Jio Financial Services could be 5th-largest financial services company

MUMBAI: Reliance Industries (RIL) recently made an announcement to demerge its financial services business and rename it Jio Financial Services (JFS).

RIL would transfer 6.1 per cent RIL shares held by its wholly owned subsidiary to JFS. This clearly shows the grand ambitions the group has in financial services.

JFS will differ from most other fintechs, as it will have access to huge amounts of data, gathered from non-financial relationships; it can process and analyse this data in real time, to offer financial services, similar to Alibaba, Amazon, Apple, Facebook and Google.

Also, unlike other fintechs, JFS will have a large balance sheet, not be asset-light and eventually manufacture most product offerings, giving it a significant competitive advantage, in our view.

Assuming the 6.1 per cent stake in RIL is realised over time, with a Rs 1 trillion networth, JFS could be the fifth-largest financial services firm in India.

RIL already has a NBFC licence which it can leverage to kick start consumer/merchant lending in a big way. Also, IRDA has been open to giving insurance licences and RIL may get into insurance verticals.

JFS can be a real threat to fintech business models as well as NBFCs, in our view. JFS not only can offer attractive rates in merchant lending and digital unsecured lending markets, but also be reasonably competitive in the secured lending market eventually, in our view.

Reliance group has a network of more than 15,000 stores across several formats (supermarkets, digital stores, etc) and a vast customer base of 400 million+ in telecom and 200mn+ in retail (there could be overlaps here).

JFS can leverage on network effects and in concept be a formidable threat for incumbents, Macquarie said.

Considering banks have significant cost of funds advantage and ability to do a lot more business that NBFCs cannot do, JFS's impact on the banking sector could be a bit more moderate.