This is an audio transcript of The Morning Brief podcast episode: Credit and more: Mukesh Ambani’s Financial Foray​

BG Sound 0:01

This is the morning brief from the economic times.

BG Sound 0:10
This kind of abundance will make intelligent analytics the need of the art. To my mind. Data is the new oil in this digital world and intelligent data or intelligence is the new petrol.

Arijit Barman 0:27
That soundbite of Mr. Mukesh Ambani is from six years ago, but just late last month, Mr. Ambani outlined his next big move to leverage this intelligence or intelligent data as he called data analytics that rests within his sprawling telecom digital media and retail empire. All consumer facing and all growing at a rapid clip. But what's this new game plan? double down on Reliance's much awaited foray into financial services. It's Friday, fourth of November. You're listening to credit and more. Mukesh Ambani's financial forey on the morning brief from the economic times Im Arijit Barman, your host

Arijit Barman 1:25
in this episode, we figure out why Mr. Ambani thinks consumer credit and merchant loans is the answer to get back some mojo in his stock. Who does he want to cater to? What's the business plan? And isn't it already a crowded market with banks, Shadow lenders and fintech companies all jostling for market and the same consumers wallet share.

Kalpana Pathak 1:56
It's an overcrowded market, but for Reliance it largely be the network or ecosystem effect. large telecom, retail digital services empire throwing up tons and tons of data all getting churned from within the Reliance retail NGO ecosystem captive and waiting to be mined as you ask the customers that Ral would be looking at. So right now ral is looking at the ecosystem of geo customers. So that's actually gathered through the telecom and retail network. Thereafter, it actually plans to expand the ambit to the general public for personal loans, including consumer durables, travel marriages, etc. It's also probably at a later stage, looking at lending to small merchants, other companies and small and medium enterprises. Interestingly Arijit the company engages with farmers through Reliance foundation. It has an arm called farm easy technologies, which provides easy financial services to farmers, farmers, collectives and agri businesses. It would also obviously when it gets into the lending business be charging a processing fee for these actions and the disbursements. As of now the retail loans the planet Ral has is that the retail loans will be granted for five years and the interest rates would be competitive. The company also plans to analyze social media content spending patterns and user data to establish linkages between the declarations made by the customers and their real financial transactions. So these are the important points that the company has strategized that it will look at and probably build on.

Arijit Barman 3:30
That's my colleague and TMB. co host Kalpana patak, an old time Reliance reporter, and she is spot on. Reliance already has millions of customers, even before a full blown launch. How on last count, there's 430 million telecom subscribers, waiting to leapfrog to JIOS latest 5g offerings. Another 300 million feature phone users who are waiting to get upgraded to using smartphones. Add to that 220 million Reliance retail customers making 250 million transactions in the last quarter alone on Reliance's sprawling shopping platforms. buy groceries, medicines, food, fashion, cosmetics, soaps and shampoos. And by the way, Reliance also connects customers with 16,000 neighborhood shopkeepers or Kirana stores so they can order grocery and everyday items online using meta platforms, WhatsApp messaging services,

Isha Ambani 4:47
yeah, all a customer really needs to do is just order away at Jio Mart butter, bread, vegetables, beverages, anything that you would need in your household that day or week. Look up a product set up a subscription for regular Buy if that's what you want, and get personalized recommendations based on your past purchase history, it's all there.

Arijit Barman 5:06
That's Isha Ambani. Mukesh's 30 year old daughter, who is driving Reliance's retail initiatives. Who's just hit the nail on its head? It's the same intelligent data that you heard Mr. Ambani talking about, at the very beginning of the show. You missed it. Listen to her carefully, one more time.

Isha Ambani 5:32
Look up a product set up a subscription for regular buy, if that's what you want, and get personalized recommendations based on your past purchase history. It's all there.

