ET Explainer: The magnetic charm of a bank licence

economictimes.indiatimes.com:

Slice earlier this week received the regulatory no objection to merge with North East Small Finance Bank, that would help it transform into a bank. Earlier, Resilient Innovations, which operates fintech firm BharatPe, became a financial investor in Unity Small Finance Bank, one of the 12 small finance entities that got a bank licence as part of a central bank initiative to expand the bailiwick of formal financing beyond credentialed high-street lenders.

Here’s an ET explainer about the enduring allure of a banking licence for financial technology (fintech) companies, several of which are backed by bulge-bracket global funds and Wall Street private equity investors.

WHAT DOES A BANKING LICENCE MEAN FOR A FINTECH?
The most crucial aspect of getting a banking licence is access to low-cost funds. The Reserve Bank of India (RBI) allows only banks to mobilise savings and current account deposits, creating a stiff entry barrier in the lending industry.

Banks garner current account deposits without paying any interest, while most of them offer just about 3.5% on savings accounts. Accessing sizeable funds at such low rates help banks earn fatter margins on advances to borrowers — be they an individual, a company, or any other entity.

Banks also dominate the lending market as few rivals can be as competitive in garnering funds at such rates.

IS A NIMBLE PLATFORM ALONE GOOD ENOUGH TO SUCCEED AS A BANK?
Modern banking depends on quick decision making, using a technology spine. A fintech firm, especially a unicorn, enjoys this technological advantage.