Digital lending by payments banks will be impactful: Anubrata Biswas, MD of Airtel Payments Bank

We have three businesses – one is our deep rural business. We offer services through our network of banking points, like a traditional kirana store. Over the last four years, this has become a real source of competitive advantage for us. We have 3,97,000 monthly active banking points in the country, making it the largest banking network in India, and indeed in the world.

The problem we are trying to solve is access to banking services. Our claim to fame is that we have built scale at a very different level compared with anybody in this business. In rural India, we have more than 20 million users. One in ten Aadhaar-enabled payment system transactions are processed by us; one in five remittances happens through us. This scale makes the business profitable. The other business we have set up is a mirror image of this one in the B2B segment. We are India’s largest micro cash player, offering cash management services to corporates. These could be NBFC-MFIs or e-commerce companies collecting cash from customers across the country.

Thirdly, there is a very strong propensity for the customer to bank digitally through the smartphone, which is the core of the digital business. Today we are the sixth largest bank in India, in terms of mobile banking users. In urban India, we are the natural second bank account of choice.

We are an independent organisation, which wants to build its capabilities around the natural strengths of Airtel, such as technology and distribution. But in terms of revenue, we are diversified. The model of payment banks is very different from other banks and similar to telecom or other distributed services businesses. It is a cost per user per month and revenue per user per month model. The fact that we are a regulated entity is allowing us access to build a radical cost structure out of the India stack.

There is not an inch of paper in our premises, everything is based on e-KYC and have a fully-digital onboarding process. We have fully-digital payments and no branches. We can thus re-engineer the cost structure of traditional banking to a far lower threshold. Secondly, bank has an important sustenance and growth story from the Airtel ecosystem. Because of this scale, today, payments banks touch 150 million lives every month, which is very different from other categories of banks.

We’re cautiously driving down variable costs because of e-KYC etc., but the fixed costs of operating the business will be low only when there is scale. Any bank which has scale – whether India Post, Paytm or us, is profitable. It took four - five years to get there. The business is still thin margins, but we believe that revenue per user will grow as usage increases. The user base will also grow. You should not compare the model with traditional banks and you should, equally, not compare us with other payments banks, because we are the only payments bank doing businesses across multiple segments.

It’s absolutely essential. The transformative impact of that on digital India will be very powerful. And this should be as an addition to the payments bank model, not as a transition to another licence such as small finance banks, as that would defeat the original purpose of scale and inclusion. Digital lending on payments bank scale will be very impactful. Our thought process is that the industry may not get user and usage growth without a few more manufactured products, such as fixed deposits or micro lending. In the next journey of scale, I think a few manufactured products are critical. Today, we offer a fixed deposit from another bank; we’re distributing and that’s different from a manufactured product.

As a large corporate house promoted bank, we aren’t going to be allowed that path anyway.

It will happen in due course. There isn’t a decision on what should be the amount of dilution or duration. It should happen over the next 12 – 18 months. And then, potentially an IPO sometime after that. That’s the thought.

Ultimately, the organisation will become an institution if it has a diversified shareholding. The promoters are fully committed towards making it an institution.