Arijit Barman 5:43
Yes, it indeed is. So now you can imagine the quantum of data that is getting generated from the millions of buyers and sellers transactions on the large online and telecom platforms like Jio, or Reliance retail. Just Jio's consumers alone have gobbled up some 30 billion gigabytes of data in just three months alone. Then imagine the insights. One can mine from that? What does a person like? or dislikes his or her passions? spending patterns, family income, family size, their shape, physical, mental and financial health? Or even one's dark desires? Or fantasies? Does she pay her mortgage mobile monthly utility bills on time? Is her husband looking for a holiday to the moon? I can go on and on and on and on. And what's the one big profitable way a company can monetize all this data and engage with its customers more deeply and for longer? Credit. It is always very, very sticky. And what is it that you can sell next to this hungry Data guzzling, but possibly unbanked Indian, or the middle class professional? financial services. loans at the cheapest rate insurance, follow it up with mutual funds, maybe even throw in wealth management solutions as she rises up her professional ladder. Sensing this massive upside in the days ahead, Mukesh Ambani is spinning out the now fledgling finance business into a separate arm.

BG Sound 7:47
That said what captured investors fancy was the board's decision to demerge and list its financial services undertaking into Reliance strategic investment, or RSIL, the firm would be renamed as Jio financial services. RSIL is currently a wholly owned subsidiary of RiL and is the Reserve Bank of India registered non deposit taking systematically important and BFC.

Arijit Barman 8:17
Financial Services can really aid Reliance geo or its retail businesses emerge as a full stack player globally from ant in China or Amazon or super apps, like Indonesia's goJek or grab, they've all achieved competitive advantage by removing redundancies in the two low margin businesses, commerce and payments in India, reliance is also looking to replicate the same and trying to be a full stack provider in the entire retail telecom value chain over time, if executed well, Reliance could really act as an end to end enabler.

Pankaj Pawar 9:02
Large part is really the deep geographical presence. And that's why what we believe is we are a truly physical and digital company in a integrated manner, which is not has been done by many of the tech companies before neither we are a telco company. But I think in our true sense, this digital physical technology company of this part of the world has been created with this sort of competencies over here. And this is what allows us to offer whether it's an entertainment payment, new commerce, the education, healthcare, agriculture, and really manufacturing led framework with this set of architectural competencies. Our consumer business is poised for significant growth opportunities that is what will chase in an accelerated manner.

Arijit Barman 9:47
That was Pankaj Pawar, Managing Director of Jioand an all hand at the group from April of 2020. That's two years back, explaining this grand vision company officials say Reliance realized almost 30 to 40% of its shoppers in retail use financing from rivals like Bajaj finance or from banks like SBI, iciCI bank or HDFC to buy items from their own stores. Point is why let others cash in and milk their own consumers when they can do it themselves. In fact, they have been offering financing themselves to Jio's feature phone buyers from 2019.

Kalpana Pathak 10:40
In fact, a lot of lending that happens right now in the market from Ril happens to Reliance retail finance limited, it already is a player in the market right now.

Arijit Barman 10:50
And when you say it's already a player in the market, it's basically if you buy a mobile phone, that if you need a loan, that's where you go to a reliance finance, it's that its main business thus far.

Kalpana Pathak 11:04
So that also actually in addition to lending, so if I'm buying consumer durables from a reliance digital store, for instance, if I'm making a big ticket purchase, of course, obviously RIL will either help me finance it or probably an EMI option, you know, to change that into EMI. So that is where this comes into place. I'm sure Ril has thought about how to leverage the geo ecosystem as well as retail and take it to the next level through the financial services.

Arijit Barman 11:31
With all the analytics in place Reliance can easily supplant credit bureaus and create its own credit scores of consumers based on their spending patterns and behavior. Just like in wireless market, where it disrupted everyone by offering free voice calls. Reliance could also potentially disrupt the business to business point of sale, or POS market by not charging any MDR to merchants.

Arijit Barman 11:58
With its 200 billion balance sheet size, it can most certainly exploit the cost of capital advantage it gets from being rated a notch higher than the Indian government and subsidize this via other businesses. Remember, merchant POS also offers value add features, like inventory management, GST compliant bills, etc, etc. Acting as a good value proposition to merchants over any traditional peers. Start offering cheaper working capital loans to Khirana owners to manage the inventory. And you have a winner in hand. On the b2c side, then you can have Jio wallets and a host of bespoke financial products. It can tie up with NBFC's banks, and offer them analytics and earn a fee of getting to lending themselves securitize that lending portfolio from time to time and churn the capital efficiently. Honestly, sky's the limit. And Mr. Ambani has been dreaming of this for years. Financial Services has always been very close to his heart, much like telecom.

