Fino Payments Bank, backed by Fino PayTech, has received in-principle approval from the Reserve Bank of India (RBI) to transition into a small finance bank (SFB). This significant move will enable the bank to expand its lending operations following a restructuring process. With major stakeholders such as Bharat Petroleum, ICICI Bank, Blackstone, and Intel Capital, Fino Payments Bank aims to leverage its existing customer base and digital-first approach to enhance its financial services.
Strategic Advantages of Transitioning to a Small Finance Bank
Fino Payments Bank is well-positioned to capitalize on its unique status during this transition. Unlike many SFBs that started from microfinance, Fino’s model is built on a digital-first and transaction-led foundation. The bank boasts a substantial customer base of over 1.6 crore, with 60 lakh active users on the Unified Payments Interface (UPI). This existing network creates a robust platform for introducing deposits and loans, boosting the bank’s revenue capacity. Currently, Fino Payments Bank has deposits exceeding Rs 3,000 crore, managed in-house and with partner banks at a low cost. The bank’s strategy includes raising Rs 600–800 crore annually to maintain a stable current account savings account (CASA) ratio and secure affordable funding.
The timing of this transition is also advantageous, as advancements in artificial intelligence (AI) are set to transform banking operations. Fino plans to utilize AI to streamline various processes, including customer onboarding and fraud detection. The bank’s initial focus will be on secured lending, adopting a low-cost, low-paper model consistent with its digital-first approach. With over Rs 1,700 crore in transaction flows, Fino Payments Bank is well-equipped to sustain its growth under the SFB framework.
Investment and Infrastructure Development
To support its transition into a small finance bank, Fino Payments Bank plans to make significant investments in technology. In January, the bank will migrate its core banking system from FIS to Finacle, which will streamline operations. It has already made substantial digital investments in recent years, and the focus will continue to be on maintaining a lean operational structure. Fino aims to establish over 100 branches and asset centers within three years, using a hub-and-spoke model to minimize fixed costs.
The asset centers will manage merchant relationships and loans, while branches will focus on gathering deposits. This merchant-first strategy targets the middle-income segment via a tech-driven network, enabling customers to upgrade from small-value accounts to larger balances. The bank plans to offer small-ticket credit options, including micro loans and affordable housing financing. With a disciplined capital expenditure plan of Rs 100–150 crore over the next few years, Fino Payments Bank is set to enhance its infrastructure while keeping expenses manageable.
Product Offerings and Market Strategy
Fino Payments Bank’s lending strategy will emphasize secured credit, leveraging technology for refined risk assessment while maintaining a personal touch. The bank plans to introduce a variety of products, starting with affordable housing loans and followed by micro loans secured against property, small-ticket loans for merchants, and loans for micro, small, and medium enterprises (MSMEs). Personal loans will be offered selectively, utilizing customer and merchant data to evaluate risk effectively.
Currently, around 35–40% of merchants already seek loans from other sources, and Fino aims to attract these borrowers to its platform. The bank will incentivize merchants to provide quality leads, enhancing its lending portfolio. In the future, Fino plans to introduce secured credit cards linked to customer deposits, with co-branded cards as a potential option. Additionally, the bank intends to expand its services to include insurance and mutual fund distribution, further diversifying its offerings.
Future Aspirations and Organizational Culture
Fino Payments Bank has ambitious plans for the future, including the potential to apply for a universal bank license by 2035. The bank’s leadership believes that if operations run smoothly and execution is robust, pursuing this goal is feasible. The regulatory framework permits such an application after five years of successful operations as an SFB.
Regarding organizational culture, Fino Payments Bank emphasizes maintaining its merchant-led DNA, shaped by years of experience in the payments sector. The bank plans to hire selectively, adding 500–600 employees over the next two to three years to facilitate its expansion. With a current revenue of Rs 1,700 crore and a workforce of 3,000, Fino is well-positioned to leverage its existing infrastructure for growth. As the bank evolves, it will continue to prioritize digital connectivity and partnerships, ensuring it remains competitive in the rapidly changing financial landscape.
Digihunt is not a financial advisor and this is not investment advice.