fino payments bank business analysis and strategic outlook
Fino Payments Bank is a tech-first, asset-light bank focused on serving India's mass market through its vast merchant network. With digital transactions forming 49% of total throughput, the bank is shifting gears—from earning per transaction to owning deeper customer relationships and scaling digitally.
CASA revenue grew 43% and is now 30% of total income. Deposits rose 37%, and 33 lakh new accounts were added, taking the total customer base to 1.43 crore. Fino is also preparing for a Small Finance Bank (SFB) license and has scaled its loan referral business to ₹200 crores in Q4.
FY’26 focuses on growing deposits, boosting digital, expanding Fintech partnerships, and maintaining lean operations. But many challenges lie ahead—rising competition in cash services, remittance decline due to regulations, and cyber risks in digital.
In this blog, we’ll dive deeper into each of these aspects and aim to get a thorough understanding of the business.
Fino Payments Bank operates on a model that uses technology heavily and doesn't require a lot of physical assets like big branches. This allows the bank to reach many people, especially in underserved areas, without spending a lot of money on setting up traditional bank branches. Their main strategy, called "TAM" (Transaction, Accounts, Monetization), is to turn customers who just do simple transactions into full-fledged account holders, building long-term relationships and value.
The bank earns money from various services,
Traditional Transaction Services: Services like Domestic Money Transfer (DMT), Micro ATM (mATM), and Aadhaar Enabled Payment System (AePS) were initially used to attract customers. While still important, this part of the business has slowed down. For example, money transfer (remittance) income dropped by about 40% in Q3 FY'25 due to new rules and people using other digital ways to send money. This shows that customers are moving from cash-based, assisted transactions to digital self-service options.
CASA (Current Account Savings Account): This is becoming a very important part of the bank's business, bringing in regular income and making customers more loyal. CASA income, which includes earnings from money kept in deposits, grew by 43% to ₹544 crores in FY'25, now making up a significant 30% of the bank's total income. A key sign of customer loyalty, the income from renewing CASA accounts, also grew strongly by 48% to ₹190 crores.
Digital Payment Services: This is the fastest-growing part of the business, with a huge 4.2 times growth in FY'25, reaching ₹390 crores and contributing 21% of the total income. This includes services like UPI payments (Person-to-Person and Person-to-Merchant) for individuals, and services for businesses. The total value of digital transactions grew by 70% to ₹2.25 lakh crores in FY'25, making up 49% of all transactions.
Cash Management Services (CMS): This is a high-profit business for institutions, but it has faced some challenges recently. Despite this, the total value of transactions in this segment grew by 25% to ₹83,451 crores in FY'25, contributing about 8% to the total income.
Other Income: Other services like BC Banking and Treasury (managing the bank's funds) make up the rest of the income.
This change in how the bank earns money is a deliberate strategy. The bank is encouraging customers to move from traditional, lower-profit cash transactions (where Fino is just a middleman) to more profitable and stable digital accounts, especially CASA (where Fino holds the customer's money).
While this might look like a drop in some older income areas like remittances, it actually makes the bank more profitable overall and creates a more stable, recurring income base. Even though digital services might have lower direct profit margins, they are very cheap to operate, allowing them to generate good profits on their own. This shows that the bank's management is thinking long-term, willing to sacrifice some immediate income in certain areas for better, more sustainable earnings in the future.
Fino Payments Bank has several unique strengths that help it compete in the Indian financial market:
Widespread Presence and Easy Cash Deposits: With a huge network of 19 lakh banking points covering 97% of India's postal codes, Fino can reach almost anywhere, especially in remote areas. This wide reach allows customers to easily deposit cash into their Fino accounts at any local outlet, which then enables them to use digital services. This is a big help for people in mass markets where cash is still widely used, but digital payments are becoming popular.
Quick Digital Account Opening: The bank has made opening an account very easy and fast, usually taking only 5 to 10 minutes. Every new account automatically gets a UPI ID and a debit card, making it simple for new users to start using digital payments.
