Jio Payment Bank’s Srikrishnan: “Our consolidated strategy is convergence of telecom, retail and financial services”

• Jio Payment Bank aims to handle the payment needs, digital recharges and settlement services to over 380 million subscribers of Jio, Reliance’s telecommunication subsidiary
• The bank’s model focuses on the strengths of its parent group in retail business, telecom and home connectivity, following its consumers’ their everyday banking and bill payment needs
• Thousands of Reliance Smart Points are planned to have a Jio Payments Bank area within the next two years 

All around the world, several new banks are exploring unique models of payments and transactions opportunities through innovative digital customer service rather than balance sheet lending, but most have yet to show sustained profitability. The viability of these new and pure fee-based innovative financial businesses is yet to be tested in the long run.

In 2015, Reserve Bank of India (RBI) gave in-principle approval to 11 players for new payments bank licences in India, with a directive for unique models aimed at financial inclusion wherein they could not lend or issue a credit card but could accept deposits up to $1,400 (INR 100,000 ) per customer.

Only six payment banks are operational today, the rest either withdrew their licence applications or have shut down their businesses. Despite improvement in net interest income and non-interest income, increases in operating expenses resulted in overall net losses of $87.69 million across all payment banks in 2018-2019. Considering the competition and high costs, these new models need to expand their scale to earn sustainable profits while looking for unconventional revenue models.

A relatively new entrant in this scenario is Jio Payments Bank that started its operations in 2018 as a 70%-30% joint venture between Reliance Industries and State Bank of India. It has strategically positioned itself to ride on the unique ecosystem of its parent company, Reliance Group’s businesses, and provide payment and digital transactional services to the vast customer base that they already have.

H. Srikrishnan, a well-experienced banker for almost three decades, joined Jio Payment Bank in 2015 as its managing director and chief executive officer. He was previously the executive director of Yes Bank in India and he was part of the founding management team at HDFC Bank as the country head for transactional banking and operations. Srikrishnan also worked in various capacities with the Emirates Bank, Dubai and Bank of America in India for over a decade.

We spoke with Srikrishnan about the bank’s current operating model, challenges and ongoing initiatives towards building a stronger and viable model.

Emmanuel Daniel (ED): We are very interested to know what is the business model of a payment bank and what horizon are you looking at?  

H Srikrishnan (HS): When Reserve Bank of India (RBI) gave the in-principle licences, they covered categories that are obvious, companies with large volume and low-value transactions. Second was that it would further financial inclusion, because of the fact that there was so much opportunity with the underbanked and unbanked. Third, whatever infrastructure – either physical or digital – that each of the promoters, who are given licences, would be allowed to use by the payment bank. This is contrary to other commercial banking licences with limited arm's length methods or a kind of firewall, that do not allow the promoter entities to be involved in the banking side.

In this case, RBI gave the licences to large telecom, retail players. A combination of a retail asset player did not choose to operationalise. Then there was the postal department, a digital payment company and another business correspondent (BC)-led model. So each of them varied in their business interests but working towards a common goal, that was RBI’s primary objective – financial inclusion and more importantly, digitising everyday payments. Also, the payments banks chase the opportunity of domestic remittances by migrant workers who keep moving from their hometown to their place of work temporarily and send money back home. Fundamentally, there were not much of an organised methodology in this area. So these were the key guiding principles from RBI.

From our perspective, Reliance is a very large telecom and one of the largest retail players. So, we had a combination of both. Given that background, the interest was there to go in for this payment bank licence.

Unique ecosystem support from the Reliance Group

ED: That’s Reliance and SBI together, right?

SH: Correct. Reliance is the promoter and SBI is the joint venture partner. It's a 70-30 venture. Reliance brings in the technology, the distribution through their telecom and retail businesses. And SBI obviously brings a lot of banking principles and guidance, specifically on risk and compliance areas because that is their strength as the country’s largest bank. It was a good combination, which is how we started. We are operational from April of 2018.

But it is not just a point to be operational. We also need to expand and are following what our parent company is doing in the telecom space where over a fourth of India's mobile population have subscribed to Jio. It is a fantastic success. And the interesting part is that the largest adoption came from the smartphone segment. There’s a huge traction now in the feature phone segment as well through the JioPhone, a smart feature phone that, for instance, allows you to watch a video. Likewise, we are following our parent’s retail business for distribution outlets and digitising commerce transactions.

ED: These are data-driven phones?

HS: All Jio phone calls are on data and run on the world’s largest 4G VoLTE network. Due to this, all of our efforts are focused on data and access. On data usage, Jio subscribers are amongst the largest consumption of data in the country and leading in the world.

