Daybreak - Why Jupiter may become just another pesky bank app

Episode Date: August 5, 2024

Jupiter, the Mumbai based neobank, went from a $70 million valuation in 2019 to a $700 million valuation in just two years. Venture capitalists, along with fintech founders, continue to believe in neobanks. A report by Statista predicts that the transaction value across neobanks in India is will cross $150 Bn by 2027.Jupiter, a leader in the space, quadrupled its user base to two million in just a year in 2022. Thanks to its efficient user experience to access banking products like savings accounts or fixed deposits, many 20- and 30-year-olds are drawn to Jupiter. They use the platform to park their money, make small transactions, and invest with features like a sub-account to park funds for different saving goals or flexi-SIP payments.But RBI clipped its wings, like it did for other fintechs. Since Jupiter realised the regulator also doesn’t like startups calling themselves a “bank” in any form unless they are licensed to be one, it began the journey of itself from a neo bank into a non-bank. And Jupiter had been trying to get its non bank license from RBI ever since it started operations but it only got last year.But building its own loan book is turning out to be an expensive affair. And in the process of getting its finances in order, Jupiter may just about become another annoying bank app.Tune in.Listen to the latest episode of Two by Two, 'Is Zepto a gold medalist or a bronze medalist?' here.

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.

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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 studio. episode, please follow intermission on Spotify and Apple Podcasts 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. Jupiter, the Mumbai-based NeoBank, went from a valuation of $70 million in 2019 to 700 million in just two years. You see, venture capitalists along with fintech founders, continue to believe in neobanks.

Now, before you wonder, what is a neobank? These are basically digital-only banking platforms that operate online. Because the Reserve Bank of India or RBI does not permit fully digital banking establishments yet, Neo-banks in the country use partnerships with physical banks to deliver some of their key services. A report by Statista predicts that the transaction value across neobanks in India will cross $150 billion by 2027. Now, Jupiter had quadrupled its user base to $2 million in just a year's time in 2022.

If you check out the app, you will know exactly why. It's just fancier than your typical bank apps. It offers a slick user experience to access banking products like savings accounts or fixed deposits, which is why a lot of 20 and 30-year-olds are drawn to Jupiter. They use the app to park their money, make small transactions, and invest with features like a sub-account to park funds for different savings goals or flexi-sip payments. But RBI clipped Jupiter's wings, like it did for other fintechs as well. So because Jupiter realized that the regulator also does not like startups calling themselves a bank in any form unless they have a license to be one, it began the journey to turn itself from a new bank into a known bank.

Now, Jupiter had been trying to get its non-banking license from the RBI ever since it started its operations. But it only got it last year when it began building its loan book. And it's turning out to be quite an expensive affair. And in the process of getting its finances in order, Jupiter may just become another annoying bank act. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nickda Sharma, and I don't chase the news cycle.

Instead, every day of the week, my colleague Rahal Philipose and I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 5th of August. One year of being a non-bank has helped Jupiter get back some life. It is using its new bank users as stepping stones. Jupiter has even struck business agreements with its partner banks, allowing it to sell loans without their interference. Now, this is an important win for Jupiter because it can now offer loans between 15,000 to 3 lakh rupees through its non-bank arm at an annual interest rate of 10 to 30%. And that is higher than what its partner federal bank charges.

Jupiter believes that the last three years of building relationships with its customers would have stood in its goods. because it gave them access to money management tools, digital banking facilities, rewards, credit and debit cards and easy investment opportunities and it earned from its partner banks from the sale of these services. But before it got the non-banking license, Jupiter had built a loan book worth 100 crore rupees by dispersing small ticket loans to some 25,000 users through partnerships with existing non-banks. But now it has to raise money to disburse loans. And instead of raising it from other non-banks and banks, the company is relying on the 100 crore rupees that it raised as venture debt in late 2023 from Ulterior Capital. But an

executive working with a large-sized non-bank told my colleague the Ken reporter Anjali Jain that anyone running a company would not want to dilute their shares through a venture debt round. Also, venture debt rounds typically have a much higher interest rate. Now, Jupiter has chosen to begin lending so it can use the data it has on its existing user base to reduce risk unlike its competitors, which are ready to lend to non-users. But the fintech startup is in a bit of a catch-22 situation. To grow lending, Jupiter needs more users. But drawing more users for a banking experience by itself is also not a simple task.