Own UPI System: Unlike many other banks that use outside companies for their UPI services, Fino has its own UPI system. This gives them more control, ensures very few technical failures, and provides a stable 24/7 service, which is vital for their digital payment services for businesses and overall digital growth.
Low Cost of Funds: The bank's cost of getting money (from deposits) is very low, around 2.2% as of March 31, 2025. This low cost is a big advantage, allowing the bank to offer attractive rates to customers as it grows its deposit base.
The bank's large network of physical points, initially built for payments, is a huge asset, especially as it plans to become a Small Finance Bank (SFB). Unlike traditional banks that need to spend a lot to open new branches for lending, Fino can use its existing network of agents to find customers for loans and manage them. This is already visible in the growth of its loan referral business. This approach is cost-effective and can help the bank grow its lending business quickly as an SFB, avoiding the usual high costs of starting new lending operations. Essentially, their payment network can become a lending network.
Fino Payments Bank is continuously expanding its network, adding 1.5 lakh new agents in FY'25, making its presence even stronger. The bank is now focusing less on just adding new agents and more on making existing agents more active and offering them multiple products, with a strong focus on earning more from them and keeping them engaged. To support this, they are investing a lot in customer service and digital platforms to make the customer experience better.
New account products like "Gullak" are being introduced to improve the bank's financial health. The "Gullak" product is designed to encourage customers to keep more money in their accounts, which is important for the bank's plans to become an SFB. While payments banks have limits on giving loans, a strong and stable base of deposits is crucial for an SFB to fund its lending activities.
By encouraging higher deposits through products like "Gullak" even before getting the SFB license, Fino aims to increase average customer balances and potentially reduce its cost of funds even further. This prepares the bank's finances for future lending and shows foresight in managing the transition to a full-service bank.
The table below shows how Fino Payments Bank's income comes from different services, highlighting the growing importance of Digital Payment Services and CASA.
Table 1: Product Revenue Mix (₹ Crs)
This table clearly shows the bank's strategic shift. The increasing share of income from Digital Payment Services and CASA, along with the decreasing share from traditional Transaction Business, proves that the bank is successfully diversifying its income sources and building a more stable, recurring income model.
Fino Payments Bank showed strong financial results in FY'25 and Q4'25, with good growth in income, increasing profits, and better operational efficiency.
The bank's total income for FY'25 reached ₹1,847.1 crores, which is a significant 25% increase compared to the previous year. This performance met the management's higher expectations, showing good execution and a strong business model. In Q4'25, income was ₹493.5 crores, a 23% increase from the same period last year and a 7% increase from the previous quarter (Q3'25, which was ₹461.3 crores).
The total value of transactions processed (throughput) grew by 29% year-on-year to ₹461.0k crores in FY'25. Digital transactions, a rapidly growing part, surged by 70% to ₹225.5k crores. The bank's daily average transaction value reached ₹1,451 crores in Q4'25, showing an impressive tenfold growth over the last six years.
Fino Payments Bank showed significant growth in its profits:
EBITDA (Operating Profit): For FY'25, EBITDA reached ₹234.4 crores, a 22% increase, with an EBITDA margin (profit percentage) of 12.7%. In Q4'25, EBITDA was ₹63.9 crores, up 18%, with a margin of 13.0%.
PBT (Profit Before Tax): FY'25 PBT grew by 26% to ₹108.3 crores, achieving a PBT margin of 5.9%. Q4'25 PBT was ₹29.7 crores, an 18% increase, with a margin of 6.0%.
PAT (Profit After Tax): The bank reported a PAT of ₹92.5 crores for FY'25, a 7% increase. This is especially notable because the bank started paying taxes from Q2 FY'25, having successfully covered all its past losses.
Digital Business Profitability: While the digital business has a slightly lower direct profit margin (around 21-22%), it contributes significantly to the bank's overall profitability. Because its operating costs are very low, the digital segment achieves a double-digit PBT margin on its own.
