Mukesh Ambani’s Jio Financial Services’ deep pockets and wide reach to challenge the likes of Paytm, Bajaj Finance

• Jio Financial Services (JFS) could emerge as the fifth largest financial services company in terms of net worth, says Macquarie Research.
• JFS has multiple factors that could help it score over the likes of Paytm and Bajaj Finance among others.
• Reliance’s large distribution network, customer base and deep pockets will benefit Jio Financial Services, the report says.

Paytm’s financial services pivot now faces a new threat as Mukesh Ambani, India’s second richest man, has set out to demerge the financial services business from Reliance Industries into a new company to be called Jio Financial Services (JFS).

A new report by Macquarie Research says that JFS could emerge as the fifth largest financial services company in terms of net worth – according to the demerger update, Reliance Industries will transfer 6.1% of its shares to JFS.


Paytm shares hit a new 52-week low during intraday trading on Wednesday, with a decline of over 5.62% to ₹450 – marking a decline of 79% from its issue price of ₹2,150.

Paytm’s financial services offerings face challenge from Reliance’s deep pockets

One 97 Communications, the operator of digital payments platform Paytm posted a 14% sequential rise in Q2 revenue to ₹1,914 crore driven by growth in its lending and merchant business.

For the quarter ended September, Paytm reported a loss of ₹572 crore, which narrowed from ₹644 crore in the previous quarter.

Analysts at Goldman Sachs expect Paytm’s margin to improve further and forecast FY24 to be the first full year of adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) profitability with continuing momentum in the lending vertical.

However, Reliance’s large distribution network, customer base and deep pockets will benefit Jio Financial Services, according to Jefferies. The company’s network of over 15,000 stores across several formats (supermarkets, digital stores, etc.) and a vast customer base of more than 400 million in telecom and over 200 million in the retail segment could give JFS a large customer base to bank on.

“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,” the Jefferies report added.

Access to vast amounts of real-time data will give the RIL arm a big advantage, making it a tough competitor to other NBFCs, banks and fintechs, analysts say.

“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,” added the Jefferies report.

Here are the factors which could benefit JFS

According to the analysts at Macquarie Research, JFS has multiple factors which could help it go one up on the likes of Paytm and Bajaj Finance, among others.

Reliance’s deep pockets mean that JFS will benefit from an AAA credit rating, which will help it in attracting funds at low costs when compared to its rivals. As of now, only six large non-banking financial companies (NBFC) have the AAA credit ratings – HDFC, Bajaj Finance, LIC Housing, Tata Capital, Aditya Birla Capital and HDB Financial.

Other factors include highest capitalisation amongst large NBFCs, large distribution footprint thanks to Reliance, and the ability to attract top talent thanks to its parent being one of the largest conglomerates of India, according to the report.

The last part has already played out – KV Kamath has been appointed as an independent director on the board of Reliance Industries, and the non-executive chairman of Reliance Strategic Investments, which will house JFS. Kamath has played a key role in transforming ICICI into a diversified technology-driven financial services group.

“The NBFC business model has been a treacherously difficult one for most conglomerates that have entered the space, with Bajaj Finance and Chola Finance being the standout exceptions,” the report said, but added that RIL’s hunger for scale can “pose a significant growth and market-share risk for players like Bajaj Finance and Paytm with whom it could be competing head-on.”

Banks will be able to ward off the JFS challenge

On the other hand, JFS won’t be as much of a threat to banks, according to the research firm. “We believe JFS could compete more on the unsecured lending done by non-banking financial companies (NBFC) and fintechs than banks as it would be difficult to compete on risk-adjusted pricing to the kind of customers that banks cater to. While there will be some impact, we believe banks largely should be able to manage the competitive intensity coming from JFS,” the report said.

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