Here's Why This Payments Bank is Focusing on Phyigital Model Urban banks in India generally cater to the middle income and above category, whereas very few banks are focusing on rural India and lower middle class

Financial inclusion is one of the most discussed topics around the world and India, is among the few countries leading the conversation. The Government of India, the Reserve Bank of India (RBI) and the entire financial ecosystem are looking at ways to include the last mile into the formal system.

One of the much-talked initiatives in the space is Prime Minister Narendra Modi's Pradhan Mantri Jan Dhan Yojana (PMJDY). On the inauguration day, more than 1.5 crore accounts were open under the scheme and as of June 2018, there were roughly around 31 crores PMJDY bank accounts with over INR 790 billion as deposits.

Even the RBI didn't shy away from taking steps and as a result, the banking regulator issued licenses for small finance bank and payments banks in 2015 with an aim to reach out to the last mile. While the small finance banks operate more or less like the big banks but cater to the unserved crowd, the payments bank operate a bit differently. On the deposit side, payments bank can't take more than INR 1 lakh while on the credit side, they cannot lend but can do referrals.

While there were multiple banks being opened, financial exclusion is still a problem as the customer touch points were yet to match the trend and this is what Fino Payments Bank was looking to change. In a conversation with Entrepreneur India, Rishi Gupta, CEO, Fino Payments Bank, shares why the bank decided to opt for phygital model to scale its banking businesses up.

The Outlook

At the group level, Fino was majorly working with business correspondents while building a merchant network and managing cash on the ground. As a payments bank, it is looking to focus largely on the last mile by leveraging on its merchant ecosystem.

Gupta says urban banks in India generally cater to the middle income and above category, whereas very few banks are focusing on rural India and lower middle class. And hence, this is a good opportunity.

"When we got the bank license, we decided that we will work in complimentary with the bank and not as competition. Additionally, we don't want to eat into somebody's cake but rather work to make the cake bigger. So on that basis, we picked rural and creating a merchant ecosystem as our focused area," he shared.

Presently, Fino business exposure is 70-75 per cent rural. Furthermore, with its vast network, it has one touch point for every 10,000 customer which the CEO aims to bring down to 5,000 by expanding its reach.

He adds, "We believe the payments banks are needed to promote financial inclusion to go to the last mile. If we fail on this part, we will continue to work in the same segments where most of the high-end banks are working and we will not meet our objective."

The Tech-look

But serving the last mile isn't easy. The cost of servicing customers as against the ticket size is extremely high. However, when payments banks were introduced buzz around technology and Aadhaar stack had started to pick up and Fino took advantage of it.

"We knew digital has to be on the top of the physical approach and hence, we started the phydigital model. People have to get out of mindset only looking at digital and urban customers. We believe it is a journey - you start with physical and then move to a digital assistant and then digital self-service," he shared.

Making Some Moolah

As of date, Fino Payments Bank boasts of a network of one lakh merchants and has recorded transactions worth INR 300 crores per day. The CEO claims that the transaction numbers have increased six times in the last 18-20 months.

Commenting on when the financial institution will be profitable, he says, "Our financials are showing a very positive trend. On a month-to-month basis, we are reducing our EBITA losses and we expect in the financial year we will be EBITA positive on the bank front."