Five months before the emergence of Covid-19, board members of Pune-headquartered Bajaj Finance sat down to give final shape to its five-year strategic plan. It was a routine affair; the atmosphere was sanguine. The consumer finance company had created something of a record by raising $1.2 billion in capital, to fuel its massive growth opportunity. Over the past decade and a half, the company’s revenues, assets under management and earnings have grown at a staggering compound annual growth rate (CAGR) of over 30%. “Given the rapidly changing landscape, natural evolution has fundamentally forced us to go digital end-to-end,” says Rajeev Jain, Managing Director of the firm Rs 1.81-lakh crore (asset size ).
It didn’t take long for the board to give its approval to create a super one-stop-shop financial services app with an ecosystem of shopping and e-commerce. “The thought process was to be available 24/7 to our over 42.6 million customers, to have two-way engagement, and to give them everything they need when they want it. “, explains Jain, who stimulates a culture of start-ups. Most observers believe that this omnichannel network transformation exercise, which is currently underway, was the result of the pandemic, but it actually started earlier. However, the pandemic sent the plan back to the drawing board for an overhaul. “Nothing can make you think harder than a crisis. This is the learning for us to exploit the new opportunities that emerge in a [Covid-19] crisis situation,” says Jain, 51, who played a key role in transforming a small Bajaj Finance into one of the fastest growing NBFCs in India. The Covid-19 crisis has prompted Jain – and other professional CEOs – to think more deeply and broadly about new digital initiatives in light of changing consumer behavior. But more on that later.
Jain, who typically starts his day at 7 a.m., was instrumental in building the company’s zero-rate consumer durables finance product, now known as Buy Now, Pay More. later”, a great success, so great that it was instantly replicated by competitors, including major banks. In part, the experience and wisdom of two stalwarts – the late Rahul Bajaj and former banker Nanoo Pamnani – helped the business, but it was Jain’s execution skills, which he honed in corporate multinationals like GE, American Express and AIG, which drove the product. strategy. “Once a larger strategy is in place, he rolls up his sleeves to get the job done,” says a professional who worked with Jain earlier.
Jain’s biggest challenge as CEO probably came when Covid-19-induced lockdowns forced people and employees to stay home. “If you create a crisis, you cannot solve this crisis; but if you didn’t create this crisis, it gives you a much greater moral right to resolve this crisis,” he told his leadership teams. “It was a crisis that all of us as COOs looked at from this philosophical lens and worked to resolve and even profit from it.”
The company’s growth journey has in some ways been cut short by the raging pandemic waves, but it has also shown remarkable resilience. In BT-PwC’s Top India CEO Ranking data, the three-year CAGR of Bajaj Finance’s total revenue was calculated at 22.99% and after-tax profit at 16.73%. Asset quality was also in check, with net NPAs at 0.91% of loans as of March 31, 2021. This exceptional performance, which includes the first pandemic year, led the four-member jury to award Jain the highest Champion Award. Champions’.
When Jain joined the business in 2007, it was a small captive auto finance company. Today it is a giant by comparison: FY21 self-generated revenue was Rs 23,563 crore, and market cap is now Rs 4 crore, higher than Axis Bank and Kotak Mahindra Bank. What is the recipe behind this success? At a fundamental level, four key elements have remained consistent and common from the start: people, a great attitude, patient capital, and planning. “People start businesses in the service sector. You must have a positive attitude. You need patient capital to build a long-term business, as well as ongoing strategic planning,” says Jain.
One-click financial supermarket
The company, which was at the forefront of digitization for the past decade, is transitioning from a digitized business to a digital business. “Digitized means some [part] of the process was digital, but the whole process was not,” says Jain. In fact, he started using point-of-sale cloud computing in 2007. Today, 60% of his workload runs on the cloud. The company also claims to be one of the biggest customers of major Salesforce software as a service (SaaS) in India. Initially, Bajaj Finance’s plan was to create a super app for existing clients, but after Covid-19, the plan was extended to create a global app. As part of this new ecosystem, it is developing five proprietary marketplaces – EMI Store, Insurance Marketplace, Mutual Funds (MF), Brokerage and Healthcare – which will allow customers to review, compare and purchase a multitude of financial products and services in electronics, insurance, investments and healthcare categories. The omnichannel strategy would make it easier for customers to switch between online and offline channels, which would make the new model more profitable.
