What can Smart FD teach lenders about product innovation
Picture Credit: Stable Money
Fixed deposits have long been the bedrock of India's financial landscape, the savings vehicle our parents swore by, the asset class wealth managers suggest as the safe portion of your portfolio, and the default option for anyone looking to park excess liquidity. For decades, FD has represented everything stable, predictable, and, let's face it, somewhat boring in personal finance.
But beneath this seemingly unchanging surface, a quiet innovation is brewing.
The humble fixed deposit is becoming the surprising nucleus of financial innovation. This isn't just about marginal improvements to an old product; it’s about reimagining what traditional assets can do in a digital-first economy.
The FD's Identity Crisis: Asset or Utility?
Traditional thinking positioned FDs squarely as end products, instruments to be sold, held, and eventually redeemed. Today's innovation is challenging this fundamental assumption.
The question being asked now isn't "How do we make better FDs?" but rather "What if FDs were actually building blocks for entirely new financial experiences?"
Consider what's happening:
Credit-enabling FDs: Platforms now allow customers to open FDs and simultaneously access credit against them, effectively creating a new hybrid product category that combines savings and lending in one seamless flow.
FD-backed payment instruments: Innovative solutions enable consumers to make payments directly from their FD balances without breaking them, maintaining the interest advantages while adding liquidity.
Dynamic FD portfolios: AI-driven platforms automatically optimize FD portfolios across banks based on interest rate movements, creating "smart FD" baskets that maximize returns while maintaining the security of traditional FDs.
But this is just the beginning. Platforms like Stable Money have already launched Smart FD, which splits your FD into three parts so you can withdraw what you need and keep earning interest on the remainder. The real innovation lies in how FDs are becoming integral to completely reimagined lending ecosystems.
Lending's New Foundation: The Rise of Asset-Backed Innovation
There has been a quiet shift in the economy since the beginning of 2025. With reductions in the repo rate, a roaring push to incentivize the new tax regime that in many ways discourages investment, and steady decline in returns on deposits. The economy needs consumption and spending, leading to savings and deposits taking a backseat. This is where FD backed lending is taking an interesting turn.
The lending space is witnessing particularly vibrant experimentation with FD-based models. Here's where the action is happening:
QR codes have transformed India's payment landscape. They’re revolutionizing lending by bridging static assets like FDs and dynamic credit needs.
Here's how it works: Merchants with FDs can now access working capital instantly through QR-based systems that use their deposit assets as collateral. A shop owner with a ₹5 lakh FD can scan a QR code at their distributor, instantly accessing credit while keeping their FD intact.
This innovation addresses the fundamental tension between having savings and needing operating capital. Previously, businesses faced the painful choice of breaking their FDs or forgoing opportunities. Now they can have both security and flexibility.
The impact on India's MSME ecosystem could be transformative. With over ₹17 lakh crore in MSME deposits across the banking system, converting even a fraction into dynamic collateral would unleash massive liquidity into the economy.
Equated Daily Installments (EDI)
EDI is bringing an interesting shift in lending. Rather than traditional monthly payment structures, EDI frameworks create daily micro-repayments that better align with the cash flow patterns of small businesses and daily wage earners.
These incremental repayments can be channeled into asset-building instruments, creating a virtuous cycle: better repayment behavior leads to growing assets, enabling access to larger credit lines at better rates.
For lenders, this model reduces default risk, creates stronger customer relationships, and generates a steady pipeline of qualified borrowers with proven financial discipline.
The true genius of EDI is how it aligns incentives across the ecosystem. Borrowers build assets while improving credit access, lenders reduce risk while boosting loyalty, and the overall financial system benefits from increased formalization of savings.
Specialized Segment Innovation
Beyond these broad models, specialized implementations are taking root in high-potential segments:
Insurance Premium Financing
Some companies like BimaPay, Finsall, Mudrasree, have pioneered models in which consumers can open FDs equivalent to their insurance premiums and use the interest to partially offset premium costs. The principal remains secure while making insurance more affordable.
This creates what some call a "virtual negative interest rate" on insurance; the premium is effectively discounted while the customer maintains their asset base. For insurers, this dramatically increases policy persistence rates, solving one of the industry's most persistent challenges.
Health Financing
Health emergencies remain the leading cause of financial distress for Indian families. New models use FD-backed credit lines specifically for healthcare needs, with dynamic interest rates tied to preventative health behaviors.
A customer maintaining regular health check-ups and screenings can access preferential rates on their health credit line, while their FD continues to grow. This creates powerful financial incentives for preventative healthcare, potentially reducing the overall burden on the healthcare system.
The Big Picture: Asset Transformation, Not Just Asset Creation
What makes these innovations truly significant isn't just their immediate utility but what they represent for India's financial evolution.
The innovations around FDs highlight a broader pattern: category modification gives way to category creation. Rather than simply making incremental improvements to fixed deposits (better rates, easier account opening), innovators are creating entirely new product categories that couldn't have existed before.
This pattern of transformation rather than improvement appears to be accelerating. What other seemingly mundane financial products might be on the verge of similar reimagination? Gold? Property deeds? Insurance policies?
The future belongs to financial institutions that can see beyond traditional assets’ historical use cases to their potential as components in entirely new financial architectures.
This creates both opportunity and imperative for NBFCs and lenders. Those who continue to view traditional assets like FDs merely as competitive products will increasingly find themselves blindsided by innovators who see these assets as building blocks for entirely new financial experiences.
What traditional financial product do you think is ripe for this kind of reimagination? I'd love to know your thoughts.
Cheers,
Rajat