The cost-to-income ratio dropped to 25.6% in FY'25 from 26.5% in FY'24. This reduction shows effective cost control and the benefits of using technology to try and become more efficient. Operating costs for FY'25 were ₹347.5 crores, increasing by 21%, which is less than the 25% revenue growth, indicating that the bank might be becoming more efficient as it grows.
For FY'25, cash profit was ₹191.2 crores, a 28% increase. Q4'25 cash profit also rose by 28% to ₹54.9 crores. The money spent on new assets and technology (Capital Expenditure or Capex) for FY'25 was ₹164.5 crores, a substantial increase and a 31% annual growth rate since FY'22. About half of this capex, or ₹83 crores, was used for moving to a new core banking system.
The bank expects to spend an additional ₹90-100 crores on SFB technology and operations, and over ₹100 crores for regular business expenses (BAU capex) in FY'26.
These investments in technology, especially the core banking system and the use of Artificial Intelligence (AI), seem like proactive steps to prepare the business for the future and the SFB transition.
While these investments affect current cash flow and increase expenses, they might build a necessary foundation for achieving long-term, higher-profit growth, especially from the digital segment. This approach suggests that the management is prioritizing strategic capabilities over short-term profits, showing confidence in their long-term vision and how technology can lead to better efficiency and a competitive edge.
Management had previously aimed for a 10% PBT margin. However, this goal is now directly linked to the SFB process, as current IT spending and UPI transaction volumes affect costs. This means the bank's long-term profitability targets depend clearly on getting the SFB license.
The current payments bank model, while profitable, faces cost pressures from growing low-profit digital transactions and ongoing technology investments. The SFB license is expected to open up new, potentially higher-profit income streams, like lending, which can cover these costs and help reach the 10% PBT margin goal. This highlights how crucial the SFB approval is for the bank's future financial health.
The table below gives a detailed look at Fino Payments Bank's key financial numbers for FY'25 and Q4'25, including comparisons with earlier periods.
Table 2: Key Financial Performance Metrics (₹ Crs)
This table gives a full picture of the bank's income and expenses, allowing for clear comparisons quarter-on-quarter and year-on-year. The steady growth in income and profits, along with improving efficiency, confirms the success of the bank's strategy to grow through digital and CASA services.
Before we move on to the growth outlook, let’s look at what the proprietary scores on sharpely say about Fino Payments Bank:
Not fairing that high, but let’s not look at just one analysis, we’ll now dive deeper into the future outlook of the business.
Fino Payments Bank is strategically preparing for future growth, driven by faster adoption of digital services, new product launches, and a very important step: becoming a Small Finance Bank (SFB).
The bank expects its digital growth to continue accelerating, with digital income projected to make up more than 25% of its total income in FY'26, up from 21% in FY'25. This growth will be powered by continued strong performance in digital transactions.
A top priority for FY'26 is to further speed up the growth of CASA and deposits, building on the strong results from FY'25. Additionally, Fino Payments Bank aims to strengthen its partnerships with Fintech companies, becoming a complete enabler that offers innovative solutions for both individual customers (B2C) and businesses (B2B).
To boost its deposit collection and prepare for future lending, Fino Payments Bank has launched new CASA products. These include "Gullak," designed to encourage customers to keep higher balances, and "corporate salary for MSME" accounts, both supporting the bank's goal of building a large and stable deposit base.
On the digital side, the bank plans to introduce "Sound Box" and "off-line QR codes" to improve its ability to lend to merchants. Furthermore, a Prepaid Payment Instrument (PPI) product is planned for launch in FY'26, aimed at enhancing digital offerings for its existing merchant partners.
For FY'26, the management's main goals are to accelerate CASA and deposit growth, improve digital systems, deepen partnerships with Fintech companies, and keep the cost-to-income ratio within the 25% range. The bank also expects to spend over ₹100 crores on regular technology investments (BAU capex) in FY'26, in addition to technology costs related to the SFB transition.
[Want to learn more? Read Fino Payments concall here.]
Internally, Fino Payments Bank is actively building the necessary "railroads" by setting up specialized teams and strengthening its organization to be ready for the SFB transition. The proposed SFB model is seen as a "payment bank plus, plus model," meaning it will be asset-light (not many physical assets), have a limited branch network, focus on getting deposits first before lending, and use its existing network with a strong emphasis on technology.
