SUMMARY
Jio Financial Services is likely to take time to scale and doesn’t have the cheapest access to capital, BofA said
The note also added that consumer lending will be the initial focus segment and lack of services in the area leaves good opportunity for Jio Financial Services
The demerger of RIL’s financial services business and the spin-off of Reliance Strategic Investments as Jio Financial Services Ltd took place earlier this week
Consumer durable lending, merchant lending, buy-now-pay-later (BNPL), asset management, and insurance space could be the focus areas for Jio Financial Services, said Bank of America Securities (BofA) in a note.
This is likely to put the company in direct competition with many fintech startups.
As per BofA, consumer durable lending could be one of the initial focus segments for the company, as a captive user base is already taking credit for buying electronic items at Reliance Retail stores.
However, Jio Financial Services is likely to take time to scale and doesn’t have the cheapest access to capital, as per the note.
The note also added that consumer lending will be the initial focus segment. While beyond the top 10% merchants, not many are well-serviced by banks/traditional companies, it leaves a good opportunity for Jio Financial Services.
“We think there is a huge opportunity in wholesale lending to retailers/vendors, etc., as it is working capital heavy and many of these companies are cash flow constrained,” it said.
Moreover, asset management could be one of the differentiator factors for Reliance Industries Limited (RIL) with its likely focus being more on passive investment versus active.
“JFS could try to distribute insurance through RIL’s network/feet on the street team rather than depending on traditional distributors. This could help them reduce costs, which could be partially passed on (to) the consumers as well,” it added.
While there are multiple opportunities for JFS, there could be some gestation period before JFS gains traction, the report said. Before emerging as a significant rival to existing NBFCs, Jio Financial Services would need to go through this learning curve.
Reliance Industries Limited (RIL) announced the demerger of its financial services business and the spin-off of Reliance Strategic Investments as Jio Financial Services Ltd in October last year. The business was demerged earlier this week.
While announcing the demerger, RIL had said that the financial services company would launch a consumer and merchant lending business based on proprietary data analytics to “complement and supplement the traditional credit bureau-based underwriting”.
“FSL (Jio Financial Services Limited) and its subsidiaries (“JFS”) will leverage the technology capability of Reliance and focus on digital delivery of financial products to democratise financial services access for 1.4 Bn Indians,” the Ambani-led conglomerate said.
The latest development comes at a time when a number of fintech startups have come out with digital lending offerings to shore up their revenue streams. In the merchant lending space, Jio Financial Services will compete with the likes of Paytm and PhonePe, while it will take on Simpl, Kunal Shah-led CRED, among others, in the BNPL space. While there are no clear details about Jio Financial Services’ plans for the insurance sector, it may end up competing with the startups in the insurtech space.
