Payment Banks Case Study 1 - Why They Got License & Expectations [Cholamandalam Investment and Finance Payments Company]

Cholamandalam Investment and Finance has got a principal approval from the Reserve Bank of India to set up a Payments Bank. The payments bank, to be launched by the group is expected to be a 100 per cent subsidiary of Cholamandalam and expected to have a nation-wide presence. However, the firm plans to partner with those who can bring technology or provide access to a wider customer base in the near future.

Cholamandalam Investment and Finance Company Limited is the financial services arm of Murugappa group, an INR 269 Billion Indian conglomerate with presence in 28 businesses. Cholamandalam commenced business as an equipment financing company and has today emerged as a comprehensive financial services provider offering vehicle finance, home loans, home equity loans, SME loans, investment advisory services, stock broking and a variety of other financial services to customers.

Cholamandalam currently has 534 branches spread across the country and has a customer base of over 750,000 customers, most of whom are truck drivers and Small and medium business owners. It would be important to note that 71% of the 534 branches are in rural areas while the other 29% are in urban and semi-urban area. Looking at the RBI’s objective of setting up payments bank, which was to augment financial inclusion by providing small savings account and payment services to migrant workforce, low income households and small businesses, it is a no brainer that Cholamandalam got the license.

Cholamandalam’s parent company Murugappa adds further value to this proposition. The Murugappa group eco-system offers an even larger base of rural customers. It is estimated that the group together has over 3.5 million rural customers. Key customer segments of Murugappa Group’s other subsidiaries are

- Coromandel International: End Customers are Farmers and the company has 7,000+ dealer networks spread across India especially in rural areas

- DBS Cholamandalam Asset Management Limited: End Customers are retail and institutional investors and the company has 200,000+ customers

Cholamandalam plans to use both technology and their physical footprint to reach out to its prospective customers. It is quite evident from the customer segments (Farmers, Drivers and low income group apart from SME’s) that they would focus on financial inclusion. However, the group has to overcome two major concerns. At first, the group has no previous experience in financial technology and will certainly have to partner with a technology provider. Similarly, the current customers of the company are low value customers, low income customers. As we all know that, payments is a low-margin play and for small transactions it would take a lot of effort and volumes to make it profitable.