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Payment banks work with insurance companies, mutual fund companies, and other businesses to cross-sell and upsell different financial products to earn money. They started partnering with Non-Banking Financial Companies (NBFCs) for secured loans.
“Fino Payments has entered into agreements with four companies (including two fintech/NBFC and a regional bank) for loan distribution activities (consumer loans, merchant loans, gold loans, etc.). made for ₹150 crore of gold loan disbursement and has a gross take rate – the fee charged by a marketplace on a transaction made by a seller or third-party service provider – of 1-1.5% with no credit risk says Emkay Research in its recent report.
The cash management system – digitizing small note cash transactions for trading partners – is also a major source of revenue for payment banks. For example, a customer performing an EMI from an NBFC can go to one of a payment bank’s touchpoints and deposit the cash amount to send to the NBFC.
Fino Payments Bank is also getting into international remittances. The bank has already received approval from the RBI for the same. It seeks to grow through cross-border merchant payments and growing digital adoption in rural areas.
“Unlike urban fintechs that struggle to make a profit due to UPI, hyper competition and increased cash burn, rural payment/fintech banks have developed diversified revenue streams and some of them have also become profitable,” according to the Emkay report.
Need for regulatory ease
Even though digital adoption is increasing in rural areas, thanks to the government (Jan Dhan-Aadhaar-Mobile or JAM trinity), there is still a long way to go. In some cases, departments request physical records to facilitate a service. “Customers also want physical documents when opening bank accounts with us. More than anything, they want the passbook, which is needed if workers are to claim their provident fund,” says a trader from Kapashera.
On the one hand, fintechs operate in a regulatory vacuum, and on the other hand, payment banks operate under strict regulations. The competition is rising. “The adoption of UPI could cannibalize the high-margin remittance industry,” the Emkay report points out.
In fact, fintech is eating away at payments banks’ market share, especially with their foray into third-party lending and distribution businesses. “We need to regulate the fintechs and neo-banks of the world to create a level playing field between them and regulated banking entities such as payment banks. A self-regulatory body can take care of the operational side while the RBI can oversee this self-regulatory body. says digital payments strategist Ram Rastogi.
That said, payment banks could be allowed to lend from their books on a small scale. “People are asking for a personal loan and two-wheelers. They prefer my services rather than going to a full fledged bank. But it creates doubt in their mind when they find out that they cannot borrow money or keep more than ₹2 lakh in their bank accounts,” says Hanumanji of Ajmer.
Small loans from payment banks can help customers avoid loan sharks in villages. At the same time, it can also help payment banks earn interest margins.