Decoding SBI’s $40Bn Valuation For YONO: Can It Rule India’s Fintech Ecosystem?

“Yono has great potential and can even hit the $100 Bn mark….”  

One could already sense a big ‘IF’ coming as Suhail Sameer, group president of BharatPe, delved into the opportunity for SBI Yono.

“..if Yono plays its cards well,” he concluded.  

SBI Chairman Rajnish Kumar’s recent statement that Yono could have been valued between $40 Bn – $50 Bn if it were a startup has definitely raised a few eyebrows.

In December 2017, SBI launched Yono as an integrated digital banking platform. Yono (or You Only Need One) enabled retail customers to fulfil their fintech and lifestyle needs including payments, fund transfer, mutual funds, securities, ecommerce and more. Since then, Yono claims to have opened 9 Mn bank accounts, registering over 27 Mn users, and has daily active users in the region of 10 Mn. These are great numbers for an app that has plenty of competition in India in terms of disparate fintech products.

A senior SBI officer, who is closely working on Yono projects, told us, “SBI’s Yono is India’s response to the Chinese super apps like WeChat, Grab etc.” With over 80 partners, Yono today is the largest consumer platform outside ecommerce players, he said on the condition of anonymity.

In the last four years, SBI has been a harbinger among Indian public sector banks in adopting digital tools and banking. It was also instrumental in the Bankchain project, India’s first blockchain exploration consortium, which looked to help banks adopt blockchain technology. ‘Going digital has been the key priority for us to cut the operational costs, bring transparency and efficiency into our system,” our source within the company added.

This has also transpired in numbers. Speaking at the general meeting in July, this year, SBI chairman Kumar said, “38% of retail asset accounts and 60% of liability customers onboarding done through digital channels in H1FY21.”

Inspired by the success of SBI Cards IPO, Kumar has also been advocating to register Yono as a separate subsidiary. “There is a very serious thinking going on, and we are in discussions with all our partners to hive it (Yono) off as a separate subsidiary.” he had recently said.

With SBI’s market segment largely titled towards rural and semi-urban areas, Yono is targeting a different market. Is SBI Yono really a jewel worth $40 Bn – 50 Bn? With a user rating of 2.8 on the Apple App Store and 3.8 on Google Play, is the reality starkly different than what SBI Yono and its admirers might claim?

India’s Digital Banking Picture

In the last few years, the BFSI market has shifted by great margins. Rising internet penetration at decreasing cost has helped build viable digital infrastructure making ecommerce, fintech apps popular among Tier 3 and lower cities too. Demonetisation and Covid-19 have proved to be a catalyst despite their economic toll, while India Stack and Aadhaar have been the required enablers to deliver paperless financial solutions. This fundamental shift offers a significant opportunity for digital banking.

However, there are a slew of challenges, believes Kartik Jain, executive director of digital bank DBS Bank India. As one of the earliest entrants in the digital banking space, DBS has seen the market evolve in various ways. Jain said that the challenge lies in understanding a customer’s ‘jobs to be done’ and creating differentiated, seamless journeys that in a very literal sense, make banking ‘invisible’, keeping in mind the insight that customers bank to live and not the other way around.

These journeys need to be designed to deliver an experience and value proposition aligned to the target audience, taking into account regulatory requirements, Jain added.

“Banks will need to invest in design thinking with the ability to develop and deliver an engaging customer experience. The enterprise technology stack needs to exhibit resilience on the back of flexible systems and scalable infrastructure. Needless to say, as India goes digital, the future belongs to digital native banks,” Kartik Jain, executive director, DBS Bank India

Despite having multiple app launches in payments, lending and in other subsectors, banks — be it SBI with SBI Buddy, HDFC with Chillr, Payzapp — major banks have not been able to compete with the fintech apps available in the market in any significant manner.

With Yono’s good metrics, SBI has shown the courage to enter into the fintech battleground arena, but there are still a lot of things that need improvement in Yono. To start with, user experience is remarkably poor, as reflected in reviews on Play Store for the Yono app.

Yono: What’s In The Numbers?

In its July meeting, chairman Kumar remarked “YONO, there also we are seeing a lot of traction. So what has happened and that is my assessment of the situation, not everybody may agree, that in terms of the quality of the customer service, in terms of the digital technology capabilities and coupled with the fact that in any case there is more liquidity today in the system. So SBI is getting a major chunk of that and benefiting out of it.”

