The digital footprints of consumers could aid Mukesh Ambani’s financial services ambitions and unlock shareholder value.
Five exabytes of storage would be sufficient to record every word ever spoken by humanity. Last quarter, Indian tycoon Mukesh Ambani’s telecom customers consumed nearly six times as much data. The billionaire businessman’s challenge has shifted as he targets his 428 million subscribers with a new 5G service and attempts to convert another 300 million feature-phone users to smartphones. When he first started out six years ago, the biggest challenge was figuring out how to sell data in a developing country. The question now is what to sell next to someone who is already consuming data.
One solution is financial services. Credit will always be required by people. Traditional credit-scoring models, which tend to exclude a large portion of the unbanked population, are left to determine whether they deserve it — and how much. Creditworthiness can also be gleaned from buyer and seller transaction data on large online platforms, as demonstrated by Ant Group Co. in China and MercadoLibre Inc. in Argentina.
Ambani’s next step is to launch a “consumer and merchant lending business based on proprietary data analytics to complement and supplement traditional credit bureau-based underwriting,” his flagship Reliance Industries Ltd. announced on Friday.
A successful fintech loans platform relies on what the Bank for International Settlements refers to as a self-reinforcing “DNA loop,” which stands for data, network, and activity. People’s digital footprints on e-commerce and social media sites can be used to connect them into a strong network that can be used to encourage borrowing activity, resulting in even more data on consumer behaviour.
Reliance already has this loop in place. Apart from owning India’s largest telco, the conglomerate also owns the country’s largest retailer, with more than 250 million transactions from 50 million square feet of storefront space last quarter. Ambani also connects customers with local merchants so they can order groceries and other necessities online through Meta Platforms Inc.’s WhatsApp messaging service.
However, Reliance’s increasing clout in data-spreading consumer businesses isn’t exactly igniting the stock market. The stock peaked at around 30 times forward earnings two years ago and is now trading at a multiple of 20. The conglomerate’s legacy petrochemicals and energy operations are suffering as a result of a windfall Indian tax on transportation fuels and weak refining and polymer margins.
That is why Ambani is separating Jio Financial Services Ltd. — to double down on the consumer business and reinvigorate the stock. Investors will receive one share of the new company for each share held in Reliance. If the goal is to beat rival billionaire Gautam Adani to the stock market, Jio Financial Services’ IPO could happen quickly.
Will a rapidly expanding consumer and merchant loan book be enough to impress investors? Paytm has had a different experience. The Indian online payments firm sold eight times more loans in the June quarter than the previous year, sourcing and servicing customers on behalf of lenders, but its shares remain 70% below the price at which they were sold in India’s largest IPO last November.
