Two of the payment banks that have launched full-fledged operations are relying on micro cash management services (CMS) to boost their bottom lines.
Airtel Payments Bank and Fino Payments Bank are deriving a sizeable share of their revenues from managing cash collections for e-commerce firms and non-bank lenders. E-commerce retailers offering cash on delivery (COD) as a payment option to their shoppers and non-bank lenders, especially those in the microfinance segment, are among the CMS clients of payments banks.
According to industry sources, Airtel Payments Bank is the largest player in the micro CMS business, processing cash worth $500 million a month for 2,000-odd business-to-business (B2B) clients. The payments bank turned profitable in Q2FY22.
Fino Payments Bank, which posted a profit of Rs 10 crore in Q1FY23, up from Rs 3.13 crore a year ago, is also present in the CMS segment, a business that payments banks discovered around 2018-19. The contribution of CMS to Fino’s revenues rose to 14.2% in Q1FY23 from 8.7% in Q1FY22.
Rishi Gupta, MD & CEO, Fino Payments Bank, told FE that the bank’s CMS clients are companies that want to carry out cash burial in specific geographies where it is being collected, but lack the wherewithal to do it themselves. “Our merchants become a natural point of contact for them. So, the companies’ cash can be deposited on the route chart. We have nearly doubled our CMS business last year to Rs 24,000 crore in FY22 from Rs 11,800 crore in FY21,” Gupta said.
Fino offers a marketplace-like service called Cash Bazaar, which lets people carrying surplus cash deposit it in the same geography for circulation among others in need of cash. Once the cash reaches the merchant point, it can be used for regular cash disbursement services through micro ATMs or Aadhaar enabled Payment Systems (AePS).
“So the CMS business offers the raw material for us to handle the demand side (for cash),” Gupta said. The margin in Fino’s CMS business is over 40%.
Airtel Payments Bank currently has over 10% of its revenues coming from CMS which it expects to raise during FY23.
Gaurav Seth, chief finance officer and head — institutional business, Airtel Payments Bank, said that the bank’s aim has been to leverage the reach of its digital-led neighbourhood banking model to support the digitisation of the last-mile cash collections. “Our cash management services reduce the challenges of managing physical cash and also mitigates the risk of cash in transit by digitising the entire chain. This brings in huge operational efficiencies for our partners,” Seth said.
Analysts at ICICI Securities said in a recent report that Fino’s increased focus on CMS would help it arrest margin erosion. “Given open banking, margins are very low at 4% vs 47% in own banking channel, management highlighted that they are cognizant of the margin-contraction and have initiated measures to arrest,” the report said, adding, “Within existing products, it will continue to focus on scaling CASA and CMS revenue going forward.”