Fino payments Bank - Can the unique business model spring a surprise?

Overview on Payment banks
In 2015, RBI gave “in-principle” licences to 11 entities to launch Payments Banks and awarded SFBs licences to 10 players. However, of the 11 in-principle payment licensees, three withdrew their application subsequently. Aditya Birla Idea Payments Bank also closed their operations in September 2019. The payments bank which are currently operational include Airtel Payments Bank, India Post Payment Bank (IPPB), Fino Payments Bank, PayTM Payments Bank, NSDL Payments Bank and Jio Payments Bank. RBI, in December 2019, released the final Guidelines for ‘on-tap’ licensing of small finance banks in the private sector and opened
. Additionally, existing Payments Banks (PBs) which are controlled by residents and have completed five years of operations will also be eligible to apply for SFB licence. The minimum paid-up voting equity capital for small finance banks shall be ₹ 2 billion. In case of an existing NBFC/MFI/LAB/PB, the entity shall have a minimum net worth of ₹ 2 billion or it shall infuse additional paid-up voting equity capital to achieve net worth of ₹ 2 billion within 18 months from the date of in-principle approval or as on the date of commencement of operations, whichever is earlier. Listing of the small finance bank will be mandatory within three years after it reaches the net worth of ₹ 5 billion for the first time. Currently, the share of newer banks in the system, i.e. SFBs and Payments Banks, is less than 1.0%. Nonetheless, with increase in scale and operations, and deeper penetration in unserved and underserved areas as well as increase in number of customers entering the formal banking system, the share of these segments is also expected to increase going forward. While the share of metropolitan areas in the deposits distribution has reduced over the years, share of urban areas has remained stable and semi-urban areas have seen the highest increase in share of deposits.
What can a payment bank do?
Banking services - Demand deposits, ATM/Debit cards, payments and remittance services • Other ancillary services – Cash Management Services, Recharges, Bill Payments, Fast Tag etc. • Can act as Business Correspondent to another bank and offer savings, deposits, credit and investment products • Can act as Corporate Agent to offer insurance products and loan products

Basically, a payment bank can set up ATMs, Banks, business correspondents accept demand deposits( non –NRI), issue ATM cards/ prepaid instruments. And offer remittance services including cross border remittances, internet banking services,BC for other banks and selling non risk sharing financial services such as mutual funds, insurance,pension products, utility payments etc. They can accept deposits upto a holding limit of 2 lacs per customer( increased in April’21)
Now coming to deployments of funds, these banks cannot undertake lending activities, As per regulation they are obligated to keep 4 % of its outside time and demand liabilities as CRR with RBI. 75% of the demand liabilities are to be invested in SLR securities. And can hold a maximum 25 % of the liabilities in current/time deposits with other scheduled commercial banks.
Due to this restriction the interest income of payment banks is very small compared to a traditional bank. Interest income is the spread the bank receives on depositing the funds in SLR securities/ time deposits with scheduled banks.
Capital requirements:
The minimum paid up equity capital of payment bank shall be 1 billion. The payment bank shall be required to maintain a minimum CRAR of 15 % on a continuous basis. Tier 1 capital should be atleast 7.5 % of RWAs.
As payment banks are not allowed to lend, the risk weightage on SLR securities and Bank deposits are much lower and hence payment banks rarely have CRAR of 10-15 % that the traditional banks have.

Fino Payments bank is a subsidiary of Fino paytech Ltd. It got listed in bourses in Novemeber’21. The IPO price was fixed at 570 per share, since listing the company has lost nearly 60 % of its value.

The Bank is a subsidiary of Fino Paytech Ltd( 75% holding)
The major investors in Fino Paytech are

Source: Finotech AR 20-21

Now coming to the shareholding of Fino payments bank
Fino paytech Ltd: 75 %
FII: 10.20 %
DII: 9.66%
Public: 5.14 %

source: Screener

For me, Fino is a kind of a bet on Financial inclusion. Fino calls its business model, a phygital model where they assist in delivering digital services. And they target mainly customers in rural and semi urban areas. It already has the largest number of physical customer touch points among all payment banks . It turned profitable in Q4’20 and has remained profitable since.
The clientele is mainly customers from rural and semi urban areas from low income groups which are not the most sought out customers for the traditional banks. As such these customers are easily available for grabs. They dont have to directly compete with banks nor with the fintech companies who have minimal physical presence. Initially, I got interested with this idea due to this target customer differentiation coupled with their MATM and AEPS business. For the rural customers their neighbourhood merchants/ BCs became Banks. With financial inclusion and emphasise on DBT. the rural and semi Urban population has become more and more dependent on bank accounts for withdrawal of the benefits. Due to non availability of ATMs or banks nearby, banking correspondent business of payment banks/ other fintech companies started gaining traction.

