Decoding Jio Financial Services: How Reliance Can Shake Up India’s Fintech Landscape

As expected, Reliance (RIL) chairman Mukesh Ambani outlined the grand plan for Jio Financial Services at the conglomerate’s 46th annual general meeting. From payments to insurance to investment tech, JFS is set to disrupt several key fintech segments and pose a significant threat to existing players — both startups as well as legacy BFSI companies.

Jio Financial Services was demerged from RIL in July and became a publicly listed entity in late August. However, it has not had the best of starts as a public company, hitting the lower circuit for five straight sessions before gaining at the end of last week (August 25, 2023).

Interestingly, hours before the AGM, JFS stock saw a brief rally, but the stock fell below its opening price at the end of the trading on Monday (August 28, 2023). Currently, JFS shares are trading at INR 211.65 apiece, with the company’s market cap settling at INR 1.34 Lakh Cr.

Despite the initial hiccups on the stock market, Ambani claimed that JFS has become the world’s highest capitalised financial services platform at inception, and called this financial safety net as one of the key potential success factors for JFS.

All this makes ominous reading for India’s fintech startups, which have so far banked on Reliance Jio’s internet services as a growth ladder. But now, startups not only have to solve the revenue puzzle that has plagued fintech for long, but also compete with a giant such as JFS, backed by Reliance’s technological prowess, retail network and significant reach in the Indian market.

Jio boasts of over 439 Mn subscribers, while Reliance Retail has close to 250 Mn registered customers and 3 Mn merchants, according to the company’s FY23 annual report. These will be the anchors for scaling up Jio Financial Services over the next few quarters.

We know that JFS has already had an impact on the competition, even without any depth of operations right now. Soon after the public listing, shares of fintech giant Paytm saw a dip despite gaining for several weeks.

BFSI is a highly competitive space for retail investors and as such the entry of JFS is likely to eat into the potential investments in the likes of Paytm, Policybazaar (PB Fintech), Fino Payments Bank and others.

For fintech startups, the next few months will involve plenty of rethinking and many of them are likely to push on with product plans that have been sitting idle. Given that JFS will most likely lean on the twin pillars of Reliance Retail and Jio for growth and scale, fintech startups have their work cut out.

JFS Takes On Zerodha & Co

Reliance’s plans in the asset management space have received the most clarity in the early days of Jio Financial Services.

The company has signed a joint venture with the world’s largest asset manager BlackRock to take a bet on India’s $540 Bn mutual fund industry, dominated by the likes of SBI, ICICI, and HDFC.

BlackRock CEO Larry Fink was on hand at the AGM to talk about how Jio-BlackRock is poised to disrupt the AMC space. Fink pointed out that BlackRock has built extensive capabilities in the Indian market and the JV with Jio will unlock several more investment opportunities for millions of Indians.

Jio-BlackRock is also expected to pose a significant threat to startups such as Zerodha, Paytm Money, INDMoney and Groww in the investment tech space.

Indeed many of these startups do not have an AMC licence (Zerodha, Groww being exceptions) and therefore are restricted to earning commissions as brokerages rather than a bigger chunk of the revenue from investments in mutual funds. AMCs typically charge a management fee based on the asset percentage, while brokerages generally charge per trade or offer flat-fee accounts.

Will Jio Finally Crack Payments Game? 

Besides the investment tech space, Ambani also pointed out that Jio Financial Services would be offering payments services for consumers and merchants, and also claimed that Jio would deploy blockchain solutions to make payments more secure and would also foray into services built around Central Bank Digital Currency (CBDC).

“In payments, JFS will consolidate its payment infrastructure, with a ubiquitous offering for both consumers and merchants further driving digital adoption for India. JFS products will not just compete with current industry benchmarks, but also explore path breaking features such as blockchain-based platforms and CBDC,” the chairman said.

While Ambani did not reveal much more about the payments business under JFS, we know that this will centre around Jio UPI and Jio Payments Bank, along with payments aggregator and payments gateway services.

