How Mukesh Ambani will tighten DNA loop using finance
The Bank for International Settlements refers to a self-reinforcing “DNA loop,” which stands for data, network, and activity, as the foundation of a successful fintech loans platform. People can be connected to one another through the digital footprints they leave on social media and e-commerce platforms, which can then be used to foster borrowing activity and gather more information on consumer behaviour.
Five exabytes of storage would be sufficient to store all of the words ever uttered by humans. Last quarter, the telecom consumers of Indian entrepreneur Mukesh Ambani consumed almost six times as much data. The task facing the multibillionaire entrepreneur has shifted as he targets his 428 million members with a new 5G service and looks to convert another 300 million feature-phone users to smartphones.
The main problem when he first started out six years ago was how to market data in a developing nation. The dilemma at hand is what to sell to someone who is already consuming data.
Financial services are one response. Credit will always be needed. It is up to existing credit-scoring formulas, which frequently ignore a sizable portion of the unbanked population, to determine if they deserve it and how much. Or, creditworthiness may also be determined from data on buyers’ and sellers’ transactions on substantial online platforms, as has been proved by Ant Group Co. in China and MercadoLibre Inc. in Argentina. According to a press release from his parent company Reliance Industries Ltd. on Friday, Ambani intends to move on to a “consumer and merchant loan business based on proprietary data analytics to complement and enhance the traditional credit bureau-based underwriting.”
How Mukesh Ambani will tighten DNA loop using finance
The Bank for International Settlements refers to a self-reinforcing “DNA loop,” which stands for data, network, and activity, as the foundation of a successful fintech loans platform. People can be connected to one another through the digital footprints they leave on social media and e-commerce platforms, which can then be used to foster borrowing activity and gather more information on consumer behaviour.
For Reliance, this loop is already in place. The company not only owns the biggest telco in India, but it also manages the biggest retailer, with more than 250 million transactions made over 50 million square feet of storefront space in the most recent quarter.
Additionally, Ambani links users with nearby shopkeepers so they can use the WhatsApp messaging app developed by Meta Platforms Inc. to place online orders for groceries and other necessities.
Reliance’s expanding influence in data-spreading consumer sectors, though, isn’t exactly igniting the stock market. The shares reached their peak two years ago at almost 30 times forward earnings; today, they are trading at a ratio of 20. The conglomerate’s historic petrochemicals and energy industries are suffering from a windfall Indian tax on transportation fuels as well as dismal refining and polymer margins. Because of this, Ambani is separating Jio Financial Services Ltd. in order to focus more on the consumer market and revive the stock. For each share of Reliance an investor has, they will receive one share in the new company. If the goal is to also beat off rival billionaire Gautam Adani, Jio Financial Services’ IPO may come fairly rapidly. By 2024, Adani Capital, the shadow lender for Adani, plans to become public.
Will shareholders be impressed by a rapidly expanding book of consumer and merchant loans? For Paytm, it hasn’t exactly gone that way. The Indian online payments company, which sources and services consumers on behalf of lenders, sold eight times as many loans in the June quarter as it did a year earlier, but its shares are still trading 70% below the price at which they were offered in India’s largest IPO last November.
Reliance will rely on its $200 billion balance sheet in such situation and take advantage of its lower cost of capital as a result of being rated higher than the Indian government. Once the group’s financial services division has a presence in everything from payments and insurance to digital broking and asset management, it will eventually aim to become a conglomerate in and of itself. But credit will be the fundamental building block: Jio Financial will start off strong by originating competitively priced loans to Reliance’s enormous network of customers and businesses. The timing is ideal now that the Covid-19 loan repayment moratoria are behind us. The top nonbank lender in India, Bajaj Finance Ltd., has resumed reporting return on equity of 20% or higher thanks to segment-specific growth and steady credit costs.
In a nation like India, expanding loan availability is the most lucrative use of detailed consumer information: More than three-fifths of the adult population are either invisible to conventional scoring algorithms or aren’t thought to be worthwhile by lending organisations. Ambani possesses a DNA loop. Mobile phones utilised 120 exabytes of data globally in the six years prior to the businessman launching his 4G telecom network. Ambani’s own clients may be using that much data per year by the end of the next year. The average revenue per user is only a little over $2 per month, despite a two-year growth of a third, as demonstrated by last Friday’s financial report. It’s time to use consumer behaviour data from the telecom and retail sectors to create value for Reliance shareholders.