The Bank has been able to post continous growth in the previous quarters except for the covid affected quarters and the highest ever PAT was lodged in Q322.

Revenue share

Source: Investor presentation Q3’22
As per ICRA credit rating in FY 21 44 % of the revenue was derived from Micro ATM and AePS services, 25 % from BC banking, 12 % from CASA and other 19 % from other products and services. The revenue mix has changed significantly.
So lets just focus on the main revenue earner
Micro ATMs
Micro-ATMs are handheld terminals (similar to a point of sale (“POS”) terminal) that typically require a card to be swiped or dipped by the customer, rely on mobile phone / internet connections and are most often used in geographies where it is not practical for the relevant bank to locate a physical bank branch and/ or facilitate doorstop mobile banking by BCs. Customers use micro-ATMs to deposit cash, withdraw cash, check account balances and request mini-statements. The micro-ATM has a maximum limit of ₹10,000 (regulated limit).
Micro-ATM transactions are either conducted on “own” channel or on the API channel where bank interface with third party financial services entities with whom the merchant is registered. Such third parties financial services entities as API Partners and as of March 31, 2021, Fino have arrangements with 45 API Partners, including BankIT, RNFI, Mobisafar and Spice Money. API Partners are unable to handle the remittance end-to-end as they do not have a banking license, and accordingly require assistance of a bank and its core banking system infrastructure to complete transactions.
Bank generate interchange commission for every transaction that is conducted through micro-ATMs on Fino’s system, regardless of whether the user has a bank account with Fino or is a customer of another bank. This commission is 0.5% of the transaction amount or ₹15.00, whichever is lower. The revenue earned through our micro-ATMs depends upon whether the micro-ATM is operating on our “own” channel or on the API channel. On “own” channel, the transaction commission is split between the merchant and Bank, whereas on the API channel, the transaction commission is split between three parties, being the merchant, Bank and the API Partner.

AePS is a bank led model that uses AADHAR authentication to allow interoperable transactions at POS terminals. It was launched with an objective to facilitate banking services in the underserved regions of the country. Unlike a typical micro-ATM, Aadhaar authentication does not require a signature or debit card to be swiped or dipped by the customer and instead uses account details as the basis for an AePS transaction. Customers primarily use AePS to deposit cash, withdraw cash, check account balances and Aadhaar to Aadhaar remittances that are interbank or intra bank in nature.
Interchange commission is generated for every AePS transaction that is conducted through bank’s system, regardless of whether the user has a bank account with Fino or is a customer of another bank. This commission is 0.5% of the transaction amount or ₹15.00, whichever is lower. Commission is split as in Micro ATM.

Domestic remittances
Refers to migrant workers sending money from places where they work to their homes in their states or their regions for meeting the day to day expenses

BC Banking
BC Banking describes the BC’s that are engaged by Bank to provide banking products and services on behalf of other banks (such as Union Bank of India and Canara Bank) and are authorised to perform a variety of activities. As of March 31, 2021, we have approximately 17,269 active BCs across India and derive revenue through commissions on each transaction they process. Income derived from our BCs in the financial year 2021 was ₹1,512.15 million.
As per the bank website company is the preferred partner for ICICI Bank, Andhra Bank, Canara Bank, Union Bank of India, Syndicate Bank, IDFC First Bank.
Share of revenue in BC Banking has declined significantly as of Q322.


This was one of the services which I didn’t count as a severe revenue driver in my initial thesis, however it has started looking quite attractive as on Q322.

Revenue source
an annual subscription fee on Shubh Savings Account, Jan Savings Account and Bhavishya Savings Account;
fees where the customer is unable to maintain the MAB on our Pratham Savings Account & Pragati Current Account;
for fund transfers made from CASA accounts (i.e., account to account transfers and IMPS);
for cash transactions such as cash deposits and cash withdrawals
other miscellaneous fees in connection with certain SMS alerts and physical account statements.

CMS offering principally includes cash collection services and cash payment services across traditional physical channels and help digitize physical cash to clients who manage significant volumes of cash. The service involves providing physical locations where agents of corporate CMS customers can attend and deposit the cash collected from their customers, acceptance of EMI payments, the provision of acknowledgement of the collection/payment transaction through SMS and providing live dashboard (i.e.,web portal) for viewing real time transactions. current clientele is spread across industries, including banking and financial services (“BFSI”), logistics, e-commerce, and retail industries.

