How Ambani will use finance to tighten the DNA loop



To record all the words ever spoken by mankind, five exabytes of storage would suffice. Indian tycoon Mukesh Ambani’s telecom customers used almost six times as much data last quarter. As the billionaire businessman targets his 428 million subscribers with a new 5G service and seeks to attract 300 million more feature phone users to smartphones, the challenge he faces has changed. When he started six years ago, how to sell data in a developing country was the big problem. What to sell next to someone already consuming data is the question now.

One answer is financial services. People will always need credit. The question of whether they deserve it – and to what extent – ​​is either left to traditional credit scoring models, which tend to exclude a large part of the unbanked population. Or, as demonstrated by Ant Group Co. in China and MercadoLibre Inc. in Argentina, creditworthiness can also be gleaned from transaction data of buyers and sellers on major online platforms. That’s where Ambani wants to go next – into a “consumer and merchant lending business based on proprietary data analytics to complement and supplement traditional credit bureau-based underwriting,” its flagship product Reliance said. industries ltd. in a Friday press release.

A successful fintech lending platform relies on what the Bank for International Settlements calls a self-reinforcing “DNA loop,” a shortcut for data, network, and activity. The digital trail people leave on e-commerce or social media sites can be used to bind them into a strong network, which can be leveraged to encourage borrowing activity, leading to even more behavioral data. consumers.

This loop is already in place for Reliance. As well as owning India’s largest telco, the conglomerate also runs the country’s largest retailer, with more than 250 million transactions last quarter across 50 million square feet of storefront space. Ambani also connects customers with neighborhood merchants so they can order groceries and everyday items online using Meta Platforms Inc’s WhatsApp messaging service.

However, Reliance’s growing weight in data-spewing consumer companies isn’t exactly setting the stock market on fire. Stocks hit about 30 times forward earnings two years ago; they are currently trading at a multiple of 20. A windfall India tax on transportation fuels and low refining and polymer margins are hurting petrochemical and energy operations inherited from the conglomerate. This is why Ambani is separating from Jio Financial Services Ltd. – to double the consumer market and put some spice back into the stock. Investors will receive one share of the new company for each share held in Reliance. The IPO of Jio Financial Services may happen quite quickly if the idea is also to get ahead of rival billionaire Gautam Adani. Adani’s fictitious lender, Adani Capital, is targeting an IPO by 2024.

Will a fast-growing retail and merchant loan portfolio be enough to impress shareholders? It didn’t quite work that way for Paytm. India’s online payments company sold eight times more loans in the June quarter than a year earlier, seeking and serving customers on behalf of lenders, and yet its shares continue to languish 70% below price at which they were sold in India’s largest IPO. November.

This is where Reliance will build on its $200 billion balance sheet and exploit the cost of capital advantage it gets from being rated a notch higher than the Indian government. Eventually, the group’s financial services business will seek to become a full-fledged conglomerate, with a presence in everything from payments and insurance to digital brokerage and asset management. But the building block will be credit: Jio Financial will start by offering loans at favorable prices to Reliance’s vast network of consumers and merchants. Now that the Covid-19 moratoriums on loan repayments are in the rearview mirror, the time has come. Bajaj Finance Ltd., India’s leading non-bank lender, is once again returning to a return on equity of over 20% with renewed growth across all segments and stable borrowing costs.

The most profitable use of granular customer information in a country like India is to expand access to credit: more than three-fifths of the adult population is either invisible to traditional scoring models or not considered worthwhile by credit institutions. Ambani has the DNA loop: In the six years before the mogul rolled out its 4G telecommunications network, mobile phones around the world had consumed 120 exabytes. By next year, Ambani’s own customers could be consuming as much data every year. Yet, as last Friday’s revenue report showed, even after growing by a third in two years, the average revenue per user is just over $2 a month. It’s time to leverage insights into buyer behavior – from telecommunications to retail – and unlock value for Reliance shareholders.

More from Bloomberg Opinion:

• India’s richest men and the $2 customer: Andy Mukherjee

• The feud that determined Ambani’s future: Andy Mukherjee

• India’s billionaire race sees one step away: Andy Mukherjee

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Previously, he worked for Reuters, the Straits Times and Bloomberg News.

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