Kalpana Pathak 13:13
In the year 2000, telephony that Ril actually had formed and it was called textile Synthetics Private Limited, it was actually renamed as Reliance power ventures limited in May 2000. And a week later it received an NBFC license from the RBI according to Kerr edge ratings, and this company is called Reliance retail finance limited which is a key financial services arm right now.

Arijit Barman 13:38
And he also had a JV with D E Shaw and as well as SBI payments bank joint venture, correct?

Kalpana Pathak 13:46
Yes, yes, you're right. This was actually in the year 2011. Just after the the non compete agreement between Mukesh Ambani and Anil Ambani group was annulled a year after the reliance industries formed a joint venture with global financial firm called D E Shroff for broking etc. But that actually did not take off as desired. Few years later that Mukesh Ambani's company Reliance Industries against formed a joint venture with SBI. It was a 70-30 joint venture as part of which a reliance was supposed to set up a payments bank again, that payments bank has not taken off. We had spoken earlier to SBI officials and they said that reliance is working and reworking its model. Because it's been five years since the JV formed and nothing it hasn't actually made much of a headway other than tapping into RIL zone employee base.

Arijit Barman 14:38
But so far the ambitions have remained largely that ambitions is joint venture with SBI as Kalpana was just mentioning that was inked in 2018 for a payments bank has not made much headway other than tapping into RIL's own employee base, and their five year agreement was supposed to end early next year. So a hard nosed SWOT analysis is indeed key to pick the right spots.

Kalpana Pathak 15:04
Yes, absolutely like I mentioned to you that right now to begin with this whole plan was in the works after the telecom venture came to life and from there RIL kept expanding into every other segment. If you see RIL is already present in education RIL is present in agriculture right now. RIL is present in technology. So all of these actually comes together to expand the network of offerings that RIL has through Jio and retail. It already touches 20 million consumers today through its network of services. So that gives Ril a ready base to start work for with you know against when it was it had earlier tied up with other companies. It was starting from scratch and as I mentioned to you that they plan to disburse loan up to five years, they will also be charging they have EMI systems in place. All these details the RIL has worked out and after that it has announced that it will launch Jio financial services. So in April 2020. in the thick of the pandemic the company said that it's carving financial services as a separate business unit, and would enter consumer lending insurance broking mutual fund distribution among others.

Arijit Barman 16:16
RIL's aspirations however, is not restricted to just traditional forms of finance. In 2019, Jio received an account aggregator or AA license from RBI that enables them to collect and share financial information with third parties after getting the user's consent. The information can pertain to sectors governed by the banking regulator, as well as the pension insurance and securities markets regulator, which is Sebi. It's exactly how things are playing out, or has already played out in China, Indonesia, Singapore, or far away in Argentina. And I wanted to lean on Mohan Jayaraman at this point in time partner at consultants, Bain & Company who specializes in analytics and fintech to get a sense of what's happening in the region. Is Reliance really an outlier? Mohan has been into analytics for over two decades now, first with ICCI bank, and then with global credit bureau Experian, though based in Singapore, we caught him in Jakarta, Indonesia, for a ringside chat. When you started out, you are in ICICI, bank if I'm not mistaken, was data or analytics much in woke? And how have you seen that evolve over, you know, a decade or more?

Mohan Jayaraman 17:51
Sure Arijit. It's been an absolute relief to me over the last couple of years that I don't have to introduce and reintroduce what I'm doing when I'm in social gatherings anymore. I started on analytics. And it wasn't as exciting a catchphrase as it is right now, when the the last 26-27 years that I've been in this profession, I've seen more happen in the last three years than I have seen happen in the previous 26. Perhaps, I think the context is that it's a coming together of a lot of things, a consequence of digitization, there's a lot more of data that's available movement, a cloud computing is now cheap. And it's possible to do a lot more that you weren't able to do earlier. And there's a lot more of open source software that's available, that everybody is improving that actually lets people pick up from where other people have left it rather than to have to reinvent the wheel every time.