A typical CMS transaction involving a loan with equated monthly instalments (“EMI”) requires the borrower to visit dedicated deposit point within the community (which is typically at a merchant location) to deposit their EMI, at which point bank take a commission and client receives the net proceeds. Bank earn revenue from CMS on a commission basis according to throughput volumes.
Major clients based on monthly throughput volume being L&T Finance Limited (Microfinance), Satin Creditcare and RBL Finserv

Third party Gold loans and other loan referrals.
Gold loans are cash loans made against the gold jewellery of a customer. They have entered into strategic business relationships (i.e agency agreements) with an NBFC to cross-sell gold loans via BCs. Such third parties are incentivised to offer products due to the extensive retail network
The revenue is generated on a commission basis, charged to the credit service provider, calculated as between percentage of the total throughput value of gold loans transacted with customers on a monthly basis. Income derived from facilitating gold loans for the financial year 2021, was ₹102.69 million.

They have entered into strategic business relationships with third party lenders such as Riviera Investors Private Limited to cross-sell business loans (including working capital loans) to Fino’s merchants and BCs. Such loans are for amounts between ₹0.2 million and ₹5.0 million with varying interests rates of between 18.0% to 30.0% per annum, or 1.25% to 2.50% flat rates per month. The loans are offered for periods of between 30 days and 36 months. Such loans are not available for retail customers.
The revenue is generated in the form of commission received from the service provider, which may differ depending on whether the loan is new or being renewed, and also as to the amount being loaned, where for greater amounts we will received a high percentage commission. Income derived from third party business loans in the financial year 2021 was ₹0.66 million

Third party insurance
Offering customers the opportunity to purchase third party insurance products through Banks’s distribution network. To provide such insurance products, Fino has obtained registration to act as a corporate agent from IRDAI and have entered corporate agency arrangements with ICICI Lombard General Insurance, ICICI Prudential Life Insurance, Exide Life Insurance and Reliance General Insurance to distribute certain insurance products.
Revenue is generated in the form of commission on every insurance policy that they cross-sell, the commission varies according to the type of policy.

Bill Payments and Recharge facilities
Facilitation of payment of bills and Direct-to-home (‘DTH”) recharges (of television connections, prepaid mobile phone connections and FASTag) via branch network or at merchant locations. To facilitate bill payments, Fino operate as a Bharat Bill Payment Operating Unit under the National Payments Corporation of India Bharat Bill payment system which is a RBI-led system for payments of bills, accessible to consumers across India. Customers may pay bills relating to electricity, gas / LPG, insurance premiums, landline phones, mobile postpaid phones, municipal tax and broadband.
Revenue is in the form of commission charged to the service provider. Income derived from facilitating bill payments and recharges in the financial year2021 was ₹10.45 million
Reloadable tag which enables automatic deduction of toll charges, assisting customers pass through vehicle toll stations without stopping to make a cash transaction. FASTag is linked to awallet account or CASA account from which the applicable toll amount is deducted. The tag employs radio-frequency identification technology and is affixed on the vehicle’s windscreen after the tag account is active.
The FASTag can be obtained by the customer from merchants for a flat fee of ₹99.00. The merchant registers the customer’s vehicle and issues the tag by linking it to the customer’s account . Bank gets a share in the interchange income of 1.5% for every toll transaction. Income derived from FASTags in the financial year 2021 was ₹0.48 million.
Fino PB has also recently received regulatory approval for cross border remittance through money transfer service scheme. Under this approval Bank will be able to undertake inward money transfer activities in partnership with overseas Principals. Bank sees tremendous opportunity in this area. Bank is already tied with various MTOs for this.
Recently, it received approval for referral services for mutual fund distribution in tie up with Fisdom and for demat accounts with 5 paisa capital.

So how does Fino’s business varies with that of Paytm?