A crucial step in this preparation is overhauling its technology infrastructure, with the next-generation core banking platform, featuring a "hollow the core" architecture (a modern, flexible system), set to go live in Q1 FY'26. This transformation is considered vital for SFB compliance, flexibility, and scalability. Furthermore, the bank is in the process of choosing vendors for its Loan Origination System (LOS) and Loan Management System (LMS), aiming to finalize this within 30 days.
The SFB license is not just a small step; it's a major event that could significantly change how Fino Payments Bank is valued. It will allow Fino to directly offer loans, which is a more profitable activity compared to its current payments-focused operations.
This is crucial for achieving its long-term profit goals, including the aspiration for a 10% PBT margin. The ongoing investments in technology and the loan referral pilots are strategic preparations, showing that the bank isn't just waiting for approval but actively building the operational and technological capabilities to start effectively as a full-service institution. This transition represents the most significant long-term growth driver for the bank.
Fino Payments Bank has successfully tested referral-based loan products, including gold loans, merchant loans, and housing loans, by partnering with Non-Banking Financial Companies (NBFCs). The money disbursed through this business grew significantly, from ₹33 crores in Q4 FY'24 to ₹200 crores in Q4 FY'25, which is more than a sixfold increase. The bank's immediate goal is to reach ₹300 crores in disbursements, aiming for ₹100 crores per month in the first half of FY'26.
This initiative serves two purposes beyond just earning immediate income. It acts as a crucial "sandbox" or pilot program for Fino's future lending operations as an SFB. It allows the bank to collect valuable data on how customers repay loans, build and improve its risk assessment models, train its large network of agents on how to originate loans, and fine-tune its loan products within a low-risk, referral-based model.
This proactive learning reduces the operational and credit risks usually associated with starting a new lending business after becoming an SFB, showing a thoughtful and de-risked approach to entering the credit market.
Fino Payments Bank operates in a fast-changing financial environment, facing challenges from the industry, specific concerns for the bank, and regulatory factors that could affect its growth and profitability.
Here’s a quick overview of the stock’s key points on sharpely:
Cyber Fraud Risk: The rapidly growing digital financial world in India brings significant risks of cyber fraud. Regulators and law enforcement agencies often issue warnings to address these threats. Fino Payments Bank's strategy involves balancing aggressive growth with strong measures to reduce risks and ensure the security of its platforms and customer data.
Competition in UPI: While Fino's share in UPI transactions grew to 1.62% in Q4'25, the UPI system is very competitive. Currently, there's no fee (Merchant Discount Rate or MDR) on UPI transactions, which limits direct income from this high-volume activity, though discussions about reintroducing it could change things.
Stress in Microfinance Sector: The bank's Cash Management Services (CMS) business, which is a high-profit product, has faced difficulties in the last two quarters. This is mainly due to stress in the Microfinance Institution (MFI) sector, which makes up a large part of the CMS business.
Lower CMS Fees: Increased competition in the CMS segment has led to lower fees (take rates), dropping from 0.21% in FY'24 to 0.18% in FY'25. This trend is expected to continue in FY'26, directly affecting the profitability of this segment. The bank is actively looking for new ways to use this business to regain momentum.
Decline in Traditional Transaction Business: The bank's traditional transaction business, especially money transfer (remittance) and Micro ATM services, has seen a decline.
Remittance: The remittance business was significantly affected in Q3 FY'25, with an estimated 40% drop, due to new rules that made it harder for bank-led models to process transfers from November 2024, and also because new ways to send money have emerged.
Change in Customer Behavior: A broader trend of customers moving from assisted, cash-based transactions to "do-it-yourself" digital platforms (like UPI) is contributing to lower volumes in traditional transaction services.
SFB Transition Hurdles: While the RBI application for SFB transition is moving forward, a key regulatory challenge is the requirement to stop the Business Correspondent (BC) business.
