Fino Payments Bank Navigates Regulatory Headwinds with Strategic Pivot to High-Margin Businesses

Fino Payments Bank Limited has released its Q2 and H1 FY'26 results, showcasing a strategic pivot amidst a rapidly evolving payments landscape. The bank reported a Q2 FY'26 revenue of INR 400.1 crore, marking a 12% year-on-year decline. Despite this top-line moderation, the bank's EBITDA margin expanded significantly to 15.4% from 12.6% in Q2 FY'25, driven by a conscious shift towards higher-margin products and disciplined cost control. Profit Before Tax (PBT) for the quarter stood at INR 21.2 crore, an 18% decrease year-on-year, while Profit After Tax (PAT) was INR 15.4 crore, down 27% due to higher tax provisioning.

The first half of FY'26 saw total revenue at INR 853.5 crore, a 4% decline from H1 FY'25. However, H1 EBITDA increased by 12% to INR 123.3 crore, with the EBITDA margin improving from 12.4% to 14.4%. This resilience in profitability underscores the bank's ability to adapt its business model in response to external challenges, particularly regulatory tightening and ecosystem shifts in the digital payments industry.

Strategic Evolution: From Transactions to Ownership

Fino Payments Bank is actively rebalancing its portfolio, moving away from low-margin transaction-based businesses towards a more relationship-driven, annuity-based financial ecosystem, primarily led by its CASA (Current Account Savings Account) segment. CASA revenue grew 21% year-on-year to INR 159.4 crore in Q2 FY'26, now contributing a significant 40% to total revenues, up from 29% in Q2 FY'25. This segment boasts a healthy 54% margin, effectively offsetting pressure from other areas.

The bank's customer ownership strategy is yielding results, with the customer base expanding to 1.6 crore and over 9.1 lakh new CASA accounts opened during the quarter. Average deposits surged 36% year-on-year to INR 2,306 crore, maintained at an impressive 1.9% cost of funds, a key differentiator in the industry. Renewal income, a strong indicator of customer stickiness, grew 36% year-on-year to INR 62.1 crore, reflecting robust customer loyalty and a predictable revenue stream.

Digital Payment Services, while experiencing short-term moderation due to enhanced regulatory scrutiny, still contributed 16% to Q2 FY'26 revenue. The bank is recalibrating its merchant onboarding and transaction policies to ensure compliance and quality over pure volume growth. Traditional transaction businesses, including Domestic Money Transfer (DMT), Micro ATM (MATM), and Aadhaar Enabled Payment System (AEPS), saw a decline, now accounting for 20% of total revenue, down from 32% a year ago. This shift, though impacting top-line, structurally improves the bank's margin profile by reducing dependence on low-yield products.

Future Outlook: SFB Aspirations and Digital Innovations

Fino Payments Bank is actively pursuing a Small Finance Bank (SFB) license, with the RBI evaluation in its final stages. Management anticipates an update in the coming months and is already laying the groundwork, including testing secured lending products and leveraging its extensive merchant network. The transition to an SFB is expected to significantly enhance the bank's ability to offer a wider suite of financial solutions and improve its Net Interest Margin (NIM).

Technologically, the bank is migrating to a new Core Banking Solution in FY'26, which is in its final stages and expected to be completed by December. This migration is poised to bring substantial benefits, including new product features, faster launches, and improved operational efficiency. The bank has also launched new digital offerings, such as a prepaid instrument, which is expected to generate INR 1-2 crore in monthly revenue, and a payout product, awaiting regulatory clearance, with an expected monthly revenue of INR 3-5 crore. The deployment of Soundbox QR in its merchant network aims to deepen engagement and support future SFB plans.

Despite the short-term challenges, Fino Payments Bank demonstrates strategic clarity and disciplined execution. The focus on strengthening its core, expanding high-margin businesses, and investing in technology positions the bank for sustained growth. Management expects H2 FY'26 to show better results than H1, driven by a recovery in digital throughput and continued momentum in CASA, reinforcing investor trust in its evolving franchise.