There is a lot that went on behind this groundwork. In order to be able to compete in the tech space, SBI adopted a completely different approach, according to those working on the Yono projects.

“So, administratively it’s part of SBI, however, there are a lot of market hires as well, working along with traditional bankers. There is a mix of cultures where some people have been hired from outside to work on the App. The knowledge pool has been merged,” said our source in SBI.

Unlike most other banks, SBI hired talents from tech startups such as AskmeBazaar, GoBazaar, Foodpanda, Ola and Swiggy alongside recruits from KPMG, Infosys, TCS and Deloitte for the tech team behind Yono.

With over 50 Mn downloads on Play Store, the app is now the fifth most downloaded mobile banking or payment app in the world. According to Sensor Tower, September 2020 stats, PhonePe, Paytm and SBI Yono have been featured among the top 10 global fintech app list with 4th, 6th and 10th rank respectively.

The SBI backing clearly has helped achieve Yono better stats than most of its competitors. Yono has been adding 70K users on a daily basis. Out of the 27 Mn users, almost 30% have been the existing borrowers of SBI. DBS Bank’s DIGIBank launched back in 2016 and currently has over 2.5M customers, doing over 15M transactions a month, which is slightly above pre-Covid levels.

The SBI Yono has currently a list of 80+ partners in 16 plus categories. Having already launched in countries like the UK and Mauritius, SBI has global ambitions for Yono and will enter nine more countries before 2021, according to our source.

So What’s Wrong With Yono?

“A critical success factor is the ability of players in the ecosystem to create customer journeys that are seamless, paperless and which solve customer needs intuitively and invisibly. DBS uses a 4D framework (Discover, Define, Develop, Deliver) while uncovering customer pain points during journey design,” – DBS Bank’s Jain

With Yono, SBI has integrated all of its digital offerings at one place saving consumers’ mobile space for not downloading separate apps such as SBI Buddy, SBI loans, SBI Securities, Mutual Funds and even apps like Amazon, Flipkart.

That’s indeed a good start; however, the product positioning and design, target segments and offerings have to do a lot of room for improvement, before Yono can make an independent impact in the market. This is also because SBI with over 23,000 branches across the country has been a brick-and-mortar bank primarily and the shift into the technology game is not easy, said multiple fintech startup founders.

Do You Really Need Only One?

In urban areas, most consumers have multiple bank accounts. Similarly, they use multiple platforms for investments, loan applications, general insurance and life insurance products. Some of the fintech apps are slowly rising to the challenge, offering users single dashboards for multiple bank accounts, and other products. Does Yono offer consumers the freedom to integrate all their bank accounts?

Yono does not provide the true integration of customer accounts, said Shailendra Agarwal, founder and CEO of neobanking startup InstantPay, which offers API integrations for third-party developers too.

“On a neo-bank, users have freedom to integrate multiple accounts from multiple banks and make payments transfers on a single dashboard. With Yono, you can’t do that.” -Shailendra Agarwal, founder and CEO, InstantPay

Agarwal added that banks share their banking APIs with neobanks and fintech apps but they don’t share their banking APIs with other banks. This is why Yono fails to provide truly integrated services.

This also adds limitations to Yono’s data. Neobanks which are able to track all the accounts of a consumer have conclusive data with regards to a consumer, more than what a bank may have. This allows neobanks to extend value-added features and products based on the data, including loans.

This is one of the key issues for which SBI plans to position Yono separately in order to be able to attract other banking systems on Yono. In fact, chairman Kumar in a recent banking conference went on to say, “There is very serious thinking going on and we are in discussions with all our partners to hive it (Yono) off as a separate subsidiary.”

“The plan is to carve SBI Cards fate for Yono. However, this might take at least another 5-7 years, SBI Cards from day one was established as a JV. In the case of Yono, it is yet to be separated and valued independently,” said the valuation expert.

Clunky Experience In SBI’s Walled Garden

With Yono, SBI’s objective is to keep its user base for itself and create a walled garden. BharatPe’s Sameer believes this is why SBI has integrated a series of services that are not typical for banking under the Yono roof. But that really complicates things for many consumers, as many of the products are not as robust and competitive as others available in the market.

“This affects the consumer experience and interface. The way Yono works is not seamless. For instance, for shopping, it takes to a separate website. Now as a user, why won’t I visit Amazon directly instead of it opening within Yono?,” Sameer said.