Reliance is also reportedly testing a soundbox payment system which will be central to its plans to compete with payments apps. JFS’ payments business will directly take on a host of fintech companies in India — from PhonePe and Paytm to Google Pay and Amazon Pay, as well as the likes of CRED, WhatsApp Pay and others.

Despite launching UPI services in 2020, Jio has not made much dent in the market share so far. Jio’s app and the payments bank processed 1.34 Mn transactions in July 2023, with a total value of INR 114.12 Cr. Currently, Jio’s UPI services are available through the MyJio app as well as Jio Payments Bank portals. The company is likely to launch a dedicated app to push its payments services wider.

Jio’s payments volume pale in comparison to the likes of PhonePe, Google Pay and Paytm, the three largest UPI apps. For context, PhonePe processed 4743.66 Mn transactions in July 2023, with a total volume of over INR 7.6 Lakh Cr. So Jio has a long way to go before it can directly take on these UPI apps.

With 249 Mn+ Reliance Retail consumers, the JFS payment layer will allow Reliance to scale up rapidly and gives the company a goldmine of data to build features and allied services.

A Major Threat For Insurtech Players

On the insurance side, as speculated, Jio FInancial Services will launch products in the general insurance, health insurance, and life insurance space, partnering with global players, Ambani claimed. Ambani emphasised that the insurance platform will be digital in nature, but did not reveal much more about what consumers or businesses can expect.

As per recent reports, JFS is also planning to offer full-fledged insurance services starting 2024. Jio Financial is readying plans to approach the Insurance Regulatory and Development Authority of India (IRDAI) to apply for a licence.

The conglomerate has reportedly set aside a capital of INR 1,000 Cr for each of these insurance segments. Apart from traditional players such as Life Insurance Corporation of India (LIC), HDFC, ICICI Group and a host of other bank-led insurance plays, Jio Financial Services would also be rivalling digital-first insurance startups such as IPO-bound Go Digit, Acko, InsuranceDekho, and Navi Insurance, as well as aggregators (Policybazaar et al).

As per a report, the life insurance penetration in the country stood at a mere nearly 3% while non-life insurance penetration was much lower at 1% in financial year 2021-22 (FY22). The under-penetration of insurance offers an attractive proposition for Jio Financial Services, which could leverage Jio’s digital infrastructure, Reliance Retail’s business and partner network as well as Reliance’s healthcare plays to dominate the segment.

JFS To Eat Fintech Lending Pie?

The fintech sector is already besieged with high competition and low revenue potential in the payments segment and almost all players are only seeing revenue traction from lending operations.

Consumer durable lending, merchant lending, buy-now-pay-later (BNPL) are likely to be the key focus areas for JFS at the outset, according to a Bank Of America report. Consumer durable lending could be the initial focus for the company, as it has a captive user base that is availing credit for buying from Reliance Retail’s electronics store chain Reliance Digital.

On the other hand, BofA also stated that Jio Financial Services is likely to take time to scale up its lending play and doesn’t have the cheapest access to capital. However, the opportunity is undeniable. Beyond the top 10% merchants, not many are well-serviced by banks, digital lenders or traditional companies, which opens up a major 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,” BofA said in its note in July about Jio Financial Services.

Will Jio Financial Services Go The M&A Route?

In the past, we have seen Reliance look to dominate new verticals with a mix of capital-led growth and inorganic acquisitions. The acquisitions of Urban Ladder, MilkBasket, Zivame, JustDial, NetMeds and other startups allowed Reliance Retail to grow rapidly in various verticals.

With the exception of some unicorns and listed giants, many startups are struggling with revenue growth and JFS could use its deep pockets to acquire some of these ailing startups.  Startups have faced regulatory headwinds, a funding winter (save for the likes of PhonePe) and Reliance’s mega entry will only deepen the wounds of the sector. Of course, these are still early days for JFS, but the threat to fintech startups cannot be understated.