Digitisation has disrupted payments. It has disrupted lending too. But deposits have mostly been left out of the digital transformation across Indian financial services.
Setu, a technology company that builds API (application programming interface) infrastructure—software bridges between financial services companies—is trying to bring digitisation into the deposits space, starting with fixed deposits.
“The digital element on the bank liabilities (deposits) side was missing, even though lending had gone digital,” said Krishna Hegde, head of strategy at Setu. “So, we tried to work a way to find out if we can democratise fixed deposits, enable people to get FDs in a frictionless manner without having the constraints of opening a transaction account.”
Fixed deposits make up over half of the total deposit base of Indian banks. Also known as term deposits in industry parlance, they allow customers to earn a fixed interest over a specified tenure, usually ranging between a week to years. Premature withdrawals typically attract a penalty.
What’s So New?
A common practice is that a customer prefers to start a fixed deposit in the same bank they already have a savings or a current account. For booking an FD online, the customer can either go to their bank’s app or website and sweep in a part of the funds lying in their transaction account into a term deposit. The same can be done at a bank branch.
“For opening a fixed deposit account in a particular bank, the customer also had to open a savings or current account with them. So, the first thing we are trying to do for the customer is unbundling these two problems,” said Nikhil Kumar, co-founder and chief evangelist at Setu.
The fixed deposit API, Hegde said, also allows intermediaries to distribute bank fixed deposits as an investment product for the first time ever. “So far, bank FDs as a product was kept within the bank’s boundaries, but we are going to change that as fintech apps can now offer FDs just like any other investment product such as mutual funds or insurance,” said Hegde.
Allowing customers to book fixed deposits online would also give them an option to choose between the different interest rates offered by banks. “We found that there was a lot of disparity in the FD rates offered by banks, which was despite the fact that all deposits of up to Rs 5 lakh are insured,” said Hegde.
Currently, fixed deposits in the country’s largest bank, State Bank of India, offer interest rates between 2.9% and 5.4% depending on the investment tenure, while some of the other top private sectors banks such as HDFC Bank, Axis Bank and ICICI Bank offer rates between 2.5% - 5.5%, and Kotak Mahindra Bank offers between 2.5% - 4.9%.
The interest rates offered by large banks are much lower than some of the newer lenders. For instance, Equitas Small Finance Bank offers up to 7%, AU Small Finance Bank offers up to 6.75%, Ujjivan offers up to 6.5% and Jana Small Finance Bank offers rates even up to 7.5%.
How It Works
Setu’s fixed deposit API, in its initial run, would be integrated with online wealth management and payment apps, allowing their customers to book fixed deposits using a single interface across multiple banks. Besides, the payment can be made using a unified payments interface.
“Think about this as UPI for deposits,” said Hegde. The idea, he said, is to have “a multi-app partner ecosystem on which we build APIs and reach the end customer.”
At Setu’s end, the firm would independently partner with multiple banks and NBFCs and put them together on a single API set, which could then be integrated with any online app, including digital payment, wealth management, e-commerce, and lending apps. “This way the user experience is standardised and they are just exposed to the partner online app like Google Pay, WhatsApp Pay or Groww, just the way it is for UPI,” he added.
Besides UPI, Setu also plans to allow other electronic payment modes such as NEFT, RTGS and IMPS for transactions.
In terms of know-your-customer requirements, the customer is required to enter their Aadhaar card and permanent account number details on the partner app, and after confirming those details through a one-time password, their fixed deposit is booked within 24 hours. The KYC could be done both, in the offline mode and via video.
However, at the back-end, the customer’s details are checked manually by the destination partner bank. “So, there is a human check that happens after booking the FD and say, if the name on a customer’s Aadhaar card does not match the name on his source bank account, it is likely that the FD will get rejected after 24 hours,” said Hegde.
Setu, a technology company that builds API (application programming interface) infrastructure—software bridges between financial services companies—is trying to bring digitisation into the deposits space, starting with fixed deposits.
“The digital element on the bank liabilities (deposits) side was missing, even though lending had gone digital,” said Krishna Hegde, head of strategy at Setu. “So, we tried to work a way to find out if we can democratise fixed deposits, enable people to get FDs in a frictionless manner without having the constraints of opening a transaction account.”
Fixed deposits make up over half of the total deposit base of Indian banks. Also known as term deposits in industry parlance, they allow customers to earn a fixed interest over a specified tenure, usually ranging between a week to years. Premature withdrawals typically attract a penalty.
What’s So New?
A common practice is that a customer prefers to start a fixed deposit in the same bank they already have a savings or a current account. For booking an FD online, the customer can either go to their bank’s app or website and sweep in a part of the funds lying in their transaction account into a term deposit. The same can be done at a bank branch.
“For opening a fixed deposit account in a particular bank, the customer also had to open a savings or current account with them. So, the first thing we are trying to do for the customer is unbundling these two problems,” said Nikhil Kumar, co-founder and chief evangelist at Setu.
The fixed deposit API, Hegde said, also allows intermediaries to distribute bank fixed deposits as an investment product for the first time ever. “So far, bank FDs as a product was kept within the bank’s boundaries, but we are going to change that as fintech apps can now offer FDs just like any other investment product such as mutual funds or insurance,” said Hegde.
Allowing customers to book fixed deposits online would also give them an option to choose between the different interest rates offered by banks. “We found that there was a lot of disparity in the FD rates offered by banks, which was despite the fact that all deposits of up to Rs 5 lakh are insured,” said Hegde.