Source: DRHP
A comparison makes it clear that the BC business is very unique to them.
As far as I see it, the target customer is what makes the biggest difference for Fino and Paytm. Fino targets mainly the semi Urban and rural population( mainly the unbanked). Also the phygital model of delivery differentiates the two. Through marketing and other initiatives Paytm has been able to onboard customers in a very short period of time. But they have never been able to make it profitable. Paytm ventured into many business where it came directly in competition with the large established banks.
MATM/Aeps business coupled with physical remittance business made sure that revenue is more stabilised and sustainable. On the other hand paytm was focussed mostly on digital payment business where the margins were continously getting eroded. Govt cut the MDR rates on UPI transaction to zero since 2019 as opposed to MDR on cards varying from 0.9 % to 2.6 %. Payment business share has come down drastically for even big banks. India made a quick transition from cash to UPI / IMPS totally skipping plastic money. I agree that Paytm has set up an excellent payment infrastructure, but has not yet been able to capitalise on it. As most of the analysts it has its hands in too many things, and the path to profitability still looks distant.
The Phygital model of onboarding clients is what makes the bank interesting. The interchange fee earned by the bank for the acquirer transaction was shared by the Bank and Merchant. Of late, it is seen that the high margin CASA subscription income and CMS income has started to grow significantly. Subscription charges vary from Rs.249 to 449. I was wondering initially as to who would pay these kind of subscription charges. While going through some old news reports I came to know that Banks charged close to 10000 crores as min balance penalty in 2016 to 2019 period. SBI as per some reports alone charged 2400 crores as penalty in FY 17 -18. However, SBI is said to have waived minimum balance charges since 2020. But most other banks are still charging minimum balance charges. Ease of transacting at a Fino touchpoint along with availability of merchant point nearby is another advantage.

The subscription income increased from 8.3 crores in Q3FY21 to 16.7 crores in Q3FY22.
As already mentioned Fino is showing good traction in their CMS business as well with number of partners increasing to 127.
Bank has just started loan referral services in Gold loan, personal loan and business loan to Fino merchants. This is a very interesting development and is in the very initial stages. With the very large rural presence they can be an ideal partner for Microfinance NBFCs. Loan referral services has excellent growth prospects without having to share the credit risk. I expect good pick up in revenue from loan referral services going forward.

Key risks

  1. One of the key risks that Fino face and explained well in the RHP is the significant amount of risks involved due to handling a large amount of cash. This makes them susceptible to embezzlement, theft, fraud and unauthorized transactions by BCs, merchants etc exposing them to significant operational and reputaional risk. Eventhough, they have internal controls some of these frauds or unauthorized transactions may go unidentified for a long period of time. Some of the control measures are taking security deposits, capping transaction limits etc. Some payment banks have mandated that the OD limit should be brought to credit limit before the end of day. On a perusal of Bank’s RHP regarding criminal litigation by bank it is found that the Bank has filed criminal cases for misappropriation of funds against some of its employees. Such incidents can cause severe reputation risk to the Bank.
    Source: RHP page 265
  2. Tax litigation pending
    i. The Office of Assistant Commissioner of Income Tax Circle (15)(1)(1), Mumbai (“Assessing Officer”)passed an order dated December 21, 2019 (“AO Order”) in relation to income tax return filed by Bank for AY 2017-18. The Assessing Officer disallowed: (a) legal and professional expense of 41.76 million; (b) training expense of ₹ 21.87 million on the ground that it was for a new business; (c)disallowance of provision of ₹ 3.63 million on the ground that there was a change in ownership; and considered share premium worth 278.05 million in excess of fair market value. The Assessing Officer added all these amounts (i.e. a sum total of ₹ 345.31 million) to the income of the previous year. Further, the Assessing Officer has ordered for rejection of carry forward losses of earlier year under section 79 ofthe Income Tax Act. Our Bank has filed an appeal before the Commissioner of Income Tax (Appeals), Mumbai, on January 18, 2020, and the matter is currently pending.
    ii. The Office of Assistant Commissioner (ST), Kadapa-I Circle (“Assessing Officer”), passed three orders on December 31, 2019 under IGST Act, CGST Act and SGST Act respectively. The Assessing Officer conducted an inspection of branch in Kadapa and asked for production of books of account. On failure of our Bank to produce books of account, along with copies of original purchase invoice and tax invoices, the Assessing Officer computed our tax liability under IGST Act, CGST Act and SGST Act on a best judgement basis on the basis of one-way bill utilisation, GSTR3B returns, SAS Reports etc. The Assessing Officer computed the tax amount to be ₹ 13.20 million under CGST Act, ₹ 4.20 million under IGST Act and ₹ 13.20 million under SGST Act. Bank has filed an appeal against these three orders on June 15, 2020 and the matter is pending hearing.
  3. Intense competition from other fintech companies in MATM and Aeps business.
    Bank in the last concall mentioned the intense competition from fintech in acquiring new merchants/ BCs. For Fino, they were able to keep the capital expenditure at a minimum level as set up capital expenditure were borne by merchants/ BCs. However, as per some reports many new fintechs are incentivising the BCs by providing devices free of cost. The intense competition may also push them to shell out higher payouts in the future. The merchant acquisition is very crucial in the Fino’s model.
  4. Any major disruption in digital payment mode
    Any new payment mode that disrupts the currently existing digital modes may be a serious threat. The way UPI disrupted the whole payment system make this a serious risk. The 0 MDR in UPI made a srious dent to the payment revenue of many banks.
  5. Any regulatory change
    Any regulatory restriction putting a cap on the subscription charges on savings accounts or downward revision of interchange charges on MATM/AEPS may significantly affect the revenue of the payment banks. However, the reduction in interchange charges looks unlikely as the Banks have requested for a further increase in these interchange fees. There was a hike of 2 rupees in the last FY.

