Payment banks sense new lease of life in FASTag business

Payment banks, which have not been able to establish a profitable business model, may have found a life saver in the form of FASTags.

In an interesting twist, Paytm as well as Airtel Payment Bank have emerged as the largest issuer of tags for the month of January, giving tough competition to full scale commercial lenders active in this business.

While for Paytm the leadership position in this business is not new, Airtel's ascension has come as a surprise.

The question is whether payment banks can leverage these FASTag wallets and create diversified use cases on top of them. At present, these closed loop payment instruments are being loaded only for highway toll payments but the government wants to extend it to payments for parking in the future. In this way, more use cases can be brought in.

The biggest question for wallets was how to get users to park larger funds in these instruments and FASTag in a way solves that problem. Further, it also brings in people with higher spending potential into the wallet ecosystem. These customers own private vehicles or are fleet owners getting acquired at almost zero cost for these wallet companies.

"FASTag is a very high frequency use case and is a high value product, our FASTags directly connect to the wallet as a funding source thereby driving growth for the payment bank in turn," said a Paytm Payments Bank spokesperson.

Paytm has sold over 35 lakh Fastags and has set a target of 50 lakh by end of the current financial year. It further claimed to have a share of more than 40 percent of all the tags issued last month.

On the other hand, Airtel, which started on a slow note, issued more than 2.8 lakh tags in January overtaking other banks. Thereby, the total number of tags issued has reached 6 lakh. Paytm now has a more than 20 percent share of the 1.4 crore FASTags issued overall, while Airtel's share has gone up to almost 5 percent.

Commercial banks are very close in terms of the number of tags issued and capturing the value of transactions flowing through their systems. ICICI Bank seems to be the clear winner on this front.

"We have issued over 30 lakh FASTags. The bank customers' FASTag spends grew to Rs 610 crore last month and transactions at ICICI Bank acquired toll plazas jumped to Rs 720 crore in January," a spokesperson of ICICI Bank said.

Besides, the 214 toll plazas already acquired by the bank, it is also targeting state highways like Mumbai Pune Expressway, Agra Lucknow Expressway and others.

Another private sector lender Axis Bank, which is also actively pushing the FASTag business, has issued over 16 lakh tags.

"A total count of 70 lakh in December 2019 and 1.1 crore transactions were received in January 2020. Almost 150 percent increase in the value of transactions is noted through Fastag from November last year to January for the bank," said Naveen Tahilyani, head- banking operations and transformation at Axis Bank.

After all these tags bring in huge sums of money at the end of the day into the babnking ecosystem.  As per data released by NPCI, in January alone Rs 1600 crore flowed through the Fastag platform, this number was Rs 1200 crore in December, thereby showing a jump of more than 30 percent.

"This float is the main reason why banks are pushing hard for digitising toll plazas, if payment banks can corner a significant chunk of this float, it will open a big business opportunity for them," said a top executive at a payments bank.

Except for Fino Payments Bank, which had a strong use case for rural payments and remittances, the other payment banks have not been able to create a unique business case. While the largest payments company Paytm has managed to become synonymous with digital payments and fintech, the other telcos have been extremely slow in the banking business. India Post has openly spoken about its desire to move into small finance banking while NSDL has not done much in payments. Closed loop payment instruments can perhaps bring a new lease of life to the payment banking business.

"We are looking at ways to push adoption of Fastags at fuel stations and even for so many other forms of payments where a vehicle is involved, but these are still early stages but this instrument has enough potential," said the banker quoted above.