can a bank that can’t issue loans build a viable business?
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This even led to RBI issuing guidelines to allow payments banks to convert into small finance banks after five years of operations. The banking regulator has also been considering a proposal to shorten the timeline to three years.
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A couple of years ago, all the payments banks were exploring the conversion option. But the situation is a little different now.
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Fino is definitely not seen as a traditional business, they are more seen as a pragmatic digitizer. And if you look at some of the products that they have built for merchants and all, they are digital platforms, not just accounts. So that way the building blocks are in place and the best part is they have kept it profitable. Hardly anybody knows the second largest NBFC after Bajaj Finance.
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Small finance banks such as Ujjivan and AU Small Finance Bank, which went public in 2019 and 2017, respectively, have set the stage for niche banking companies to be valued, at least while looking at it as a bank.
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Given the low size of the fundraise, though, Fino will likely be a small or micro cap stock. Though it’s likely to see interest from institutional investors, larger funds might not jump in since there isn’t much hype around the business. “You will not have an ownership premium which Zomato or others like Paytm will command,” says Balakrishnan. “Because once Rishi Gupta has already proven that he is making money, there is no more hope left, unlike other startup IPOs.”