Banks are investing heavily in technology to enable a seamless user experience on Unified Payments Interface (UPI) products, and the Centre must consider levying a nominal fee on certain UPI transactions so that lenders can have some direct income from these low-ticket transactions, Federal Bank executive director Shalini Warrier told FE.
“We are grateful for the incentive provided by the government (through the Ministry of Electronics and Information Technology for UPI payments). Having said that, and particularly given the use of the UPI for person to merchant (P2M) transactions, the authorities may want to consider levy of a nominal charge,” she said. “Ecosystem members have been requesting for some direct income from UPI transactions. We are hoping that the government will review this and allow members to collect charges for at least certain categories of transactions.”
Federal Bank has nearly 300,000 active UPI Lite accounts — used for conducting transactions valued below Rs 500 — and is registering an average daily transaction volume of around 1.7 million. UPI Lite, being a relatively newer concept, is attracting customers slowly “but surely”, Warrier said.
She added that the bank has enabled the UPI linkage with RuPay credit card, and the initial response to the new product is encouraging. “Given our base of RuPay credit cards, we are processing nearly 70,000 transactions a month and volumes are close to Rs 4 crore. These are initial days for this concept and as we scale up the volume of credit cards, we will surely increase the numbers here.”
Bank-fintech partnership
The increase in risk weight on unsecured credit by the Reserve Bank of India won’t have a big impact on Federal Bank due to its lower exposure to such loan categories, Warrier said. However, recognising the incremental cost of capital in the form of higher risk weights, the lender has made “suitable adjustments’ to the pricing for both credit cards and personal loans.
As of December 31, Federal Bank’s overall loan book stood at Rs 2.02 trillion, up 18% year on year (YoY), according to select provisional Q3FY24 figures filed by the bank with the exchanges. Retail loans accounted for 55% of the overall book, growing 20% YoY, whereas wholesale advances consisted 45% of overall loans, growing 17% during Q3.
Warrier said there are numerous areas where banks and fintechs can partner in 2024, including building SaaS platforms, complying with regulatory frameworks, account aggregator, central bank digital currency and ONDC-related use cases.
“In today’s world, any fintech who wants to work with BFSI players will have to spend its resources for regulatory compliance, cyber security aspects and data protection, in addition to investments in customer platforms and other tech infrastructure,” Warrier said. She added that it may not be possible for every fintech with an innovative idea to invest in such core competencies as venture capital-backed funds are not easy to come and the investments are of an ongoing nature.