Fi Is Solving Common Finance Problems, But A Larger Question Confronts It
Fi claims to solve a very basic finance problem -- keeping track of multiple accounts.
You might open a new bank account the day you join a job, or you may have had to open one because you took a home loan from another bank. Eventually, the number of text messages and emails becomes unmanageable, toggling between different accounts to track them a headache.
These common and simple problems in finance often have few solutions in sight.
Enabled by the account aggregator framework, neobanking app Fi's "connected accounts" feature aims to provide customers a view of different accounts in one place.
As a registered financial information user on the account aggregator framework, epiFi can access a customer's financial data, after getting adequate consent. Using the feature, customers can get cumulative data of their account balances across banks, data on how much they spend for certain activities, insights on how much they actually save every month, etc., on the Fi app.
"It is a great customer engagement tool...and if users are happy with Fi and the engagement it provides, that's great for us," Sumit Gwalani, told BQ Prime in an interview. Gwalani is the co-founder of epiFi Technologies Pvt., which owns the Fi app.
Fi is the first fintech entity to have gone live with a product built on the aggregator framework, according to BG Mahesh, co-founder of Sahamati, an alliance of the account aggregator ecosystem. A few other companies are also working on similar products, he said.
Where Is The Money?
Fi was started in 2020 by Gwalani and co-founder Sujith Narayanan, both former Google Pay executives. The company has raised $95 million (approximately Rs 730 crore) over two rounds after the initial $13.2 million (approximately Rs 100 crore) in seed funding, and counts Sequoia Capital, Ribbit Capital, B Capital Group and Falcon Edge among its investors.
It was last valued at $315 million (approximately Rs 2,400 crore).
The company's available financials show that the company made a revenue of Rs 1.25 crore in the financial year ended March 31, 2021, compared with Rs 67 lakh a year ago. Its net loss widened to Rs 50 crore in FY21, compared with a loss of Rs 9 crore in FY20.
At this stage, the connected accounts feature does not offer any revenue opportunities for epiFi. Fi earns revenue through fees and commissions, by distributing financial services products. But as most things in fintech, revenue is likely to be driven by lending.
"In the future, when we start offering lending products, then maybe we can reach out to a wider set of deserving customers through this tool. However, if we want to use this data for lending, we will ask for explicit customer consent," Gwalani said.
A lending product is in the works and will allow Fi users to access financing from banking partners. The product will be launched in the second half of this year, he said.
Fi has already launched a mutual fund product, where customers can choose the funds they would like to invest in. It also plans to launch a peer-to-peer investment product, through a partnership with P2P lender Liquiloans. This would allow customers to earn a return, by lending to other individuals.
Other investment products are also in the works, Gwalani said, refusing to divulge more details.
Neobanks Struggle For Relevance
Fi, which defines itself as a neobank, is not allowed to directly take customer deposits. Instead, it offers customers an option to open a bank account with Federal Bank and issues debit cards to them. Customers can also use the app to make peer-to-peer and merchant payments through the unified payments interface, National Electronic Fund Transfer and Real Time Gross Settlement routes.
However, most large banks have amped up their digital offerings to an extent where customers can avail all of these services without having to download another mobile app.
The only differentiating factor is that Fi allows customers to plan and save their money through value-added features.
According to a senior payments industry executive, who spoke on the condition of anonymity, most neobanks are essentially doing the work of direct selling agents for the traditional banking system. In terms of offering value-added services, most neobanks are still lagging, he said.
One way for neobanks to have a profitable business model is if they work out a strategy where the users they bring in, are able to avail financing to the extent of the deposits they make, explained a private banker, also speaking on the condition of anonymity. This means if a neobank is able to bring in Rs 100 crore worth of deposits to a bank, it should be provided a corresponding credit line for its users. This would make life easier for neobanks, as their commissions would go up and they would be able to onboard more customers.
However, no bank is likely to allow such an arrangement to neobanks, as they would assess each customer on individual merit. Neither is the regulator in a hurry to make the business landscape more equitable for these companies, as it has displayed in its reluctance for products like first loss default guarantee loans, the banker said.
Neobanks, however, could make use of the Reserve Bank of India's digital banking units framework to expand their business, both the payment industry executive and the private banker quoted above said. Since the RBI allows for banks to have parallel IT system at these digital banking units, the neobanks can act as third party service providers and work on the backend, they said.
"We will keep going back to our mission statement of demystifying finance for our users, maximise savings and investments for them and help them spend smartly," Gwalani said. "We will go with whatever is the regulatory framework, but as long as we keep our head down and focus on the impact we are creating for our users, we will be good."