Arijit Barman 18:41
So Mohan where and when did the tide turn towards analytics? You were with ICICI Bank, almost two decades ago? And would it be fair to say that it was in the financial services, where the true value of data insights really started to show up

Mohan Jayaraman 18:58
It was around the time that I joined ICICI bank that the field started getting a little more specialized. In the past, it was maybe a little more sporadically about building scores and so on what happened in the ICICI journey was that they were acquiring a large number of consumers. And by necessity, they had to start looking at insights that they were getting on this large consumer data flow, and try and make sense of it. So the best bit of the fact that necessity is the mother of invention, they started looking at what needed to get done, a few of us stepped up and took on the mantle. And it started honestly as putting information together in a way where people could understand it before we started realizing that you could use it for to bring insights and then move on to also being predictive with the data.

Arijit Barman 19:44
Now of course, you know the catch phrase is data is the new oil. So you know whether it's a bank, whether it's a telecom company, a FinTech company, retail company, car company, you name it. Everyone wants to mind the data And it seems that for most of them the most profitable way to monetize this consumer data is credit, or the larger financial services play. Am I correct? In my assumption,

Mohan Jayaraman 20:13
you're right, digital financial services is starting to become a much bigger engine for data monetization than anything else has in the past. In some sense, it's got to do with the fact that through digital financial services, you can establish a longer term relationship with the customer. It's a paid relationship in the sense that it's a interest bearing relationship. So there is a revenue element implicit in that flow, which is obviously useful, because a lot of the digital journey on the other space has been built around, you know, the concept of having free services, to an extent Financial Services is starting to become that sort of bedrock of what can help monetize the relationship with the consumer a little better. So it's sort of extending the chain of relationship with the consumers and lending as a first. But as you take it forward, there are other things that you can do with the consumer, which can sort of build a financial a healthy financial relationship, I'm not going to say this is the only form of monetization, but this is certainly becoming a fairly dependable form of monetization, that firms can go after.

Arijit Barman 21:10
In your capacity at Bain. In Singapore, you have insights on how the region is really moving, and monetizing the data drive? Is there a clear leader in the pack, give us your bird's eye view,

Mohan Jayaraman 21:24
there's been a reasonable equatable growth that we've seen across the region. There are some forms of technology that we've seen certain parts of the region lead, for example, AI and machine learning as spaces where big investment spaces in China, for instance, there were large FinTech firms there that are actually investing in that space. But I'd almost say that what India has done with the strong work that's happened in the data infrastructure that the government's built is nowhere far behind the fintechs that that are in the country are doing a splendid job of trying to use a technology on this data stack and make things live equally, Southeast Asia is doing a brilliant job across different countries within Southeast Asia, I think we are seeing some great things happen across Indonesia, as a sort of second largest population pocket after India in the region is leading the pack on things that they are doing in the FinTech space, in terms of utilizing the data and building something that's credible.

Arijit Barman 22:16
Absolutely. But so when you talk about Indonesia, go Jek comes to mind, Singapore, grab comes to mind, you know, who are the other such players, that would be on the top of your head, if I say who are monetizing their customer data and using it for their FinTech play.

Mohan Jayaraman 22:33
So there are categories of players, we are saying, for example, digital banks like Jago, etc, that are doing some work in the space, we are seeing, of course, the super apps in the spirit of Kojic, and so on, there is Tokopedia, there is bucola Park, there are other players who are certainly doing a lot in this space, you know, there's Shoppie, there's Lazada, I mean, all of these people have plays that are extending slowly into the finance sphere, in one way or the other. I mean, it's either been BNPL, that sort of help that made their first foray into financing, or it's been some collaboration of the new digital banking licenses that are coming out where they are participating with other players to make a play in this space. So I think it's a combination of players, but there are, you know, fairly large firms. And it's worth thinking about the fact that while poster children of the sort of newer age, there are also some age old firms that are making the transition and are doing a really good job of trying to pick up you know, what they can do in the digital space and complementing their business quite well.

Arijit Barman 23:32
Correct. SingTel, for example, in Singapore has tied up with grab and they want to increasingly focus on this whole digital play, whether it's FinTech or whether it's you know, moving beyond telecom. And in India also, I mean, the reason why we are having this conversation, reliance, which of which has always had ambitions to become a large player in the financial services play because they look at telecom and retail as an integrated play, and look at it as a digital play. I was just reading their recent press release, which made this announcement and it said a very interesting point, it said they would like to supplement the traditional credit bureau based underwriting using analytics can players like Reliance supplement credit bureaus who have been in India for long, and you think that you know, that's really possible and they will, these telcos or retailers, or other these FinTech players actually will have more competitive data on credit worthiness than bureaus, which will have more static data or episodic data?