The objective of our financial services business is to make sure that we follow the telecom consumers and fulfil their needs for everyday banking and payments through the mobile. With the last mile connectivity into homes and through Reliance Retail stores of more than 10,000 physical stores, we are connecting and digitising the long tail merchants with our local neighbourhood grocery stores, called Kirana stores in India. These are one level below the 7-Eleven chains that you see in the region. Reliance Retail helps them organise their supplies, procurement or we digitise their payments, checkout and so on. This entire process is achieved through a multi-purpose device that has been deployed that takes care of procurement, delivery and re-ordering, checkout, payments. Currently, this is being tested in a couple of locations and each of them have a real time settlement option that is a value-add for liquidity through a payments bank account.

ED: So when you say a POS device, it is the phone? Why do you have to deploy a physical device?

HS: No, it's a POS device, which is a multi-purpose device. We do have JioPhone as a POS that is currently being certified for payment acceptance. Our Retail POS takes care of business to business (B2B), the inventory and ordering through Reliance Retail’s wholesale ‘cash and carry’ equivalent and also integrates through our business-to-consumer (B2C) app for customer ordering called JioMart.  

ED: Even their inventory, so it is not just a payment machine?

HS: Yes. The local Kirana store can deliver as good as any of the online apps with a linkage to our retail facilities centre that are close by where the deliveries will be monitored.

ED: Is this live already? It goes into the Reliance ecosystem, Reliance inventory? 

HS: This is functional in a large cluster as a live trial. Also, it is not only for Reliance Retail, but also for large fast-moving consumer goods companies who participate and offer digitised coupons for buyers delivered digitally upon purchase.

Jio Payments Bank handles B2B payments for the merchants, B2C payments via direct debit, unified payments interface (UPI), and cards through our app MyJio.

On the physical distribution outlets, Jio Payments Bank offers business correspondent services at the new Reliance Smart Points that are also part of the same pilot. Post our success in the pilot, we will expand to other locations where Reliance will grow their new commerce business with the financial services built-in. Every Reliance Smartpoint has a dedicated area allocated to Jio Payments Bank services. This is as good as the neighbourhood branch of bank offering all banking activities including account opening, cash withdrawal or deposits, remittances, and Aadhar-enabled payments.

While our digital app, MyJio, offers all of the banking transactions online as self-service, these B2C outlets offer assisted service through our BC agents. We will progress to open 30,000 such outlets in the next 18 to 24 months and every Reliance Smartpoint will have a Jio Payments Bank area.

ED: So you are thinking of end-to-end supply chain for retailing so that is from wholesaler to the retailer, and payments is one component of that. Who holds the profit and loss statement (P&L) in all this?

HS: Yes, payments and settlement as one component is held by the Payments Bank. Each group company holds their respective P&Ls. 

Building a unique payments and transactions-based model

ED: Then you become like a payment app provider to a retailing chain? It still doesn't answer the question of are you going to be commercially viable on your own, even with this?  

HS: Well, we talked in detail about the initiatives jointly with Reliance Retail. Now, let’s talk about the 380 plus million subscribers of Jio, each one of them needs to recharge on a regular basis. The digital recharges as a percentage, say 35-40%, have to use some financial instrument. We step in here and offer digital re-charges either through their existing bank account, UPI, or any open-loop card. Jio Payments Bank sponsors the UPA handle in this case. Likewise, we offer the settlement services for open-loop instruments. Each one of these are viewed as a service to the group company. Jio connectivity (JioFiber) to homes is the next big move wherein the payments and banking services will be integrated fully through the Payments Bank.

ED: To pay using Jio Payments Bank, you have to first load it with value. Jio Payments Bank is the primary bank account for what percentage of your total customer?

HS: This is a journey that we have to go through. Each of the initiatives are in different stages and thereby at different levels of adoption. Until we get our consolidated strategy, i.e. convergence of telecom, retail and financial services and plays out fully, we will continue this journey.

Today, Jio’s consumer is accessing data at a phenomenally higher level than before resulting in unprecedented adoption. They watch videos, YouTube, movies and they listen to music digitally.

Likewise, we will push adoption to banking and payments. One point that did not get covered earlier is the BillPay opportunity. This is a big market where more than 80% of the bills today are still not paid digitally. The Bharat Bill Pay System (BBPS), run by the National Payments Corporation of India, have connected billers and financial services players as authorised operating units. Jio Payments Bank is a customer operating unit in BBPS and Jio is a biller operating unit. Through this, all categories of bills – Jio postpaid, JioFiber and non-Jio bills under the utility, electricity, landline and other categories as expanded by BBPS are covered. So a consumer of Jio or Jio Payments Bank, through the same app MyJio has the ability to pay digitally. The same will be provided at the BC outlets of Jio Payments Bank. We manage the entire process of integration, payments and settlements.

