Reliance Jio plans to quickly tighten its fintech ‘DNA loop’

To record all the words ever spoken by humankind, five exabytes of storage would suffice. Telecom customers of Mukesh Ambani’s Reliance used up nearly six times as much data last quarter. As it targets 428 million subscribers with a new 5G service and seeks to lure another 300 million feature-phone users to smartphones, its challenge has changed. When Reliance Jio started out six years ago, how to sell data in a developing country was the big issue. What to sell next to someone who’s already guzzling data is the question now.

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

A successful fintech loans platform draws upon what the Bank for International Settlements (BIS) calls a self-reinforcing “DNA loop”, shorthand for data, network and activity. The digital trail people leave behind on e-commerce or social media sites can be used to bind them into a strong network, which can be harnessed to encourage borrowing activity, leading to yet more data on consumer behaviour.

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

However, Reliance’s growing heft in data-spewing consumer businesses isn’t exactly setting the stock market on fire. The shares topped out at about 30 times forward earnings two years ago; they’re currently trading at a multiple of 20. A windfall Indian tax on transportation fuels and weak refining and polymer margins are hurting the conglomerate’s legacy petrochemicals and energy operations. Which is why Ambani is spinning off Jio Financial Services Ltd—to double down on the consumer business and put some sizzle back in the stock. Investors will get one share of the new firm for every share held in Reliance. Jio Financial Services’ stock-market listing perhaps will happen quickly if the idea is also to pre-empt rival billionaire Gautam Adani. Adani’s shadow lender, Adani Capital, is aiming for an initial public offering by 2024.

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

That’s where Reliance will lean 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 conglomerate in its own right, with a presence in everything from payments and insurance to digital broking and asset management. But the basic building block will be credit: Jio Financial will hit the ground running by originating keenly priced loans to Reliance’s vast network of consumers and merchants. Now that covid moratoriums on loan repayments are in the rear view mirror, the timing is right. Bajaj Finance Ltd, a leading Indian non-bank lender, is once again back to reporting 20%-plus return on equity with resumption of growth across segments and stable credit costs.

The most profitable use of granular customer information in a country like India lies in broadening 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 unrolled his 4G telecom network, mobile phones globally had consumed 120 exabytes. By next year, Ambani’s own customers might be burning through that much data annually. Yet, as last week’s earnings report showed, even after growing by a third over two years, the average revenue per user is only a little more than $2 per month. It’s time for Reliance to put insights from buyer behaviour—from telecom to retail—to work and unlock some value for its shareholders.

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