To sum it up, Fino payments Bank is quite unique in its business model in Payment Banking industry. While peers like paytm did acquire large chunk of customers through marketing and incentives Fino grew its revenue over a period of time from 2006 through phygital model of delivering assisted digital services. Govt mandating DBT for transfer of various subsidies/benefits further helped them in their growth. They focussed on semi urban and rural areas and became a neighbourhood bank focusing on domestic payments, MATM and AEPS business mainly for offus customers. It has come to a point wherer network is large enough that they have enough oppurtunities to cross sell.Bank has been able to constantly introduce newer products every financial year. Due to the low base many of these cross sell oppurtunities can add significantly to the bottom line. Bank has just started loan referral services and is closely monitoring the disbursal and collection trends. With the kind of phsical presence they have they can be an excellent partner to microfinance NBFCs. Also high margin CASA and CMS business is showing good growth. However, there are severe regulatory risks like the one Paytm faced recently where they were stop onboarding of new customers. Bank need to obtain regulatory approval before launching each new business like digital gold, Fixed deposits etc. The growth in legacy business like MATM, AEPS, domestic remittance depens a lot on their capacity to acquire new merchants/ BCs which is facing severe competition from some peers.
So in all the pessimism and drubbing the payment banks have received in the market, can it actually spring a surprise?

Discl:Iam not a registered investment advisor and my views are biased due to my holding. Has a tracking position in Paytm as well. This is merely for educative purposes. Most of the data mentioned is picked from DRHP and quarterly presentations, hence be cautious before taking any investment decisions based on it
domestic remittance walk in customer charges.pdf (522.2 KB)
MDR on upinew report on min bal charges collected
RBI approval for cross border remittance.pdf (647.4 KB)
Approval for demat.pdf (410.5 KB)


Company received RBI approval to carry out referral services for term deposits by partnering with Suryoday small finance
FD referral approval.pdf (1021.2 KB)


Recently analyzed FINO Payment bank. The video is available here:

Why interested to study - Numbers speak of growth

Coming to FINO, it is a payment bank which is little different than typical bank. Brief about payment bank

FINO Payment Bank Business Model:

This ad depicts it well:

FINO targets mid of the pyramid India as customers:

A typical customer journey at FINO looks like this

FINO follows a physital model for various products and services

Some more insights on overall business model

Below chart depicts how FINO has rolled various products and services over years:

More details on various offerings:

FINO’s execution model hovers over distribution, technology, and partnership (DTP)

The digital side is executed through 2 apps: 1 for merchants and 1 for customer

Let us understand products, operations and revenue model in detail. First, what is a throughput and take rate

How remittance works:

Performance of remittance business over years

Key insights on unit economics of remittance business

Let us understand cash management business.

Performance over the years

Unit economics of cash management business

Let us understand CASA and debit card business

The performance of CASA and debit card business over the years

Unit economics of CASA and debit card business

Let us understand MicroATM and AEPS business

Historic Performance

Unit economics of microATM and AEPS business

Little bit about BC business

Overall financials

Key expense item and possibilities of operating leverage given it is a platform business

Little bit about FINO management

Key Risks Associated with FINO:


Summarizing everything here

Disclosure: Added 1st tranche recently at an average price of Rs 260.


The promoter (Fino PayTech) is doing a buyback of Rs. 125 Cr. To recall, the IPO (of the bank) last year was mostly an OFS; the fresh issue of shares was much smaller.

Per the letter of offer, BPCL and the ICICI Bank group are the largest shareholders, each holding more than 20%.

The Letter of Offer is available on the Fino PayTech website.

Disc: Invested in the bank; views biased.


When I started initially investing in the company it was the matured services like MATM and AEPS and the population of our country that kept me interested in the company. But today, ,looking at the company the matured services like MATM and AEPS is facing severe competition from many fintech players. Share of MATM in revenue has severely gone down, from 42.8 crores to 28.7 crores. AEPS however seems to be growing at the expense of MATM from 9 % to 11 %. It was CASA and CMS that surprised the most and is now 26 % of revenues.

CASA services

Fino is able to open 7540 accounts on a daily basis which is consistently improving.