The company is taking its EMI store to the next level. Of the 120,000 merchants it works with in the physical world (such as Croma, Vijay Sales, etc.), 12,000 are already on board its digital app. It has nearly 78,000 SKUs and 35,000 merchants on its existing web marketplace platforms. “Merchants will be able to bring in a logistics partner to collect products and deliver them to customers,” says Jain. It also introduced an aggregator model with 900 insurance products across a dozen insurance companies. Customers have the option of using a Bajaj EMI card or UPI wallet to pay the premium. The MF Market or Investment Market offers a host of MF products for you to review, compare and buy. The company’s brokerage app offers loans for stocks. And the fifth vertical, BFL Health, has built a doctor portal that allows visitors to browse hospitals and scan some 100,000 doctors. “Execution is the key to this digital transformation journey. If the company is unable to make meaningful progress in reshaping its business towards the digital economy, this could (negatively) impact its outlook,” says Siji Philip, Principal Research Analyst at Axis Securities.
Payments ecosystem
The biggest inclusion in the super app is the payments ecosystem. He has developed a wallet application called “Bajaj Pay”, which offers payment options via UPI, EMI card or credit card. This checkout element will serve as a front-line engagement tool for customers on a daily basis. Jain says the payment offer is linked to a unique reward system, offering something called “Triple Reward”, which means a customer can choose between cashback, Bajaj coins or vouchers. It also creates a Bajaj Pay payment solution for its 120,000 partner merchants. There are plans to launch point-of-sale (POS) card reading machines, QR codes and a payment gateway business. Jain is betting big on payments, where companies like Paytm and BharatPe have built a huge network. “Payments will be the primary hook or engagement tool for both customers on the one hand and merchants on the other,” predicts Jain.
While fintech companies are building a lending model on top of payments, Jain is doing the opposite. He explains that the company is a licensed consumer finance company with a full line of products. “To reduce friction in the financial services industry, you have to manufacture. If I don’t manufacture, I can’t understand the nuances of the business, and in doing so, I can’t reduce friction,” says Jain. The whole transformation plan is already underway. It has now been 18 months since Bajaj launched Phase 1 where it plans to move all existing consumers to the new digital platform in a phased manner. As part of Phase II, which will launch in the next eight to nine months, the new-to-Bajaj customer journey will emerge. The app’s features will also increase from 55 to 117. “So far, the company’s consumer durables financing [business] was the precursor to its customer acquisition engine. However, with the recently launched payment portal, the efficiency of customer acquisition increases, along with reduced costs and minimal risk,” says Philip of Axis Securities.
Upcoming challenges
Shweta Daptardar, Vice President of Elara Securities India, said developing new markets and applications will result in increased cross-selling initiatives, greater customer retention and improved customer acquisition rate. . “All of this should result in better business traction,” says Daptardar. Jain envisions higher engagement rates with customers, which are likely to increase significantly. “A significantly superior customer experience should naturally lead to much higher revenue per customer. This can lead to higher growth and lower operating costs,” he says. The company will eventually have three ecosystems integrations of apps, web and physical products to deliver anything and everything.” It’s really what we call the ubiquitous financial services model,” says Jain.
But there will also be challenges along the way. After the debacles of IL&FS and Dewan Housing Finance, the Reserve Bank of India suggested strict bank-like regulation for large NBFCs. Based on the draft RBI guidelines, Bajaj Finance is likely to be placed in the upper layer of regulation, which means a higher minimum capital requirement and a more cautious eye.
What if you became a bank? Well, this has its own pros and cons. “The company would benefit from stable liability management supported by current and savings accounts (CASA), but spreads and returns on assets (RoA) will suffer because becoming a bank would mean meeting the reserve ratio of liquidity and legal liquidity ratio requirements,” says Daptardar. of Elara Securities. There are also priority sector regulations for the deployment of capital. Philip of Axis Securities believes that “at the appropriate time, the company may apply for a universal banking license or seek inorganic acquisitions in the space if regulations allow.” Jain certainly has a game plan in mind. He believes that all of Bajaj Finance’s current business initiatives and moves are already moving in the direction of a bank. “If the new ubiquitous financial services model is to become a bank eventually,” says Jain, “it will create a distinctly differentiated bank.
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