Reliance Jio plans to quickly tighten fintech ‘DNA loop’

One answer is financial services. People need credit. Whether they deserve it—and how much—is either left up to traditional credit scoring models, which tend to exclude much of the unbanked population. Or, as has been demonstrated by Ant Group in China and MercadoLibre in Argentina, creditworthiness can also be derived from buyers’ and sellers’ transaction data on major online platforms. That’s where Reliance wants to move forward: into a “consumer and merchant lending business based on proprietary data analytics to complement and supplement traditional credit agency-based underwriting,” according to the press release.

A successful fintech lending platform is built on what the Bank for International Settlements (BIS) calls a self-reinforcing “DNA loop”, short for data, network and activity. The digital trail people leave on e-commerce or social media can be used to tie them into a strong network, which can be leveraged to encourage lending activity, leading to even more data on consumer behavior.

This loop is already in place for Reliance. Apart from owning India’s largest telecom company, it also runs the country’s largest retailer, with more than 250 million transactions last quarter from 50 million square feet of retail space. Ambani’s firm also connects customers with neighborhood shopkeepers so they can order groceries and groceries online using Meta Platform’s WhatsApp messaging service.

However, Reliance’s growing heft in consumer data-dispersing businesses isn’t exactly setting the stock market on fire. The shares peaked at around 30 times forward earnings two years ago; they currently trade at a multiple of 20. An unexpected Indian tax on transportation fuel and weak refining and polymer margins are hurting the conglomerate’s legacy petrochemicals and energy businesses. That’s why Ambani is spinning off Jio Financial Services Ltd — to double down on its consumer business and put some buzz back into the stock. Investors will get one share of the new firm for every share held in Reliance. Jio Financial Services’ IPO may happen quickly if the idea is also to preempt rival billionaire Gautam Adani. Adani’s shadow lender, Adani Capital, is aiming for an IPO by 2024.

Will a rapidly growing consumer and purchase loan book be enough to impress shareholders? It hasn’t quite worked out that way for Paytm. The Indian online payments firm raised eight times more loans in the June quarter than a year earlier, sourcing and servicing clients on behalf of lenders, yet its shares continue to slide 70% below the price at which they were last sold in India’s biggest initial public offering. November.

That’s where Reliance will lean on its $200 billion balance sheet and leverage the cost-of-capital advantage it gets from being rated a notch higher than the Indian government. Eventually, the group’s financial services will seek to become a conglomerate in its own right, with a presence in everything from payments and insurance to digital brokerage and asset management. But the fundamental building block will be credit: Jio Financial will hit the ground running by providing high-priced loans to Reliance’s vast network of consumers and merchants. Now that covid moratoriums on loan repayments are in the rearview mirror, the timing is right. Bajaj Finance Ltd, a leading Indian non-bank lender, is back to reporting 20% ​​plus return on equity with resumed growth across segments and stable credit costs.

The most profitable use of detailed customer information in a country like India lies in expanding access to credit: More than three-fifths of the adult population is either invisible to traditional scoring models or not considered worth the trouble by lending institutions. Ambani has the DNA loop: In the six years before the tycoon rolled out his 4G telecom network, mobile phones globally had consumed 120 exabytes. By next year, Ambani’s own customers could burn through that much data annually. Still, as last week’s revenue report showed, even after growing by a third over two years, average revenue per user is just a little more than $2 per month. It is time for Reliance to put insights from buyer behavior – from telecom to retail – to work and unlock value for shareholders.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrials and financial services in Asia