With CASA growth the amount of deposits with the bank will grow which will add to treasury income in addition to subscription income. Also with market interest rates the spread on these deposits also will grow



FINO 2.0

Company is speaking about transition from Fino 1.0 to Fino 2.0 wherein more and more cross sell of third party services will be focussed on esp Mutual Find / insurance, Referral loans and International remittance.

Referral loans services and insurance are expected to take off in Q4 of this FY or Q1 of next year. Peers like paytm and Airtel payments bank is talking a lot about the referral loan services whereas Fino is speaking very little about these. With such a huge clientele and phygital presence the loan referral can be a major revenue contributor. Hope to see that in FIno 2.0 atleast in next FY.

PAT has been improving continuously except for the covid affected quarter.In Q123 There was an unusual digital stack expense which pulled the PAT lower as per management . Not sure whether these continue in the current quarter as well. will have to obtain clarity on this from management.

Management is talking about transition from payments bank to SFB, will be interesting to see how that pans out in the future.

Discl: Invested and biased. Have buys in the last 30 days.


fino fintech api stack and (paysprint - acquisition) can also be a revenue driver - but will be low margin products.

Disc: Investing

1 Like

@Jose Have you done or come across any comparative analysis of Fino vs Airtel Payments Bank, comparing number of merchants, accounts, etc?

With revenue from BC banking going down, partnering with fintechs can help improve the revenue considerably. In a related news Fino mentioned that its considering tie ups with 2 - 3 fintechs. It will be interesting to see how the api stack is getting monetised.

1 Like

So far not. Airtel has been giving out very little info reg merchants and accounts even in quarterly reports.
airtel paymrnt bank.pdf (754.8 KB)

This one was presented to exchanges by Airtel some time back.
As per the presentation Airtel payments bank is many times larger than Fino. But a pure comparison is not fair as they seem to operate in different ways. Airtel already had large no of distributors and agents, so converting them into merchants is a very easy task. But we need to get an idea of the no of active ones to get a clear picture.
Even when it comes to Accounts the subscription based model of Fino is very Unique and I would call it the most unique among all payment banks. The strength of its phygital model in making a subscription model work is laudable. However, I believe in terms of lending and CMS model I think Airtel PB has an upper hand. Its the lending business that Iam still waiting to see traction for Fino


I found one can track key metrics for Payments banks on the RBI website Reserve Bank of India - Bankwise ATM/POS/Card Statistics

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As I see it, the core value proposition for Fino is the merchant network and the customer relationship that they have built up. I have a few questions about the same.

  1. Do the seniors have any input about how much of a moat or emerging moat this network is?
  2. If tomorrow Airtel payments/Paytm/Jio wants to poach their merchants with lower take rates, what is stopping them?

Any other scuttlebutt from the hinterlands about the merchants?

Disclosure - Not Invested, Studying

Fino has been able to build the network to a range where cross selling opportunities are visible. Also launch of new products on a regular basis will also be key.

Reg merchants fino already during concalls have talked about the competition in acquiring new merchants. There is many fintechs already competing with fino providing more commission and also providing devices free of cost. There are fintechs like paisalo which used to do BC services for SBI. Now a days BC banking is widely getting adopted by many large traditional bank even psbs. The competition in acquiring merchants should essentially come from these fintechs and psu banks more than from the payment banks.
Recently, fino partnered with paysprint, a fintech in a related field and paysprint is already having significant business. I think in a country with such a large population many fintechs/PBs can coexist. just look at the sheer number of banks coexisting in the country. As far as I understand, fintechs require a banking api to work on, so fintech will still bring in some sort of open banking business to the banks. As for your query, I believe paytm has a different business model. And airtel is yet to be able to build a trust with individuals as a bank

Discl: Biased. These are just my personal views and can be terribly wrong. Had positions in all the 3 payment banks described.


Is Fino a pivot or a bank embarking on a well thought out digital strategy? I tend to believe the former, from the data and the management’s language in AR and conf calls.

Their strategy now is TAM - Transaction, Acquisition and Monetization. Transaction is when they set up the distribution (MATM, AePS etc). Acquisition is CASA and the digital payments which they have been doing doing last 1.5 years. Setting up Monetization where referral products will be introduced which will be the next leg of growth.

But the core business (Transaction) has been struggling for 1-2 years now. They introduced Fino 2.0 in AR 2022. Then in 2023 they said it is TAM - there is an Acquisition phase (a transition phase) in between before the next leg of growth.

  • Acquisition phase has been going on for more than a year where the new referral products partnerships has not fully done yet. This phase is not revenue accruing.
  • Setting up digital stack and digital product team only after the Acquisition phase in TAM was well underway.
  • UPI adaptor developed inhouse only by Q4 FY2023.

