Jio Financial To Focus On Consumer Durable And Merchant Lending, BNPL: BofA Securities
Jio Financial Services would likely take time to scale and doesn’t have the cheapest access to capital, the note said.
Jio Financial Services is likely to focus on consumer durable lending, merchant lending, buy-now-pay-later, asset management, and insurance space, according to Bank of America Securities.
"We think consumer durable lending could be one of the initial focus segments for the company, given the captive user base which is already taking credit for buying electronic items at Reliance Retail stores," BofA Securities said in a note on Friday.
The discovered price of Reliance Industries Ltd.'s demerged financial services arm was Rs 261.85 per share in the pre-open session on Thursday.
The indicative price was higher than the apportionment cost of Rs 133 per share that Reliance Industries Ltd. set to purchase the shares of Reliance Strategic Investment Ltd.—that will be renamed and listed as Jio Financial.
Jio Financial Services is expected to take time to scale and doesn’t have the cheapest access to capital, the note said.
Initial Focus
The American financial services institution said that consumer lending will be the initial focus segment. The note highlighted that beyond the top 10% merchants, not many are well-serviced by banks/traditional companies, providing a good opportunity for a company like Jio Financial.
"We think there is a huge opportunity in wholesale lending to retailers/vendors, etc., as it is working capital heavy and many of these companies are cash flow constrained," it said, adding that RIL already works with these smaller kiranas helping them in their procurement.
Jio Financial's cost of acquisition of users would be low as it has access to RIL’s 40 crore mobile and retail users, giving a segue into the BNPL space.
"Just like Paytm, it could help offer 90-day low ticket lending—but could do it via its own balance sheet. RIL has a wallet 'JioMoney', which allows P2P, P2M payments including paying utility bills, etc."
Likely Differentiator
However, RIL would be able to differentiate itself in asset management, with its likely focus being more on passive investment versus active, BofA said.
"JFS could try to distribute insurance through RIL’s network/feet on the street team rather than depending on traditional distributors. This could help them reduce costs, which could be partially passed on (to) the consumers as well."
Broking is also an area which could be targeted by JFS, it said.
JFS could also leverage the RIL ecosystem to distribute insurance products. "We note that Reliance Retail Insurance Broking is an IRDA-licensed broker. As per media, the group has larger plans to get into the manufacturing of life as well as non-life products," it said.
However, BofA said that there could be some gestation period before JFS gains traction. Jio Financial would need to go through this learning curve before it can become a material competitor to any of the existing NBFCs, it said.
Moreover, even with an 'AAA 'rating as an NBFC, JFS would have to compete with banks that have access to cheaper capital.
"While we consider the opportunity for JFS to be huge, the key is execution in 4 to 5 financial services areas. We note that the market is already competitive with banks, NBFCs, insurance companies and fintechs vying for the same set of users."
