How Jio Plans To Disrupt The Financial Sector

India’s largest conglomerate Reliance Industries Limited (RIL) recently demerged its financial services business, Jio Financial Services.

The company is being valued at nearly Rs 160,000 crore and has a net-worth of Rs 1 lakh crore through its holding of 6 per cent of Reliance’s business.

The size of its net-worth alone puts it in comparison with some of the largest banks in the country, and leaves other non-banking financial services (NBFC) companies far behind. A large net-worth base would also allow the company to borrow more compared to its peers.

The company is expected to enter all avenues of financial services such as loans, asset management, insurance and other. It has already declared its intent to enter the asset management with Blackrock, with each partner investing $150 billion each.

The high valuation placed by the markets on the business is a sign that the markets are optimistic about Reliance’s ability to convert Jio Financial Services into a financial juggernaut.

So far, Reliance has managed to become the dominant player in several segments such as energy, retail, and telecom — a feat that investors expect Jio to achieve in financial services as well.

Financial services have been on Reliance’s mind for a long time, and it had applied for the payments’ bank license in 2015. This license was acquired just a year before it launched its Jio telecom services.

In hindsight, Reliance was already planning to use the troves of data it would acquire through the Jio platform and turn it into a business.

Since the launch of Jio, Reliance not only has access to customer data from its telecom business, but also from its retail and B2B business.

Reliance’s B2B business, which is conducted through JioMart and recently acquired MetroB2B, ensures that Reliance has access to the buying patterns of tens of millions of small and medium business owners. Hence, B2B credit could be one of its first points of attack.

This is precisely what one of its rivals in the B2B space, Udaan, has done. While Udaan started as a platform that wanted to replace distributors and help shopkeepers buy directly at a lower cost, it soon started lending to merchants on its own book.

Udaan’s lending arm, Udaan Capital, has disbursed upwards of Rs 4,000 crore worth of loans in the last two years.

With Reliance’s reach and deeper pockets, it would have access to a larger number of merchants across India — allowing it to scale up much faster than other companies.

A quick scour through recruitment portals and job related platforms suggest that Reliance is serious about it B2B lending ambitions and has been hiring talent for this business segment.

On the B2C side, Reliance currently partners with external financing providers for purchases at its stores — while other NBFCs are dependent on access to retail networks to sell their products.

Its large store network, which makes up nearly 3 per cent of India’s retail business, is available for the company to grow a retail financing business. In addition, its “super-app” MyJio’s presence across its telecom network base offers it easy access to consumers as well.

Reliance’s joint venture (JV) with Blackrock has received attention recently.

BlackRock, which is the largest asset manager in the world, had left India in 2018. The two companies will pour in Rs 1,200 crore each into the venture.

Over the years, BlackRock has become synonymous with passive fund management, as its active fund management business hasn’t kept pace. Whether the JV entity will stick to BlackRock’s low-cost passive investing style or engage in active fund management remains to be seen.

So far, foreign companies have found it difficult to survive in the Indian environment, and several asset management companies have exited the India market altogether.

Most of these have been unable to connect with retail investors, who form a bulk of the high-margin equity fund business (nearly 90 per cent). The most successful companies in the space are the ones with a strong retail connect though channels like distributors and banks — the top three are subsidiaries of banks.

Small funds can often find it difficult to survive since the costs, apart from commissions, are largely fixed in nature.

Reliance’s brand awareness and access to consumers, along with BlackRock’s experience in asset management could help the entity compete with established asset management players.

The amount to be invested in the business, Rs 2,400 crore is much larger than the minimum net worth of Rs 150 crore that a mutual fund sponsor should have.

The entity seems to have grand ambitions for its asset management business. However, the asset management business has seen a large proliferation of new funds in the last two years.

India’s strong markets have attracted many Indian companies, including brokers, distributors, and fin-tech firms that want a share of the business.

Clearly, Reliance is well-placed to capitalise on India’s financial space with its strong penetration in the B2B and B2C segments. However, it still faces competition from incumbents who have years of experience and more niche brand awareness.

However, Reliance has often spent years in preparation for launching new businesses, and despite being a late-entrant often emerged as a top player.