Mohan Jayaraman 24:41
I think banking data is a really good source of predicting consumer behavior. So if you take a step back and think about lending, the ACT that implicitly requires you to figure out you know, who to lend to. One of the things that we find with alternate data is the means of picking up some of these new signals from that data that might be attributable to figuring out how well the customer might potentially pay. So for example, telco data is getting used not just in India, but throughout the region in building credit profiles for consumers. And we've seen that work quite well. In fact, for me, who was from banking, it was a absolute moment of epiphany when I saw the first telco scores that we made, and realize that they could have you know, predictability that was equal into what we saw in the traditional Bureau space. So, you know, the reality of our region also is telco penetration is much higher than banking penetration. As a consequence, telco data is much bigger than banking data at this point. So, to your point, I think, or maybe to, you know, Reliance's point as well, I certainly think that there's play there and complementality in what they can do to help build this whole space.

Arijit Barman 25:46
Because I was told that you know, that these successful FinTech platforms, they draw upon what is called the DNA loop, which is a shorthand for data network and activity,

Mohan Jayaraman 25:57
right,

Arijit Barman 25:57
and the digital trail that users, whether shoppers, or you know, telco users leave behind on an E commerce or social media, or Telecom, that can be used to, you know, bind them into strong network. And that, in turn, can be harnessed to encourage borrowing activity, leading to yet more data on consumer behavior. So you're creating a ecosystem, so to speak,

Mohan Jayaraman 26:22
Yes and, you know, to your point, I mean, we can use telco data for a lot of things, for example, just to figure out stability of the consumer, what kind of patterns they keep, you can look at their network of calls, or whether that's large, the times that they make the call. So there are multiple signals,

Arijit Barman 26:37
how many times they call a finance company in a month?

Mohan Jayaraman 26:41
I mean, hopefully not to that level of detail, which actually, though, brings a important point, Arijit which is I think all this also brings to the fore, you know, consumer data privacy regulation, that has to be looked at in parallel, it's also something that can get into the privacy destroying zone fairly quickly, if we don't keep a tab of it.

Arijit Barman 27:00
And then with this data, for example, you can go either to an NBFC or a bank and share the data and earn a fee, which I think reliance is what is planning to do or what they're also planning to do is lend from their own balance sheet

Mohan Jayaraman 27:15
fair,

Arijit Barman 27:16
or even securitize portfolio once you know, a portfolio gets built, so that they can revolve this credit on their balance sheets. So you could do a lot really, you know, with this.

Mohan Jayaraman 27:28
That's true. I mean, I'd say that that a lot of players are already playing in the space. But obviously, the fact that an entity that's also into the telco space is looking at lending will bring in synergies that I think can be used quite productively, both in terms of providing information to existing lenders, and perhaps also to build their own book.

Arijit Barman 27:48
Correct. In your experience so far, in Asia, where it's been tested out successfully, or for a much longer period. Is it largely the unbanked who are coming on to these newer platforms that are offering FinTech services like telcos and retailers, or even HNIs or, you know, wealth clients, they are moving on to, you know, these New Age companies with their new age offerings, you know, and joining the bandwagon,

Mohan Jayaraman 28:18
the additional data will give you more insights, obviously, more to the bottom of the pyramid players Arijit, Having said that, so the way to think about this is if you think about the natural income pyramid, the top of the pyramid, alternate data will add more information value to. I'd sort of argue that if these people are already banked Well, what you can get by way of additional insights, another 5%, or 6%, lift, as you would call it, on top of the insight that you already have on them, the bottom of the pyramid, this lift is much more significant. I mean, in many cases, it might be beyond the lift in the fact that you wouldn't have data on them in the traditional system, the lift is quite substantial. Now, if you add it to the fact that in a country like India, with the income growth, many of these people will enter the mass market and then on the mass affluent market, does that natural way of getting these people to enter your system and getting them to enter the financial system and helping grow with them, which I think is an opportunity.

