The Looming Threat of Jio to Fintech Startups

By Ritwik Ghosh,Kolkata India

The Looming Threat of Jio to Fintech Startups

In India’s financial technology narrative, a singular application has emerged as the nexus of multiple services. Now, Jio Financial Services (JFS) is set to unveil its own multifaceted app, potentially redefining the market landscape.

With the introduction of the ‘JioFinance’ application, JFS aims to amalgamate digital banking, UPI, bill payments, and insurance advisory into one cohesive platform. Additionally, it plans to integrate digital lending and an investment platform. Although currently in its beta stage, JioFinance is poised to become a formidable adversary for competitors due to Reliance’s extensive network of retail outlets and its numerous SME associates. While Jio 4G significantly propelled fintech applications like Paytm, PhonePe, and Google Pay, JioFinance poses a substantial threat to their dominance.

How will Jio’s entry disrupt the dynamics for these pioneering fintech startups? This analysis seeks to explore that question after reviewing the top stories from our newsroom this past week, featuring two of JioFinance’s prominent rivals:

Exploring the CRED Ecosystem: Super apps are gaining traction in fintech, and CRED exemplifies this trend with its acquisition-driven strategy. A comprehensive examination of its expansion over the past year.

Paytm’s Waning Merchant Influence: Paytm initially thrived with its super app strategy for merchant services, but operational challenges and compliance issues have emerged. Can this fintech giant recover?

Jio Adopts Paytm’s Approach

Jio’s strategy mirrors Paytm’s, focusing on essential verticals and even securing a payments bank license. The debut features of the JioFinance app include digital banking through the Jio Payments Bank, insurance broking, and secured loans against mutual funds.

“Our ultimate aim is to simplify finance-related activities for users across all demographics with a comprehensive suite of offerings such as lending, investment, insurance, payments, and transactions, making financial services more transparent, affordable, and intuitive,” stated JFS.

The payments bank account will likely be the cornerstone of the super app, similar to Paytm Payments Bank’s role until regulatory actions by the RBI in February 2024 necessitated backend changes in Paytm’s banking partnerships. Analysts previously viewed the payments bank license as a major advantage for Paytm, facilitating faster transactions and lower failure rates.

JioFinance will need to leverage this advantage to stand out amidst a crowded payments app market. JFS plans to offer secured lending products like loans against mutual fund investments and home loans, and intends to enter the mutual fund business through a joint venture with BlackRock.

During a Q4 FY24 post-earnings call, JFS managing director and CEO Hitesh Kumar Sethia mentioned, “In the past quarter, the [payments] bank has enhanced its digital savings account offerings and launched virtual debit cards, significantly increasing customer acquisition. We expect to expand our business correspondent touchpoints in the coming quarters to drive further growth.”

In the current market, the payments play will be the primary funnel through which Jio Financial Services acquires users for other services. The go-to-market strategy for JFS will be crucial given the competitive landscape.

The Competitive Landscape of Fintech Super Apps

While many large fintech companies have adopted the super app model, their strategies have varied. Paytm initially focused on acquiring digital payment consumers with its wallet business, subsequently integrating UPI. Google Pay and PhonePe followed Paytm’s example, prioritizing customer acquisition before gradually adding more services to their platforms. PhonePe’s recent entry into secured lending exemplifies its expansion strategy.

BharatPe started with a B2B focus and is now adding B2C products, while CRED targeted the urban, creditworthy population before expanding its offerings. Groww, leading in the investment space, has diversified into lending and payments. Zerodha, with the second-largest active investor base after Groww, is another formidable competitor for JFS in the investment arena.

Each of these companies is pursuing payment aggregator licenses to enhance their product offerings. Jio, with its own PA license, will leverage this for its B2B verticals. Despite the breadth of the super app field, these strategies indicate that excelling in a single niche is crucial, forming the backbone for other integrated services.

The Jio Financial Services Edge

JFS appears to be focusing on the wealth management opportunity. The joint venture with BlackRock encompasses wealth management and broking in addition to asset management. Addressing strategic questions is critical for Jio as it seeks to raise funds and attract institutional investors, sovereign funds, and private equity giants.

The company is also seeking shareholder approval to increase the limit of foreign investment in its equity capital up to 49%. As part of a demerger from Reliance Industries in mid-2023, JFS was already well-capitalized, but its new platform initiatives will require additional funding.

Reflecting on the funding spree for Jio Platforms in 2020 and Reliance Retail in 2023, it’s now Jio Financial Services’ turn to attract substantial investment. Beyond investments in the BlackRock JV, Jio will use funds to expand its merchant business, competing against struggling players like Paytm. JFS launched Voice Boxes last year and plans to enhance its PoS and devices network in 2024.

Jio Payment Solutions Limited, operating the payment aggregator business, will spearhead the merchant business. Here, Jio must contend with Paytm, PhonePe, Google Pay, BharatPe, CRED, Pine Labs, and others that have scaled their PoS operations.

Significant investments will also be required on the consumer side for payments. To drive rapid platform scale, Jio will need to invest heavily in customer and merchant acquisition, likely targeting its telecom subscriber base of 470 million users.

Adani Group is also developing a fintech super app, partnering with ICICI Bank for its payments initiative. The Adani One super app achieved INR 750 crore in sales in FY24 and could leverage ONDC for its e-commerce and payments businesses. Alongside Jio, Adani poses a considerable threat to the fintech startup ecosystem.

Amid this intense competition, Sethia highlighted three key advantages for JFS: “The Jio brand, capital, and customer proximity from our ecosystem.”

Will these factors be sufficient for the JFS super app? Competitors like Paytm, PhonePe, Google Pay, and BharatPe have demonstrated rapid technological adoption and scalability. These digitally-native companies have built robust tech stacks supporting millions of users and established their own brands.

JFS, with the Reliance and Jio brand pedigree and substantial capital, faces a challenging market. The question remains: Can Jio Financial Services rise to the occasion?

Please note that these recommendations come from individual analysts and broking companies, and not from Foundr Magazine India. It is advisable to seek advice from certified experts before making any investment or any sort conclude decisions.


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