If TAM or Fino 2.0 whatever it is, is a well thought out strategy and not a reaction to a declining core business, the preparation for monetization phase should have done well ahead, isnt it? So that there is no long non-revenue accruing phase and next growth leg started sooner.

But this is fine, it could happen in a company pioneering a new model. However the point of concern is the company has been painting a rosy picture and trying to project a notion that all this is a well thought/planned strategy. If you go through the AR or the prepared remarks in the conf call intro, this is the feeling one would get.

Besides this, in painting a rosy picture, the management is putting up a face which says everything is going well, we are making new highs and so on, but the legacy businesses (MATM, AePS, BC) are in ventilator. They did not speak upfront about any of this, only when questions were asked in conf call, they threw light on these. More over, progressively in various investor PPT decks, a few key data points or slides are disappearing. For example, in the latest Q4 FY23 ppt, the slides which show quarterly trend of each product is missing. New subscription income in CASA is missing too. In previous PPTs they showed both new subscription and renewal income split.

No management can get their strategies and actions right all the time, they very well have to tweak it as per the progress too. However a honest management will admit where it went wrong and be truthful about the corrective actions and its results. I am afraid I do not see it here.

I would like to hear out others’ opinion also on this and make sure that I am not just thinking too much. Have you guys also felt this?

Example of a missing slide in Q4 FY23 PPT:

Revenue shift from MATM/AePS to CASA explained only when asked:

AEPS quarter to quarter non-growth/degrowth explained only when asked:

New referral products progress not going well, which was explained only when asked. Note that new referral products is what they call the Monetization phase and is strategically the most important, and hence the most important to keep shareholders informed:

What if nobody cared to ask these clarifications?

Disc: Not invested


I agree with a lot of points put up by you. In fact, I also went through the last AR to know more about Fino 2.0 and didn’t really find anything other than it was a digital journey. I am also seeing references to TAM for the first time.

Now moving to digital developments, UPI adaptor was developed to reduce the cost of operations. I think it’s a good idea to make investments as and when it makes economic sense. The company was in fact following a phygital model. So the current digital transition is something new for them even though they are saying a lot about it. I think the digital investments were required with the growth. So I think it shouldn’t be considered as a huge negative. For me, UPI is a cost center until RBI lets banks levy a charge on it which seems quite remote at least for now.
But as you noted the company has not been very upfront about many key hindrance that it faced in the various business.

For instance, when it comes to BC Banking, company in earlier concalls used to tell about their focus on own channel banking where margins are higher. But, in the current call they mentioned that they have difficulty making agreements with Banks due to their payment bank license and he SFB license that they are looking for now.

It was loan referral products that I was most positive about. But so far, there has been no progress and Fino is providing very little info on an important business line. The company mentioned that they have issues at the supply side which they have not been able to resolve in 2 years. Earlier, they were providing vague answers like looking into the repayment characteristics of borrowers before further expanding the business. The question that needs to be answered now is Will they be able to resolve this supply-side problem when they are applying for SFB license. I think its going to be tough to bring more players when you have such a short period of time in consideration. Then secondly, they didn’t even care to share the revenue from other cross-sell items like insurance.

Regarding the mature products like MATM, AePS and remittance, the company has for some time mentioning in concalls that the period of extra ordinary growth is over.

Source: Concall May 17 22.

But in the current quarter this business has in fact degrown which is a cause of concern.
MATM revenues have come down significantly from 171 crores to 118 crores. AEPS was expected to eat into the share of MATM once more and more accounts get aadhar linked and people get more comfortable with it. However, AEPS revenue increased only from 101 to 127 crores. 25% growth in Aeps when looked at it alone looks great.
On a Quarterly basis, the AEPS revenue has only grown from 28 to 29 crores while MATM has gone down from 41 to 28 crores. One of the reasons for this as per the management is the conversion of off-us customers to on-us customers. It’s true that interchange fees cannot be charged on on-us customer transactions. The company has been mentioning about these OFF- US to ON- US conversions for some time.

The only positive fact is the growth in CMS and CASA business. If the the hook product or the base transaction business starts declining won’t it affect the acquisition as well a few quarters down the line.

The other income increased significantly from 53 to 123 crores on a yearly basis. But the company didn’t care to share any light on this. I think one of the major factors here is the Interest income. Interest income has grown due to an increase in market interest rate as well as an increase in the deposit balance. The increase in interest rate can be considered a cyclical factor. Currently, the cost of deposits for the bank is 1.9 % which is very good. CASA accounts have been so far doing excellent, however, wont the declining hook transaction business put pressure on the growth of CASA business going forward? Will the growth in deposits be able to make up for falling interest rates in the next cycle?

