Bengaluru, Sept. 10 -- Mid-sized private-sector banks and small finance banks are turning to fintechs to offer payment services to merchants, seeking to capture a relationship that has traditionally belonged to larger acquiring banks-and earn from the transaction flows that come with it.

Banks, including Ujjivan Small Finance Bank, Jana Small Finance Bank, CSB Bank and Karnataka Bank, have approached fintechs such as Pine Labs, Cashfree Payments and Phi Commerce to build such capabilities, according to three people aware of the discussions.

The collaboration is aimed at retaining merchants whose payment transactions and resulting deposits have traditionally been routed through payment gateways and their partner acquiring banks, many of ...