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.