After a somewhat modest June quarter, Fino Payment Bank has done better in Q2FY23, posting a sequential gross revenue growth of 5% and a profit growth of 36%. The share of subscription-based revenues rose to 30%. MD & CEO Rishi Gupta tells Shobhana Subramanian that the bank’s EBITDA margins should sustain at 10% levels over the next five-six quarters. The Fino stock is trading way below the IPO price and Gupta says no shares will be sold by the holding company when the lock-in period expires this month.
The high-margin micro ATM business has seen some deceleration in Q2 with volumes down 18% QoQ.
This is partly because we are to some extent cannibalising the micro ATM business customers by trying to convert them into CASA customers. We are adding 2.5 lakh customers every month, and at this run rate, we should more than 2.4 million CASA customers in FY23. Also, seasonal factors come into play during the monsoons so that impacts the micro ATM business.
How do you plan to address the uneven trend in margins?
We are looking to grow the share of the own channel business from 64% currently to 67%. Our margins in the own channel business are 47%, compared with open banking margins of 4%. So, an increase in the former will help expand the margins. This has started in Q3.
By how much can you scale up the CASA product?
We added 1.4 million CASA customers during H1FY23. In FY24, we should be able to add 3-3.5 lakh per month. Around 68% of the accounts that were opened in FY22 have already been re-opened in H1FY23, so renewals are strong. In Q2, revenues from the CASA product grew 32% q-o-q and the share of renewal revenues currently stands at 29%. The margins for CASA renewals can be as high as more than 60% and the acquisition margins are 40%.
How is the share of digital transactions in the overall business moving?
Digital transactions account for 17% of the total throughput. For us, this means more stickiness with customers and will help us get more CASA renewal accounts and also cross-sell products. We’re hoping that digital transactions will accounts for 20-25% of total throughput by end 2023. Around 20-25 million customers visit the Fino platform every month and we are able to convert around 2.5% of the traffic into ‘on-us’ customers.
Have you set any targets for the cash management business?
The CMS segment now accounts for 17% of the overall volumes and the throughput in Q2 was over Rs 3,500 crore per month. This is a high-margin product and our margins are 40% plus. We are growing the business and we already have distribution of 12.2 lakh merchants and 161 companies as customers. The combined revenue share from CASA and CMS has gone up to 26% from 21% in Q1FY23 and 17% in Q2FY22. The Aadhar-enabled payments services business has grown by about 2% sequentially in Q2. From a small base, we now have a value share of 13% of the market.
Fino’s share price at around Rs 200 remains well below the IPO price of Rs 577.
While Fintech stocks have taken a beating globally, we appreciate that cannot be the only reason. We continue to focus on our strategy of acquiring more of our own customers and then cross-selling products. We want to build the debit card and liability business. We are already selling insurance products, largely health, and have the approval for mutual fund products. We have acquired a stake in Paysprint and will explore inorganic options.