Arijit Barman 29:11
Correct. So would you say that what is more important is actually getting the privacy laws in place? Because lines are getting fused, businesses are getting more confused, what is telco and what is a fintech? What is a bank and what is a retailer it's all fusing into one mega digital play.

Mohan Jayaraman 29:30
I think, you know, two or three lenses look at this through one is fundamentally consumers data privacy, and making sure that that's something that's getting looked at, especially in in countries, like in India, Indonesia, where a lot of these people might not be very well educated on credit health in the first place, since they are just entering it. So it's very easy for them to give consent and give away their data without even understanding what they are giving. I think the the other part to this is also making sure that there are data regulations in play data security regulations in play within the organizations to make sure that this information that's held by them is held in the right way and that they are acting as custodians of this data in good faith. So, I would think that you would see regulatory interference, if I can put it that way. interventions, if i can put it that way on both of these areas, and rightly so, I think the regulators should be getting into this space, just given the rising importance that this has.

Arijit Barman 30:25
So, last question. I mean, Reliance has, obviously, you know, started way back in 2015. It is only now that they are seriously thinking of ramping it up, what are the things they should be careful about what could potentially be the areas that Reliance needs to be wary of careful about as they double down, and, you know, scale this, this vertical?

Mohan Jayaraman 30:51
My view Arijit, it's something that new players will have to be conscious of, you know, the sort of a regulatory overlap and making sure that they are staying in the right place. From a regulation standpoint, I also think the reality of the new world is that success is not necessarily permanent, you know, certain models that you might have in play might be good play for a while, I don't think you can take it for granted that anything that you're building is going to stay forever. I think the consumer is also got more choice today, which is great. And I think that's the right order of things. But that puts a pressure on the present business models to make sure that you are staying nimble and looking at the the frontier, disrupting yourself and not necessarily getting stuck to a model that might not you know, hold you in good stead for time to come. You know, one of the realizations with the FinTech world over the last few years is scale, by itself is not something that gives you the mode, you might need to look for financial prudence as something that will also need to be looked at. Like I said, I don't think I'm talking about an institution when I'm talking about this. I'm talking about this more in the spirit of learnings that the industry has had and any player lands or otherwise will do well to look at these caveats as they are looking ahead, and I'm sure everybody is as aware of this space, and all the things that have gone right and wrong in this space. And I'm sure you know, they will keep it in mind as they are looking ahead.

Arijit Barman 32:14
My take. As I mentioned earlier, there is another bigger, subtle strategy that's at play here for Mr. Ambani almost two thirds of his profits still come from his legacy business linked to fossil fuels, and that gives him single digit return on equity, which is why several Reliance watchers say it's important to have a new growth Avenue and shift at least 10 to 15% of profits in these new growth areas like financial services. That's a 20 to 25 ROE game, and that's what the Reliance stock needs in order to sizzle. Rival Gautam Adani's flagship Adani Enterprises has come from behind in the last two years to command a much higher premium now in the stock market than Reliance. But after dealing with teething problems over technology manpower, which has hampered the vertical's growth since 2015, Mr. Ambani now needs to start firing and fire fast. The demerger news is perhaps the first step in that direction. But as Mohan said, issues around privacy regulations, black swan events, hampering the bedrock of telecom and retail operations could make the plans go alright, but a SingTel or go Jek or a grab can do it. Why can't Jio. You have been listening to credit and more. Mukesh Ambani's financial foray on the morning brief with me Arijit Barman. Thanks Mohan and Kalpana deeply appreciate it.

Arijit Barman 33:59
This episode was produced by Sumit Pande. Rajas Naik and Indranil Bhattacherjee was the sound engineers. Executive Producers, Anupriya Bahadur, Anirban Chowdhury and yours truly. we hope you liked this episode. Do share it on your social media networks. The morning brief drops every Tuesday Thursdays and Friday, and is available on Spotify, Apple podcasts, Amazon, and Google podcasts as well as Jio Saavan. do tune in to ET play our latest platform for all audio content, including the morning brief. The Economic Times is coming up with more podcasts. Do listen to the business of sports, our latest show on the economics and dynamics of the Indian sporting world. The first three episodes are already up on all the platforms for your listening pleasure. More interesting stuff is coming up. Watch this space, and stay tuned. Have a Great weekend everyone Goodbye and good luck. All clips used in this episode belong to their respective owners credits given in description

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