Regulatory Warnings on Digital Frauds: The bank's growth strategy will be adjusted based on directions from regulators and law enforcement agencies, especially due to increased concerns about "mule accounts" (accounts used for illegal money transfers) and digital frauds. This means a cautious approach to growth to ensure compliance.
Fino operates in a heavily regulated environment where changes in rules can both create significant problems (like with remittances) and open up huge opportunities (like the SFB license). The bank's "compliance-first" approach, while potentially affecting short-term growth in some areas, is crucial for maintaining trust with regulators and securing the SFB license, which is the long-term driver of value. This suggests that regulatory risk is not just a threat but also a strategic factor determining the bank's future path, requiring a proactive and adaptable stance.
The bank's business shows some seasonal patterns. Q3, usually the festival quarter, tends to have higher transaction volumes but fewer new CASA accounts. On the other hand, Q4 often shows higher growth in deposits and CASA, influenced by government payments and budget clearances. Q1 is generally quieter due to various factors, including summer heat and fewer government interventions. However, the increasing digital component in the bank's operations is expected to reduce these quarter-to-quarter variations over time.
By looking at the bank's operations, strategic direction, and financial health, we can understand what drives its value.
However, for a better analysis, we should try to compare its performance wrt to the peers.
1. Consistent Growth:
FY’25 saw 25% income growth and a 26% rise in PBT, with digital income jumping 4.2x—clear signs of strong momentum.
2. Smart Shift to Digital & CASA:
More focus on profitable, recurring income streams like CASA and digital has improved income quality. The digital segment already delivers double-digit PBT margins—boosting long-term value.
3. Upcoming SFB License – A Game Changer:
If approved, the Small Finance Bank license will allow Fino to lend, opening up higher-profit revenue streams. This move could re-rate the stock closer to full-fledged banks, as it transforms from a payments-only model to a more complete financial player.
4. Better Cost Control:
With a 25.6% cost-to-income ratio in FY’25, the bank is growing efficiently, keeping expenses in check while scaling.
5. Strong Customer Stickiness:
Around a 65% CASA renewal rate and rising average balances show loyal, engaged customers, translating to predictable income.
6. Solid Capital Base:
With a high Capital Adequacy Ratio of 80.5%, Fino has enough firepower to fund growth and support the SFB transition safely.
Fino Payments Bank has shown strong financial performance in FY'25, marked by robust growth in income and profits, better operational efficiency, and a significant strategic shift towards digital and customer-focused services. The bank's unique model, which uses technology heavily and doesn't rely on many physical assets, along with its wide network of local agents, gives it a clear competitive edge in serving the mass market and promoting financial inclusion.
The successful change in how the bank earns money, moving towards more profitable CASA accounts and rapidly growing digital payment services, shows a deliberate strategy to improve the quality and stability of its earnings. This transition, while leading to a controlled decline in some older transaction businesses, is ultimately strengthening the bank's financial health. The proactive effort to build a strong, low-cost deposit base through new products like "Gullak" further positions the bank well for its upcoming evolution.
A crucial factor for Fino Payments Bank's future value is its ongoing application for a Small Finance Bank license. The bank's significant investments in technology, including a complete overhaul of its core banking system and the use of AI, along with the successful testing of a loan referral business, indicate a well-prepared and less risky approach to entering the lending market. This transition is expected to be a major turning point, potentially opening up new, higher-profit income streams and leading to a re-evaluation of the bank's worth.
While the expansion into digital services brings inherent risks like cyber fraud, the bank's focus on a "compliance-first" approach and growth that balances risk, supported by advanced technology, suggests a commitment to managing these challenges. The exceptionally high capital adequacy ratio further provides a strong buffer for future growth and the SFB transition.
In essence, Fino Payments Bank is not just growing; it is strategically transforming its business model to capture more value in India's evolving financial landscape. Its ability to adapt to regulatory changes, manage the shift in its income sources, and successfully execute its SFB strategy will be paramount in achieving its full long-term potential.
Disclaimer: This blog is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with a qualified financial advisor before making investment decisions.