Stay tuned for more on this. The Ken subscribers and listeners have impeccable taste. That much is beyond argument. That's why you listen to this podcast. That might also be why you love two by two. Our weekly podcast that asks seemingly obvious questions about companies and topics that few others do. For instance, in our latest edition, Praveen Gopal Christian and I, Rohan Dharma Kumar, asked why a company started not too long ago by two literal

teenagers, Zepto, is behaving like it's going to win the All India retail gold medal shortly. Even when right now, it's merely a bronze medalist and that too in the quick commerce category. Is Zepto delusional or are its rivals overconfident? We're joined by Arvin Singal, founder and chairman of Technopac advisors and Sita Ramunji, the Ken's deputy editor in a spirited and lively conversation. We call 2x2 your personal investigative brain because we do the researching, questioning, discussing and answering for you. Thank you for your time and your impeccable taste.

Links to 2x2 are in the show notes. In 2022, the Ken did a survey of new bank account holders. Of the 400 plus users who were Neobank users, 92% said it was not their main account. They usually use it like a wallet for making purchases or for investments. Most new banks in India like Open and Razor PayX are business-facing. And the few that cater to customers have dialed down the rewards that they used to offer to entice sign-ups. Traditional banks like Kotak Mahindra and State Bank of India too, meanwhile, have been working on improving their own digital offerings directly competing with Neobanks.

Which is why Jupiter has to keep its users engaged if it wants to lend to them. And for this, the company is throwing everything it can to help keep its users hooked. To do this, it has made a big bet on onboarding salary account holders. This it is doing by partnering with small and medium firms and allowing saving bank account holders to upgrade to a salary account. For this, it has partnered with 900 such companies. It even acquired HR tech startup, some HR in 2022, to provide free HR management tech and health insurance of up to $2,000, two-lack rupees, two salary account holders.

Now, this means that Jupiter will add customers to keep more balances, which in turn will help it build a predictable income stream. and of course much better data to underwrite them. Meanwhile, the company is also not being aggressive towards expensive user acquisition. And instead, it is focusing on the existing users. The idea is to sell more of the existing products and retain users better. But here is where lack of trust becomes the biggest impediment. This is the case for Neobanks in general.

Plus, the RBI has made it clear that Neobanks in India, are unlikely to receive a banking license in the near future. In fact, it has urged traditional banks to build up their digital capabilities. The company's focus on organic growth and lending to its existing customers has also prompted a change in the nature of the relationship between Jupiter and its users. The fintech now wants users who are more creditworthy, the ones who spend less and instead save in revenue. and ultimately borrow more. You see, usually only when customers spend more, they borrow more.

But for Jupiter, when a customer spends money, the company has to pay out rewards, making it a costly affair. But when users save, it increases the current account savings account balance for its partner banks, translating into higher profit for Jupiter, thanks to its agreements with these lenders. Jupiter is also pushing investments on its customers, like its daily SIP feature where users can put as little as $20 per day into their mutual fund plans providing flexibility. This alone sees 1 million user transactions per month. While investments are not a contributor to revenue, it is another way for Jupiter to upsell its lending products.

For example, a loans against mutual funds products is currently in the world. A product manager working with Jupiter told us that it is also currently planning an investment-come credit product that it will launch in the near future. Jupiter eventually wants to become a one-stop shop for all of its users' financial needs. Jupiter now urges its users to borrow every time they open its app or even when they try to make a payment. It does not really have a choice but to do this. And in the process, Jupiter could easily become yet another annoying bank app. 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 Snickda Sharma and edited by Rajiv Seeam.