Currently, fixed deposits in the country’s largest bank, State Bank of India, offer interest rates between 2.9% and 5.4% depending on the investment tenure, while some of the other top private sectors banks such as HDFC Bank, Axis Bank and ICICI Bank offer rates between 2.5% - 5.5%, and Kotak Mahindra Bank offers between 2.5% - 4.9%.
The interest rates offered by large banks are much lower than some of the newer lenders. For instance, Equitas Small Finance Bank offers up to 7%, AU Small Finance Bank offers up to 6.75%, Ujjivan offers up to 6.5% and Jana Small Finance Bank offers rates even up to 7.5%.
How It Works
Setu’s fixed deposit API, in its initial run, would be integrated with online wealth management and payment apps, allowing their customers to book fixed deposits using a single interface across multiple banks. Besides, the payment can be made using a unified payments interface.
“Think about this as UPI for deposits,” said Hegde. The idea, he said, is to have “a multi-app partner ecosystem on which we build APIs and reach the end customer.”
At Setu’s end, the firm would independently partner with multiple banks and NBFCs and put them together on a single API set, which could then be integrated with any online app, including digital payment, wealth management, e-commerce, and lending apps. “This way the user experience is standardised and they are just exposed to the partner online app like Google Pay, WhatsApp Pay or Groww, just the way it is for UPI,” he added.
Besides UPI, Setu also plans to allow other electronic payment modes such as NEFT, RTGS and IMPS for transactions.
In terms of know-your-customer requirements, the customer is required to enter their Aadhaar card and permanent account number details on the partner app, and after confirming those details through a one-time password, their fixed deposit is booked within 24 hours. The KYC could be done both, in the offline mode and via video.
However, at the back-end, the customer’s details are checked manually by the destination partner bank. “So, there is a human check that happens after booking the FD and say, if the name on a customer’s Aadhaar card does not match the name on his source bank account, it is likely that the FD will get rejected after 24 hours,” said Hegde.
“The customer gets an FD account in the partner bank that stays for the period till their FD matures or redemption happens. And this is great for customers, as they are not compelled to make any long-term arrangement with a bank, just for booking an FD,” said Hegde.
Once the deposit matures, the amount is transferred back to the source bank account of the customer. In case, the customer needs to withdraw from the fixed deposit account before it matures, there is also an option of instant redemption, in which case the standard 1% penalty on the interest rate would apply.
In its initial phase, the Setu API will go live with Equitas Small Finance Bank as its sole partner, by late January or early February. Within three months of going live, Hegde said, they will also look to partner with AU and Ujjivan small finance banks. The minimum amount for booking a fixed deposit has been kept at Rs 10,000.
To be sure, Equitas already offers a similar product, Selfe, for booking fixed deposits online via UPI, which the bank claims, allows customers to book an FD online within three minutes, using Aadhaar number and PAN card for authentication. The product offers returns of up to 6.6% on an annual basis for up to one-year maturity, for investments between Rs 5,000 and Rs 90,000. On maturity, the principal and interest amount is credited to the designated bank account of the customer.
“Equitas is one of the first banks to offer a straight-through digital FD product in the market. Young and tech-savvy individuals would find this product to be most appealing and with partners like Setu, we look to jointly create a seamless customer experience for users,” said Murali Vaidyanathan, president and country head at Equitas Small Finance Bank.
Even as it launches through wealth management and payment apps in its first phase, Setu has bigger plans.
“Our goal is to build a product that keeps innovating on deposits. So, we start with retail FDs, move to recurring deposits, then FDs for MSMEs (micro, small and medium businesses) and large corporates, and at some point, even treasury management for individuals and corporates,” said Kumar.
Easier Said Than Done
While the Reserve Bank of India does not disallow banks from getting into fee-based arrangements with business facilitators or correspondents to offer banking services, customers should not be charged any fee for the same.
Further, banks are also not allowed to provide any incentives such as prizes, lottery or free trips to attract customers into any deposit mobilisation schemes or issue any kind of advertisements or literature soliciting deposits, except highlighting the return on term deposits.
“Ideally, such a product can and should be provided by banks, but since it is being provided by a third-party technology firm, its usefulness will be tested through actual user experience,” said Rajnish Kumar, former SBI chairman. The Setu API set, he said, should not focus solely on providing higher interest rate deposits to customers, but also try to provide a seamless user experience in case the customer wants a loan on that FD or wants an early redemption.
While this can work within the regulatory ambit, the partner banks must comply with all the required KYC norms and anti-money laundering guidelines, said Kumar. “They should also ensure that customers are not induced in any manner to buy the bank’s term deposits.”
To quell any money laundering concerns, Hegde said that a digital trail is made on the account transfers and, upon redemption, the money is transferred back to the source account to capture the movement of funds. Further, all the KYC norms as with opening any new bank account are met, while the customer data is encrypted and never made visible to the intermediary online app.
The product may find demand due to a better customer experience, according to Akhil Handa, who heads the fintech, mobility and digital lending department at Bank of Baroda.
“While customers may look to move part of their deposits around digitally to draw advantage of the interest arbitrage, there seem to be open questions around the absence of enabling regulation on agency relationships for the placement of deposits,” he said.
“I do think issues around establishing the KYC of the customer and making sure there is an audit trail around the deposits are also important. Similarly, the platforms (online apps) which will own the customer connect for placement of FDs are currently not envisaged to be regulated, which may have to be relooked for this proposition to attain a certain scale,” he added.
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