I think from the commentaries it seems like the company is already focussing on the SFB license. I also agree to your point that the company is omitting certain details from the presentations. In a way you are right, but they are relatively a newly listed company and deserves some time to get things in order. I have seen many companies even stopping concalls when the results gets a little bad and tough questions are asked on the concall. I think you can mail them regarding CMS and CASA new subscription income and Go India seems to be their investor relations advisors.

Looking , they mentioned that after last Q1 that it is relatively a week quarter as many migrant labourers travel back home. I think its interesting to see its transition to an SFB. So far they have been able to make a strong liability franchise giving it access to low cost funds. Will they be successful with credit if and when converted to an SFB? Demand will not be a concern as far as I see it. But there will be a lot of new challenges once you start giving out loans on your balance sheet

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This is fine, because companies especially young ones go through all this. But they must be upfront to the shareholders, admit what didnt go their way and how they try to overcome it. That is what my concern is. None of the important points around these set backs and shifts were explained upfront, only as answers to questions and they made it look like there isnt any concern at all.

Fino Bank is a very small company, and there is a long way to go. We do not know if their planned model will work out. In such a case, how will one make a decision on investing in this stock? It is mostly by betting on the management - if they are good, they will figure out on the way, they might fumble but will find out a way and thrive. If one waits to see if their plans work out, it might be too late, we will miss many multiples.

But without transparency and the way they try to paint everything rosy, how can I bet on this management?

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Digispice (Spicemoney) is doing exactly the same as what Fino does - mATM, AePS, CMS, and trying to push down financial services. They also are facing stagnant growth in last 4-5 quarters. But they dont have a clue why it happens too. And they evade the part too, just painting a rosy picture, talking about the grand opportunity and the amazing growth in the last 1-2 years, but quiet about 4-5 quarters flat q-on-q!

Looks like it is a systemic slow down. Is the vision not scalabe or not executable? or was it the initial growth spurt just due to covid? No clue.

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Fino is a payment bank, I believe CASA would be a big differential here. Digispice on the other hand is a fintech providing banking services. Fino is trying to tie up with various fintechs. CMS seem to be growing for Fino. There is cut throat competition from Fintechs in providing the basic matured services like Aeps and Matm. The potential of BC banking is understood by many of the larger psb banks and they are also aggressively expanding their BC banking business. For Fino, there should be some OFF -US to ON-US conversions which should be dragging down the Aeps and Matm revenues. It is the CASA growth and low cost funds that is an advantage to FINO in comparison with other fintechs which could come in quite useful when converted to an SFB


Digispice have PPI license, it provides the full gamut of services exactly like that of Fino, including CASA and CMS.

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Sorry, I didn’t go into digispice investor ppts earlier. They do mention CASA services but I believe they provide these services for some bank for a commission. I came across this news item after a few google searches.
In this situation Axis bank gets the benefit of low cost funds and any subscription or service charges whereas Spice gets a commission for opening the account. This is very similar to the BC banking business reported by Fino. Fino used to provide these services to Union Bank if I remember correctly. So the casa services offered by Digispice is a low margin business. Digispice may be able to open wallets but that cannot be used for DBT transactions. I am not saying Fino is superior to Digispice( I haven’t looked deep into its business) What’s concerning is Fino’s inability to grow its referral lending business. It has many banks like ICICI and Union bank among investors in its parent.

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This could be the reason why CASA is not a talking point for Digispice, it might not be a major revenue source for them. For Fino, what CASA provides in terms of revenue is the subscription revenue, but the bigger value is the base it forms for their other services. In that view point, Digispice also has that foundation of CASA.

However, my point is different. In this rural fintech model, the customer acquisition engine is MATM and AePS - where people digitize their cash. Both Fino and Digispice is planning their growth/scale by distributing other services standing on this acquisition engine. If that is stagnating and no new users are added, how can they scale up and grow? How long is this flat growth phase going to be? will it bounce back? how can it bounce back? Fino is now looking at all digital channels like the app, but they have to compete against biggies like Paytm.

And these companies both Fino and Digispice are not able to understand why their foundation is stagnating and not trying to confront it also. Whether they know it and not divulging, I am not sure.

I still like this rural fin tech theme and believe that it is essential for Indian economy’s next leg of growth. But cant see the execution panning out. Will continue to monitor for now.

Anyhow, study of Fino bank led me to Paytm and that has now become a major part of my portfolio. :smiley: