Between April and May 2020, Reliance Jio Platforms received $5.7 billion from Facebook and $ 870 million from General Atlantic, a high-profile investor known for its stakes in Airbnb, Alibaba and Facebook. On May 22nd, the New-York based financial services company KRR announced it will invest $1.5 billion in the top Indian telecom operator, while 3 UAE backed wealth funds are reported to be in advanced talks to invest in Jio Plaforms. Why is this Indian company attracting so many investors?
Facebook is not the first tech giant to invest in India. In fact, new and powerful ecosystems that could reshape the world of payments are emerging everywhere in the south Asia. And banks should not ignore it.
Headquartered in Mumbai, Reliance Industries Ltd. is the largest publicly traded company in India. It owns businesses that operate across energy, petrochemicals, textiles, natural resources, retail and telecommunication. Jio Platforms Ltd. is Reliance Industries’ digital services branch, the fourth largest Indian company by market capitalisation as of May 2020. Not a surprise if you consider the number of businesses owned by Jio Platforms, including Jio, India's largest mobile network operator; JioMoney, that offers payments services; JioCloud; JioChat, a messaging app; and JioMart, online grocery delivery platform.
On April 21st, Facebook invested $5.7 billion in Reliance Jio Platforms and secured a 9.9% stake, becoming the largest minority shareholder. The investment came at a time of unprecedented digital transformation in India. In the past decade, the country made major investments to increase the ‘Ease of Doing Business’, particularly for the 60 million small businesses across the country that contribute 29% to India’s GDP. And efforts have been rewarded. In only 5 years, between 2014 and 2019, India passed from position 134 to position 63 among the 190 economies in the Ease of Doing Business ranking.
Reliance Industries has supported this initiative. As Mukesh Ambani, Reliance Industries CEO and largest shareholder said in a statement: “The synergy between Jio and Facebook will help realise Prime Minister Shri Narendra Modi’s ‘Digital India’ Mission with its two ambitious goals — ‘Ease of Living’ and ‘Ease of Doing Business’ – for every single category of Indian people without exception. (…) The partnership will surely make an important contribution to this transformation.”
Partnering with Jio Platforms to create a “Digital India”, though, has far-wider benefits to Facebook.
In 2019, Reliance Industries debuted in e-commerce with JioMart, a grocery retail platform. In April this year, a few weeks after Facebook’s investment announcement, the platform launched a testing ordering system on WhatsApp, exploring in practice the collaboration with the American giant.
To understand the impact of this alliance, consider that Facebooks’ messaging app, WhatsApp, has 300 million users in India while Jio Platforms has more than 388 million subscribers to their mobile service. According to Mr Ambani, JioMart and WhatsApp will enable 30 million neighbourhood stores (kirana) to transact digitally” in the near future. As you can see, the reach created by this synergy is already impressive!
Facebook and Jio Platforms are not the first to build a powerful ecosystem that brings together telecommunication and payment services. At the end of 2019, Grab Holdings, Southeast Asia’s leading super app, and Singtel, Asia’s leading communications technology group, formed a consortium to apply for a digital full bank licence in Singapore. Well before them, in 2008, the Bank of Tokyo-Mitsubishi UFJ (BTMU) and KDDI, the Japanese telecommunications carrier launched Jibun Bank, a mobile telephone only bank. In Africa, M-Pesa, the mobile-phone money transfer, payments and micro-financing service, has been providing access to financial services to millions of un-banked mobile users since 2007.
So, why should banks really start to take these case studies more seriously now? Investing in financial inclusion is a powerful element of a successful payment strategy. But that’s not all.
Facebook’s investment in Reliance Jio Platforms should not be underestimated.
First of all, partnering with Jio Platforms, Facebook will be able to extend their payments services and navigate India’s regulatory landscape more easily. This is yet another example that collaboration is the new norm. Robust ecosystems are forming. New opportunities are emerging. If banks, and particularly corporates, want to remain competitive, they must embrace this new operating model, or they risk to be left out.
Secondly, due to its market size and the on-going digitalisation process, Google, Facebook, Amazon, Walmart’s Flipkart and the Chinese TikTok are already seeing India as the new El Dorado. If these partnerships successfully deliver value-added services, it will set the ground for Facebook (and other challengers) to launch innovative new payments propositions in other geographies where they may compete more directly with banks. A world where Facebook wallets replaced debit and credit cards may not be that far!
Many banks are ignoring the signs at their own risk. By not being supporting ecosystems, banks are giving big tech companies the opportunity to demonstrate that they have a legitimate role to play in the banking space.
Inaction is a choice. And these banks are choosing to fail.
If you are a bank and you are not sure how to integrate opportunities like these into your payment strategy or lay the foundations to build a powerful ecosystem, feel free to contact us. RedCompass Labs has extensive experience in scrutinising the market and delivering pragmatic recommendations and solutions.