Fino Payments Bank is navigating a challenging period as it transitions to a small finance bank (SFB). The arrest of CEO Rishi Gupta earlier this year has compounded existing financial difficulties, with a significant 43% drop in net profit for FY26. This development is crucial as it reflects broader market and regulatory shifts impacting the fintech landscape in India.
### Understanding Fino’s Business Model
Fino Payments Bank, based in Mumbai, operates as a payments bank—a model established by the Reserve Bank of India (RBI) to enhance access to banking services. While payments banks like Fino can accept deposits and facilitate transactions, they cannot engage in lending. This limitation has shaped Fino’s strategy, relying on a network of over 20 lakh merchants and agents to reach customers, especially in rural areas.
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Despite early successes, Fino’s business has been hit hard by regulatory changes, such as the RBI’s 2024 circular affecting bank-led remittance transactions. Additionally, stress in the NBFC and microfinance sectors has impacted Fino’s revenue streams, notably in cash management services.
### Challenges and Strategic Shifts
The arrest of Gupta, linked to alleged GST evasion in the real-money gaming sector, has intensified scrutiny. The fallout led to a shutdown of Fino’s UPI payments business, a significant revenue stream. This pause is part of a broader review of their digital operations, as the bank aims to establish a more sustainable business model. However, this has resulted in a sharp decline in digital payments revenue, which fell by 70% YoY in Q4 FY26.
Fino’s transition to an SFB is set to bring fundamental changes. The new status will allow lending, a critical component for growth. However, it also means discontinuing the business correspondent model, which currently contributes significantly to revenue. Fino hopes that lending income will offset these losses, leveraging its low-cost CASA deposits to maintain competitive interest rates.
### Implications for India’s Startup Ecosystem
Fino’s journey highlights the complexities faced by fintech startups in India, particularly those dependent on regulatory frameworks. The transition to an SFB could serve as a blueprint for other payments banks looking to expand their service offerings. However, it also underscores the importance of compliance and adaptability in a rapidly evolving regulatory environment.
For founders and investors in the fintech space, Fino’s experience offers valuable insights into managing regulatory risks and the potential benefits of diversifying revenue streams. As Fino moves forward, stakeholders should closely monitor how the bank navigates its lending strategy and digital transformation, as these will be critical in determining its future success.
