The promise of a ‘digital first’ small finance bank

When Rajeev Yadav quit GE Capital in 2012, he was taking a plunge into the unknown. At 42, he began to head an enterprise with its corporate headquarters in Bengaluru called Disha Microfinance.

Yadav had effectively moved from building products for affluent customers to the base of India’s income pyramid. Nine years on, he has readied that financial inclusion enterprise—now, a small finance bank (SFB) called Fincare—for a Rs 1,330-crore initial public offering (IPO).

Fincare has 5 percent of the SFB industry dominated by AU SFB (31 percent), followed by Equitas, Ujjivan and Jana who have between 12 and 15 percent market share each. In all, SFBs have Rs 983 lakh-crore of assets under management, according to CRISIL Research.

Fincare SFB’s proposition is that its prowess as a ‘digital first’ SFB will drive its growth at better margins than its larger peers in the long term.

“The bank is fully digitised,” Yadav, 51, tells EnterpriseStory in a candid interview. “We can do cash withdrawals, cash deposits, and virtually every service at the doorstep of the customers because we are bringing the bank in the tablet.”

When Yadav looks back at his decision to join Fincare, he remembers sensing a very counterintuitive idea of technology application for India. Because the needs of people are greater at the bottom of the pyramid, technology can have a greater impact in financial inclusion.

“You would think that there is more innovation for affluent customers because technology is more easily understood or used by them,” Yadav says. “But the level of innovation in that segment of products is not very high. A lot of products are sold the way they are sold because the need to introduce technology actually lies lower in India.”

SFBs and non-banking financial companies (NBFCs) use mobile- or tablet-based applications to automate loan processing on the ground. It allows sales staff to do a real-time assessment of customers' credit worthiness and contributes to productivity. “Fincare is a digital-first bank because we do not have any back office in our bank to do data entry. Everything happens from the front,” Yadav says.

In effect, all the action is tablet-based at Fincare SFB’s 528 branches and its 219 banking correspondents to serve its 2.7 million customers.

In financial inclusion, the software product must be simple because customers are not innovation-savvy. Then, ticket size or value of business is very small. This means business is happening at a small transaction value. “So, if the operating cost of doing business is not small, there is no chance to make any profit,” Yadav says. “So, we have to get to a point where we automate so much or use technology so much that we can bring the cost down to a level where the transaction still remains positive.”

Exponential growth in transactions

There is an interesting story in how Fincare did this with its software product Fincare101. It was launched in February 2018, and Fincare closed that financial year with Rs 17 crore in 2,789 internet banking transactions. In the nine months ended December 31, 2020, Fincare clocked 76,870 internet banking transactions worth around Rs 526 crore! To put that in perspective, that is nearly double the value of internet transactions (Rs 267 crore) in 2019-20.

Separately, the value of its mobile banking transactions was at Rs 1,112 crore in 2019-20 across more than 6 lakh mobile transactions—nearly a three-fold jump over the value and volume of transactions in the previous year. “We just cannot do without technology because we do millions of transactions a month,” Yadav says. “We speak of lakhs of new customers and servicing millions of customers every month.”

The small finance bank has leveraged Aadhaar-as-a-service to the core, where Fincare does eKYC of customers, and all the work happens in tablets that its employees carry. “They just talk to our core banking system through digital solutions to onboard customers. We do not have a plethora of people doing data entry,” Yadav says.

In January 2020, video-KYC was permitted by the Reserve Bank of India for opening savings and fixed deposit accounts. During the COVID-19 pandemic, this feature helped SFBs put in place technology to allow customers to self-on-board with no physical contact or visit to a bank branch.

The impact of technology is reflecting in its improving profits, though the pandemic does threaten to dent margins for the industry. 

Fincare has 7,363 employees, and Yadav has taken stock of the crisis in the second wave, compared to the first. “COVID-19 did not hit the bank from a health perspective that hard last year,” he says, adding that it had to manage 100-200 COVID-positive cases, which was manageable. “But, we have been totally tested in this phase of what we can do in the second wave. It has been about how to ensure we prevent illness, how do we beat the illness, even if it’s immediate or extended family members of bank employees.”

In this context, the bank has invested in people, increasing the headcount, providing increments and bonuses for the 2021 fiscal—and creating a whole medical infrastructure for its employees in over 400 locations. “Be it buying medicines, oxygen cylinders, and using our full power to try and get somebody a bed. This phase has been about humanitarian work.”