In conversation with Ketan Merchant, CFO, Fino Payments Bank Ltd

We prefer calling our customers as part of an ‘emerging Bharat’ as opposed to a digital India, expresses Ketan Merchant, CFO, Fino Payments Bank Ltd

What is your outlook on the Indian fintech industry? 

Indian fintech industry is poised to become one of the biggest value drivers for customers and investors alike in the forthcoming decade. The inherent model of fintech is skewed towards low risk and scalable businesses. The risks associated with asset-based businesses are non-existent in fintech thereby protecting the downside for investors. The unaddressed market in India is still huge and the problem at hand is very pertinent. India still has several corridors with substantial parallel banking activities. With the growth of more fintech, the penetration of financial services will improve and customers will increasingly have better access to formal banking channels. 

As the ecosystem matures, we will also see robust profitability from many of the players. Fino is a unique player in that respect as we have already demonstrated profitability and our ROEs are already ahead of our peers. Our distribution strength is unparalleled as we are in excess of 8.6 lakh banking points as of December 31, 2021. Going forward, we will see fintech driving financial product distribution across the length and breadth of the country. 

Fino Payments Bank posted a 116 per cent year-on-year rise in net profit at Rs 14.1 crore in Q3FY22. What factors have contributed the most to help you outperform? 

The model of a payments bank is such that beyond a point, the revenue growth outgrows the cost and this leads to operating leverage. As we don’t operate capital intensive branches, we can scale up business with our existing platforms and infrastructure without incurring significant marginal costs. In short, ours is an ‘asset-light’ phygital model and this gives us a disproportionate growth in profits. To give you an example – in 9MFY22, while our revenue grew by 29 per cent, our operating cost grew by only 16 per cent. Our model is transactions-led wherein we earn on every single transaction. More than 97 per cent of our revenue is fee-based income. 

To put in perspective, in FY21 our network facilitated transactions worth Rs 1.33 lakh crore, while in 9MFY22 we have done transactions worth Rs 1.34 lakh crore with still a quarter to go. Having said that, we are currently investing heavily to expand and take our business to the next level. We prefer calling our customers as part of an ‘emerging Bharat’ as opposed to a digital India. We believe that millions of customers who are entering the banking ecosystem today will transition to the digital banking ecosystem in the near future. While this transition will take time, we are building our digital stack ahead of the curve for our customers in a language of their choice, on a platform of their comfort and with products that they need.  

Can you shed some light on the products launched during 9MFY22 and plans to further expand the offerings in Q4FY22 and FY23? 

In 9MFY22, we have launched a subscription-based current account product, Aadhaar Enabled Payment System (AEPS) cash deposit, Aadhaar Pay on both own and open channels, PPI cards, gift cards and UPI payments in a peer-to-merchant (P2M) model. We are also running pilots of our loan cross-sell products. We have already got regulatory approval for International Remittance which we are on course to roll out soon. We are awaiting approvals from the regulator for cross-selling of mutual funds, recurring deposit (RD) and fixed deposit (FD).

In FY23, our focus will be to scale up these products. Hence, getting the execution strategy right is key. Our thought process is in 2 years if any two products from the above are able to take off, it will deliver substantial growth for Fino in the next couple of years after the immediate next two years.

What is your earnings outlook for the upcoming quarter? 

For the last couple of years, we have witnessed flat sequential performance in the fourth quarter. Although we are in the financial space, our business doesn’t have any fundamental cyclicality. Theoretically, with more merchant growth, our business volume should keep growing and that should result in better performance every quarter. We have already demonstrated eight straight quarters of profits starting Q4FY20. We intend to keep the profitable momentum going. This year, we are hopeful of proving our hypothesis correct in Q4FY22. Business momentum continues to be robust. We had witnessed record account opening and CMS throughput in Q3FY22. We are leaving no stone unturned to improve the numbers more in Q4. All our teams are charged up internally to deliver another positive surprise this quarter.