This has slowed down the speed as well. There are reasons why Yono is poorly rated on Apple App Store, Sameer pointed out the clunky user experience at Yono. While tapping through the various features of the app, the user keeps getting logged off.

Yono developers are yet to catch up with the pace of Android development, which is critical in the Indian market particularly for high-end users. For instance, Android 11 was launched on September 6 and there has been a developer’s preview release since February this year, but SBI Yono developers have not been able to update the app till the writing of this article for the latest version of Android.

Given that Android has nearly 95% market share in the Indian market, this is a sore oversight. Not being able to support high-quality consumers in metros who are using the latest Android version is a massive flaw. A significant number of users have not been able to open the app on their latest smartphones or after the Android 11 update. The experience could also be seen through the bad reviews that SBI Yono has received, in comparison to other players.

However, Yono is not alone in poor customer experience. India’s largest private sector bank HDFC too has been struggling with the user experience. Be it Chillr, Payzapp, or the HDFC mobile banking app, the banking apps are known to have several bugs. While Chillr is no longer showing on Play Store, following repeated complaints, HDFC launched a new mobile banking app in 2018 and discontinued the previous. HDFC’s netbanking services too had significant downtime on its app recently, which affected services for over a week.

On increasing consumer dissatisfaction, the SBI senior officer told us that the company’s top management is already looking at these shortcomings. The company is building separate offices just to address the consumer complaints and for after-sales services of Yono customers.

This is also a move towards granting more independence to Yono, as a subsidiary of SBI rather than being an integral part of SBI, but then again, Yono needs to significantly improve technical performance before it can be ready to stand on its own.

SBI Juggles Target Segment, Offerings

There’s little doubt that SBI has been instrumental in implementing India’s financial policy initiatives across various states. In the Mudra Yojana alone, in 2019-2020, SBI sanctioned INR 35,125 Cr to 36.76 Lakh accounts topping the table among leading banks. And besides this, it has been a key contributor to the various direct benefit transfer schemes as well as the PM Awas Yojana, Jan-Dhan Yojana, and so on.

A key revenue source for the SBI, government policy implementation has mostly been limited to rural and semi-urban areas only. A major chunk of these account holders either do not own smartphones or are not aware enough in order to be able to use Yono for their personal finance needs.

And, a significant number of urban users are already accustomed to private banking solutions as well as fintech apps. “So, Yono fails to get leveraged where SBI is stronger,” said the valuation expert quoted earlier.

Similarly, Yono’s offerings are not in sync with the target segment it might appeal to. For instance, most of the fintech apps in India are mostly used by people who are not older than 45 and are either young professionals in private companies or are entrepreneurs. Yono personal loans, however, do not cater to this segment as the eligibility limits it only for government, quasi-govt, PSU, selected corporates employees only.

The Double-Edged Sword Of Partnerships

 

Like Kotak’s KayMall, SBI’s Yono has partnered with over 80 ecommerce, agritech, hospitality and other companies in 16+ categories in order to enable the most diverse shopping experience for its consumers. This is in addition to a slew of fintech products available on its app. This is just the beginning, many other public sector banks such as Union Bank of India that have already been offering mobile banking apps, are also said to be working on a similar super app approach that would encompass all services under one umbrella.

The user success of SBI has clearly propelled other banks to look into this model, but again, the technical shortcomings and the viability of super apps are major unanswered questions for the moment.

SBI has positioned Yono as a lifestyle and banking platform. How does this impact the Indian fintech market which has largely been led by fintech startups?

BharatPe’s Suhail Sameer said this does not solve the problem at the core. “India’s fintech market is too underserved and diverse to have a sense of competition. Look at the low credit card penetration, the demand gap in the SME market alone is over $400 Bn, according to the World Bank. Indian market is not a winner takes all market. This is a huge market and there is room for everyone to play.”

Further, if you would look at the target groups. It is different. “In some places, we compete, in some places we partner, in some places, our strategies are just different,” Sameer added.

Such developments primarily result in a lot more partnerships. Fintech startup Cred, for example, is enabling wholesale lending for banks. This has allowed more room for partnership where the Kunal Shah-led startup helps conventional banks and lending startups reach more customers, but they don’t have them directly on their platform. The same goes for ecommerce or food or travel partnerships — who really owns the users if they are only using Yono to shop on a third-party marketplace?

