Why is Slice merging with a bank? 🏦

The insight every fintech wants to execute on.

Oct 06, 2023

Welcome to the 186th edition of the GrowthX Newsletter. Every Tuesday & Thursday I write a piece on startups & business growth. Today’s piece is going to 94,400+ operators & leaders from startups like Google, Stripe, Swiggy, Razorpay, CRED & more

The Indian unicorn fintech slice is merging with North East Small Finance Bank & it has received the RBI approval - this is extremely rare. So why are VC backed fintechs are acquiring old banks? - Here’s the full breakdown ⬇️

This news comes at a time when RBI has denied most of baking license applications from startups in last 12 months. This even includes denied application by Navi (founded by Flipkart Founder) - as I said it’s extremely rare to grab this approval.

But, why is banking license a big deal? ✨

We'll jump to that but, if you remember, on October 31st, 2022 the RBI's new lending guidelines on digital lending stopped Slice from operating its credit card business.

slice went from issuing ~400,000 credit cards a month to 0. And the last 12 months has been full of pivots for the company. This included an uncertain future & a weakened core offering of the slice card - a credit line.

Let's understand slice’s model.
→ The app acquires customers through the UPI pitch.
→ Users get 30 day interest free loan of upto ₹5L
→ Users pay interest post the 30 day period.

Slice reached ~$100 million in revenues by lending.
The next phase of growth is constrained on 3 things. First, reduce the cost of capital it has to raise money at. Second, make the whole loan experience for customers smooth like butter. Lastly, build a strong under-writing structure to avoid a high perct of bad loans.

Slice is solving for the 2nd & 3rd on it’s own. But, that won’t make it a $1Billion revenue business. The margins of just being the middle man aren’t a lot.

Enter, the merger with North East Small Finance Bank.

As a combined entity, slice can now accept customer deposits through the bank. And the interest on these deposits will be much lesser now that Slice is sort of a bank.

This increases the margin Slice makes on every loan disbursal & opens the flood gates for it to lend even on a large scale. Better margin with added scale.

And remember to add a tint of credit on UPI. The whole credit on UPI will fuel this adoption of Slice cards (they will make a comeback with this merger), higher spending, 30 day credit solves for adoption even for non-card users & the lending piece works on top of all this - PURE DHANDA.

slice isn't alone.
Every fintech VCs across the board have backed a number of banks just to solve for getting a potential tie-ups for their portfolio companies. This solves game of building a really large retail fintech revenues.

I'm wondering what made RBI approve this.
It's extremely rare - can't stress that enough. Interesting times for everyone in fintech & especially for every single small finance bank- there are total 11 out there. Expect a frenzy of tie-ups, partnerships, mergers and maybe, just maybe a buyout.

That’s all on the Slice <> Small finance bank story.