Daybreak - What's Airtel's weapon in its new fintech war against Jio? Your SIM card

Episode Date: June 20, 2024

The newest battle ground between Bharti Airtel and Reliance Jim is financial services. Airtel already has two thriving ventures. The first is the seven-year-old Airtel Payments Bank which happens to be one of the three profitable payments banks in India. And the second is new financial entity called  Airtel Finance which is mainly aimed at Reliance Jio’s fintech disruptor, Jio Financial Services. The one year old Airtel Finance has already serviced loans worth $300 million. It seems do be doing pretty well. In fact, just last month, in an earnings call, the Airtel boss, Gopal Vittal talked about how Airtel Finance was shaping up really well. He said It served 400,000 car and loan products in FY24.The story is similar with Airtel Payments Bank. It registered its highest-ever annual revenue of more than $250 million in FY24 and also grew its deposits by 50% from the year-ago levels. The bank has been adding nearly a million new customers every month.But all of this comes at a time when India’s other fintechs are struggling with profitability.Apart from the fact that Jio is still leading, there is one more thing that sets the two of them apart from each other. Jio Financial Services’ focus is to lend to B2B players and engage in asset-management services. Airtel, meanwhile, is taking a different path. The company is using the oldest tool it has—SIM cards—to partner with lenders for consumer-centric products like loans and credit cards.But why SIM cards? The answer lies in the Airtels nearly thirty year old distribution network.Tune in.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me. My interruptions, my analogies and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. You know anything about India's telecom sector, it is probably this, that the space is mostly shaped by the war between Airtel and Reliance Geo.

Despite arriving late to the game, Geo emerged as the dominant player. Airtel's overall subscriber base is still nearly 80 million less than GOs. But the fight continues and the newest battleground between the two is financial services. Airtel already has two thriving ventures. The first one is the 7-year-old Airtel Payments Bank, which happens to be one of the three profitable payments banks in the country. And the second one is a new financial entity called Airtel Finance, which is mainly aimed at Reliance Geo's latest disruptor geo-financial services.

The one-year-old Airtel Finance has already serviced loans worth $300 million. So it seems to be doing pretty well. In fact, just last month, in an earnings call, the Airtle boss, Gopal Wittell talked about how Airtle Finance was shaping up really well. He said it served over 400,000 car and loan products in the financial year 2024. The story is similar with Airtel Payments Bank. It registered its highest ever annual revenue of more than $250 million in FY24 and also grew its deposits by 50% from the year-a-go level.

The bank has been adding nearly a million new customers every single month. Now, all of this comes at a time when India's other fintech companies are struggling with profitability. On the other side, apart from the fact that geo is still leading, there is one thing that still sets Airtel and Geo apart from each other. Geo Financial Services focuses on lending to business to business players and engaging in asset management services. Airtel, meanwhile, is taking a different part. The company is using the oldest tool it has, which is SIM cards, to partner with lenders for

consumer-centric products like loans and money. credit cards. But why SIM cards? The answer lies in Airtel's nearly 30-year-old distribution network. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Tickda Sharma, and I don't chase the new cycle. Instead, every day of the week, my colleague Rahal Philipos and I will come to you with one business story that is worth understanding and worth your time. Today is Thursday, the 20th of June. When Airtel started to make it foray into financial services with its payments bank in 2017, it had zero experience with banking. Plus, running a payments bank comes with a whole bunch of regulations. For starters, a payments bank

cannot give out loans directly. So there's no interest income. And deposit account balances cannot be more than two lakh rupees. It is a low margin business that only makes sense economically if its scale is big enough. But Airtel went for it heads on. And the main thing that gave it this kind of confidence at the time were its nearly 300 million mobile subscribers. It wanted to have a larger share of their wallets. Which is why it chose to go digital, no checkbooks, passbooks or physical branches. It decided to use its SIM card distributors, mainly the Kirana and retail store owners as its army of business correspondence. The idea was to reduce the cost of acquisition and convince subscribers that their telecom

operator was trustworthy enough to keep their deposits safe. Like an employee from another payments bank told my colleague the Ken reporter Ronak Kumar Gunjan, Airtel basically took its financial services product to its existing mobile subscribers. It did not have to spend money and time. on marketing itself. To establish solid trust amongst its users and also to make it more convenient for them, Airtel decided to keep a user's account number

the same as their Airtel mobile number. But here's the thing. Despite all of this, including the low cost of acquiring customers, Airtel was still only managing to make a profit of two and a half rupees on every 100 rupees of revenue. Plus, RBI rules came in the way. Other payments bank with ambitions can eventually grow to become small finance banks. But a larger corporation like Airtel running a payments bank, it is not allowed to own a small finance bank.

And that is when Airtel began looking for a product that would bring it higher margins and help it reach its financial services ambitions. Stay tuned for more on this. About a year ago, Airtel decided to set up Airtel Finance. It was created as a credit scoring platform with additional capabilities for digital collections. But what makes it special? Again, SIM cards. My colleague Ronak explained it really well.

He said you can think of it this way. Currently, more than 400 million Airtel SIM cards are acting as individual data sources for the company. Though telecom operators are not really allowed to read a subscriber's messages, the company has more than a fair estimation of a user's financial and online habits. For example, Airtel can categorize its users based on a bunch of things, like their geography, how frequently they shop online, their relationship with a certain bank, their habit of paying EMIs and so on and so forth. Now, imagine how important all of this information could be for a lender.

All a lender needs to do is tell Airtel its target customer group and Airtel can find out all the relevant information. In exchange, Airtel will obviously charge a fee. And what makes Airtel a formidable entity in this space is the richness and the size of its data pool. Think of the more than 400 million Airtel SIM cards. So, how exactly does this all work? An Airtel executive explained it to us. Now, let's imagine a non-banking financial company,

or NBFC like, say, Bajaj Finance or Aditya Bidla Finance, wants to target users in Lucknow who bank with a certain bank. These users have a certain pattern of shopping at an e-commerce company, and they have devices worth over $30,000. Based on inputs from its super-rich data infrastructure, Airtel Finance will facilitate the loan transactions between the NBFC and the customer. An Axis Bank executive told Ronok how the amount of Telco data Airtel has is quite unbelievable and its combination with industry data makes it an extremely rich source.

Thanks to its year and a half long partnership with the Telco, Access Bank has been able to give out nearly 200,000 credit cards so far. While the Axis Bank executive did not speak about the future propositions, they said that the bank is pretty satisfied with Airtel. Airtel Finance also helps NBFCs and banks in servicing loans by sending payment reminders and calling borrowers in cases of defaults. So let us look at this enviable data infrastructure that Airtel has built. It has actually been in the works for a while now. The company was convinced that it was rich enough only in the first half of 2022. And then the leadership ideated an internal three-layer strategy for all its products.

Number one, the foundational or the data layer, number two, the experience layer, and number three, the services layer. The senior Eritel executive told us that Airtel essentially created a data lake called the data platform. Then it made it customizable by feeding it with machine and artificial learning, analytics, cataloging, etc. And it is now using it for specific industries. But let us not forget, Airtel is not allowed to use any of this data for its payments bank business, which is why it has created a clear wall between the telco and the payments bank. But Airtel finance, the Ken found out, will be Airtel's core in the near future. And who knows, maybe it will leave Geofinancials behind. But ultimately, it all depends on how it uses the

Good old SimCard. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the Ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by Snigda Sharma and edited by Rajit Zee.

Thank you.