In the lone case of a fintech business merging with a small finance bank, North East Small Finance Bank (NESFB), based in Guwahati, and Slice, a fintech credit and payments startup, have announced a merger between the two entities.
A first-of-its-kind move in the fintech and banking sectors, the deal has been approved by the banking regulator, the Reserve Bank of India, and will result in Slice becoming an SFB.
Although the specifics of the amalgamated entity’s holdings are unknown, based on the prior valuation and investment, it is expected that Slice stockholders will hold the majority of the shares.
Officials from the RBI have previously stated that they are opposed to fintechs obtaining licences through the acquisition of license-holding regulated companies like banks and NBFCs. Prior to now, the regulator had given Centrum Capital and fintech payments company BharatPe permission to invest in Unity SFB. But this is the first time a fintech company has transformed into a bank.
The central bank has complete faith in the fintech’s shareholders to fundamentally alter the Small Finance Bank (SFB) landscape by furthering its financial inclusion objectives, as evidenced by the regulator’s clearance of the merger.
Slice primarily serves college students and recent hires, offering them credit and payment options. With 208 branches spread across the seven North Eastern states and West Bengal, NESFB has mostly targeted consumers from rural areas and the bottom of the pyramid.
“We are appreciative that the RBI gave us this enormous responsibility. With this strategy, we may reach a wider audience, including individuals who are frequently ignored. We will employ technology and analytics to further increase our risk underwriting. According to Rajan Bajaj, founder and CEO of Slice, “We see this as a chance to develop a truly inclusive and responsible bank, supported by excellent risk management and strong governance.
Slice claimed that the union will advance the merging company’s shared objective of fusing technology with widespread grassroots financial inclusion. The necessary shareholder approval is still needed, as well as regulatory permissions.
Last year, the fintech industry went through a Darwinian period, and those who followed the regulator’s rules exactly are now reaping the benefits. Slice has the ability to pioneer the digital first banking model and transform the contemporary banking experience for the smartphone generation, according to Vikram Chachra, founding partner of 8i Ventures and one of the company’s early backers.
The central bank claims that the legislation is determined by the product’s functionality, and if the product resembles a credit card in any way, it must adhere to all credit card standards. Only banks and a few bank-owned businesses are permitted to offer credit cards in India.
It is significant that Slice received regulatory approval at a time when Navi Technologies was denied and Paytm Payments Bank is currently battling to have the restrictions on client onboarding eased. This further demonstrates the regulator’s progressive attitude towards fintech, according to an anonymous venture capitalist.
The cost of capital becomes crucial because the majority of fintechs’ business models centre around lending, continues Chachra. Slice will be able to obtain capital for credit at lower rates than the majority of other fintechs and NBFCs by becoming a licenced organisation that is permitted to accept deposits.
“Slice already has one of the best credit underwriting for people who are new to credit, and this will help in advancing the goals of financial inclusion as it lends to a larger cross section of customers,” he claims.
According to a senior fintech executive, RBI’s clearance of this merger demonstrates its willingness to integrate fintechs into the banking sector as long as their compliance, risk management, and governance adhere to the regulator’s guidelines.
In order to operate any regulated products, fintechs are sometimes at the mercy of banks. By becoming an SFB, Slice will have an advantage over its rivals.
“This partnership with Slice represents an exhilarating improvement to our offerings and development of our market. Slice’s cutting-edge technology and intense focus on the customer experience strengthen our partnership, which is committed to helping the underprivileged, according to Rupali Kalita, managing director and CEO of NESFB.
In the upcoming months, the businesses will decide on the management positions and other strategic adjustments. The companies said in a joint statement that there will be an integration process during which “both entities will work diligently to ensure a smooth transition for all customers.”