Among the extensive partnerships that SBI has done with Yono are names such as Jio, Amazon, Flipkart, Ola, and Paytm. All these either have their own fintech offerings or offer competing payments products. So will SBI end up cannibalising its own customers by offering them a window to rivals? And will this super app model work when some of the partners themselves are also working on rival super apps?

Jio And SBI: A Clash Of Super Apps? 

Back in August 2018, Reliance Jio had partnered with SBI Yono, where the My Jio app would become a gateway to SBI Yono, while Jio would get access to SBI consumers to purchase smartphones directly from the company. In return, Jio had also promised to provide the bank with connectivity solutions enabling SBI for video banking and other on-demand services.

A few months ago, in April 2018, Reliance had set up Jio Payments Bank as a JV with SBI holding a 30% stake. Interestingly, the services of Jio Payments Bank were made available through SBI Yono.

Journalists Abir Dasgupta, Paranjoy Guha Thakurta in a series of articles on Reliance Jio argued that the partnership was done to benefit Reliance at the cost of SBI. Jio Payments Bank was said to be a classic case of conflict of interest with Jio possibly having access to SBI database.

Even as that unfolds, Yono is now being projected as India’s super app, but Jio is also a rival in this field. SBI’s numbers pale in comparison to Jio, which has already established a much bigger ecosystem with powerful players from across the world and to its advantage is the telecom which with 5G will only be much more powerful in the coming years.

Here, it must be noted that in contrast to SBI’s 470 Mn account holders, only a percentage of users will be able to use Yono apps, however, in the case of Jio which has a subscriber base of 406 Mn and growing, a majority of users tend to use its MyJio app, which is envisioned as the super app window in the future.

Unlike SBI’s Yono, Reliance’s MyJio has also been offering products and services in areas such as news, entertainment, games etc most of which are powered by its own sub-apps. Clearly, Jio has been successful in building India’s strongest ecosystem. However, MyJio also has its own limitations which we have to see in the context of its features and products. For instance, how many people would tend to use JioMart instead of Amazon and Flipkart. The same is the case with other offerings such as JioNews or the Jio Browser, which do not pass the eye test in a global comparison.

The Tata Group, which lost a huge chunk of its business to ecommerce players such as Amazon and Flipkart, has now announced its own super app. However, does India really have the appetite for super apps amid falling consumer spending? These super apps are primarily supplier-driven and not demand-driven, in comparison to other specialised apps that give users more freedom in terms of choice and pricing. Unless this fundamental hurdle is cleared, most super apps remain pipe dreams.

Yono’s Valuation: The $40 Bn Question

“If it was sitting outside banks, my valuation would be may be $40Bn – $50 Bn for Yono, given the valuation startups get” – Rajnish Kumar, Chairman, SBI Group

India hasn’t seen a startup valued at $40 Bn so far. A renowned valuation expert, who has worked on valuation reports for unicorns with VCs like Sequoia Capital and others in the past, told us the reality behind this towering figure.

“Paytm with over 140 Mn monthly active users records much more transactions compared to Yono. Now, if Paytm, which is also backed by some of the most reputed investors in the world, has been valued at around $16 Bn, I won’t value Yono at more than $4 Bn,” he said on the condition of anonymity.

There are a number of factors that come into play while valuing a startup. One of which is the value it creates, the number of subscribers that it generates on its own. Given the fact that most of the numbers that Yono has shown are actually driven by SBI customers and it can be disputed whether Yono has been able to generate business on its own.

For instance, Yono claims to have disbursed loans worth $3.3 Bn which is a drop in the bucket compared to SBI. There is no clarity if Yono has sold these loans independently or it is the SBI loans diverted through Yono by its sales executives. Until we have this clarity, the valuation of Yono would be lower than the figure Kumar quoted, the valuation expert emphasised.

However, given the fact that valuation is a subjective matter and there will be a difference in valuation if two different people are doing it and some might consider the SBI edge as a key contributor to the value, even then it will not exceed $10 Bn in any way, the expert claimed.

There is another counter-argument to the Yono valuation, he suggested. The stock market is the best judge of a company’s valuation.

“Look at the SBI stock price. Was there any major change after Mr Kumar referred to Yono as a jewel in SBI’s crown. Now, compare the same with the Reliance stock price, how it responded to investments in its digital business i.e Jio.”