ED: You do the clearing of credit cards as well. But you can acquire credit card transactions, but it's not ‘on us’ transaction.

HS: Yes, we do that. We run a payment gateway through one of our associate companies. It’s not ‘on us’ transaction. We do not issue credit cards. We are not allowed to do that.

ED: You use a merchant payment gateway? But this is still not banking. This is a payment. It still doesn't answer the question of both sides of the balance sheet of a bank.

HS: Payments Bank business is not about building the balance sheet, we chase transactions that will result into balances. So whether it's a prepaid or prefunded account like the wallet or whether it is a savings account, it leads to some balances, but those are granular, right? The idea is not like a commercial bank to chase deposits at a cost. This is actually conversion of what otherwise remains as cash into a digital bank account. We're bringing cash into the banking system. That's the first step. The second step is that when we increase the number of use cases, beginning with Jio and Retail and then to merchant and bill payments. There are a number of use cases that we built. For example, you can pay a traffic challan through the app, or do ticketing.

ED: What are you discovering in terms of the personality of these deposits? Are they small amounts and sticky?

HS: They are small amounts. If you see the history of payments across the world,  the first seven to eight transaction types with a consumer promotes behavioural adoption, and a good metric is when they come for a repeat payment that is definitely seen.

A residual amount always as granular deposits remain, until the next funding. So compared to a savings bank account, this is typically a transactional account with lesser cash withdrawals hopefully. Our charter is essentially to make sure that all of these transactions are executed digitally and more importantly, with the funding for each use-case. Example, how does one fund the Jio Payments Bank account? It is from another bank account, unless it is a prepaid instrument which allows a credit card load. But that's not a very recommended route.

ED: Yes, it's too expensive. But so are all the other payment banks, they're all doing the same thing.

HS: That’s the idea to be part of the banking system, make the entire transfer, funding and payment processes easy.

On other payment banks, each one operates in a very different ecosystem as per their strengths. In our case, we are only relying on the strength of the parent’s telecom, home connectivity and retail businesses giving us the best of both worlds, offline and online. As a bank, we are linked to all the open payment systems in the country. Through Aadhar-enabled payment service, we execute even for a non-Jio Payments Bank customer in an outlet. Customers can draw from any bank a/c for domestic remittances, sending money from their place of work to the village. We permit cash in and cash out using their bank account which is elsewhere.

And all these are permitted via biometrics, Aadhar-enabled system. This is the future as we grow “cash to digital”, then remains as “digital to digital”.

Managing the systemic challenges

ED: The scale is because of the 380 million subscribers. When the courts disallowed the use of Aadhar for onboarding because of the data use, has that been resolved already?

HS: It has been resolved regulatorily on a voluntary basis by customers, but not resolved on a pricing basis due to the charges levied by the Unique Identification Authority of India (UIDAI). Between September of 2018 and August of 2019, there was this complete embargo due to the court verdict. Through multiple representations, Aadhar on a voluntary basis, is now permitted. The Aadhaar regulatory body UIDAI charges $0.28 (INR 20) for onboarding, fetching $0.007 (INR 0.50), which is not nominal as we have to absorb this in our business. We will get there in some time.

ED: You seem to have patience. Your funding allows you to burn money at the moment?

HS: No, this is a very interesting model. This is a very low-cost model compared to most other businesses. We're not in the business of lending or leveraging our tier one capital. This has been made very simple where the Reserve Bank has just said that as per guideline at any point in time, we need to have a net worth of hundred crores, $14 million (INR 1 billion). We need to maintain that. The second is the investment into technology. The technology part we are co-investing with the parent obviously and there are a lot of integration points. So, today's technology is available on a pay-per-use basis. It's not necessarily that we have to burn capital and acquire IT assets. Basically, we have adopted a little variable cost model there. From that perspective, it’s not as scary as what you think.

ED: But what are you using your startup funding on? Like, what are you spending money on? You seem to be still very positive about this business model.

HS: Fundamentally on people, technology and geography-related expenses. Who is negative, let me ask you?

ED: Well, some of them didn't enter and some of them exited the payment bank business. You were clear about it from the beginning.

HS: I think, one, people were misinformed when they were applying for a licence. Second is that this is fundamentally connected with the ecosystem that you are part of, that you belong to. If you are part of an ecosystem that will permit this model, then you can survive. Now those who thought differently, perhaps I don’t want to comment on that.

We were pretty clear about that. But of course, we had a lot of challenges on the regulatory front specifically related to Aadhaar, related to a couple of other issues from the guidelines as well. For example, at some point in time, Telco KYC was permitted to be taken in a payment bank, but that was turned down later. All of those were, I will say, the challenges that we have overcome. But I guess they are behind us and we are only looking forward.

ED: But you are subscribed to the idea that a payments bank should have a balance sheet of asset and a liability?

HS: Well it is RBI who should answer this because we have a very clear guideline that the payment bank use of funds is restricted to only 75% investment in government security and the balance will be in commercial banks. From that perspective, we have a very defined earning yield on the overall funds. Having said that, this is not like an arbitrage which we do an overall leverage and lending because that is not the model at all. The model is to facilitate payment, facilitate cash to be converted to digital and act as a catalyst for doing that. From that perspective, the businesses which currently incur huge costs on cash, like in some of our parent’s businesses, we will work towards making them more efficient by migrating to digital mode. There is a huge task ahead of us because now, Reliance Jio or Reliance Retail have very huge numbers.

ED: What about the non-bank players who require payments like Ola. Are they something that you would plug into eventually? And why aren't you in the wallet business?

HS: Eventually yes, but at this juncture each one of them is trying. So the model in India, take for instance Ola, since you mentioned, there’s a prepaid instrument which is the wallet business.

We have a wallet which is JioMoney, in-built into the bank’s offerings. So those customers who do not want a full-fledged bank account, we offer a prepaid account which is the JioMoney offering. But to answer your question on Ola – they are trying with OlaMoney, their own wallet. But if you don't offer multiple use cases and if you have one single use case, then why should people use that wallet? They can pay even with any open loop instrument or perhaps UPI. I do not see that as a huge future.

ED: So what are the benchmarks that you give yourself? Like for example, the Olas and Grabs and Ubers, they onboard customers, 60,000, 100,000 a month. Is the speed of acquisition and the volume of acquisition important to you?

HS:  We will definitely do that. Just to give you an idea, there have been times when 7-10 million Jio subscribers were onboarded every day. The fact that our ecosystem has peaked to that kind of number, they continue to open up opportunities for us.

An ongoing journey of expansion

ED: The big question is – and it is a global question not just in India – can payments banks work? Is payments bank a viable business proposition? This is the thing. In the UK, all the neo banks are not making money and that's because they have only one side of the balance sheet, you know.

HS: I'm just saying that we are prepared for that kind of peak volumes. This has been like a journey, and the journey has to really take off and continue.

If you are able to manage your costs and model it in a way where you know that upfront, follow a very traditional mindset and try to work within the framework and if you have the ecosystem based business model, I guess there is a play.

ED: But you're confident because you're piggybacking on an existing ecosystem. Are you also thinking of broadening the base, not just the 375 million? What sort of timelines do you have for yourself? When does the money burn out?

HS: That is the reason why we are in existence, so there is no question about that.

We can and we will get into open market acquisitions in due course. But I think we have enough to consume from the ecosystem itself. 

Well you're getting into a little financial stuff. As you know, Emmanuel this is something which is a first of its kind, which is being tried. So obviously, I do not have any precedence to say that this is what happened there and I'd be better than this. This is not possible. We'll have to really wait for it to play out.

ED: Our interest in you is a global interest because this is a proof of concept.

HS: It is too premature for us to even say the same. I don't think that there's something that we can say. We know what we're doing.

ED: Well the cost side, you are just being very conservative, right? You're working within the cost structure that RBI is giving you, which can only invest in bonds. So, therefore, you will be offering loyalty programs, any marketing gimmicks?

HS: If you are asking about some of the wallet companies that have done the cash-backs and so on, I don't think that we are in that play for sure and borrowing billions of dollars. Now, whether it is rewards or incentives to be thrown for purchasing behaviour, we will be doing that limited to our own ecosystem.

ED: Sometimes having a focus is good because you will discover certain disciplines in the process. Like the whole idea of being a very good wallet is to be a very good wallet, it is not to be something else and then the use case comes in from there. Your customers get use to you, they start leaving bigger balances and all that.

For now, anyone who plays outside your defined territory is going to lose because there's no money outside of it. But you can become embedded into the supply chain. Right?

HS:  I will say that always, focus is good. 

Payments is not a money-making business which you know and which is why if you work outside the boundary, people are losing money as clearly seen in the market. So if you work within the boundaries, I think that this is a case where you will not lose but you might not make it. But that's alright.

So with the embedding into supply chain, the stickiness comes in. Stickiness, obviously bring balances that will build up over a period of time. This is a long haul. It is not something which is like where you just changed an interest rate and see a flight of deposits in, only to see them all go once someone else offers higher.

ED: This is a work in progress. Right. So I expect to come and see you in one year's time.

HS: And we'll be in a better position to share some numbers at that time.

ED: I guess all the analyst wants to see the profit model.

HS: We're not losing sleep on that.