India's largest bank, State Bank of India (SBI), pulled out YONO - an acronym for 'You Only Need One' - app out of its hat five years ago. No one had expected the state-owned bank to take a lead in rolling out a super app for banking, investments and e-commerce. However, in just three years, YONO has notched up impressive numbers - 3.70 crore registrations, Rs 21,000 crore-plus loans, 77,671-plus daily cardless transactions and leads for Rs 10,000 crore home and car loans. The claimed valuation of Rs 2.94-3.67 lakh crore is more than SBI's Rs 3.25 lakh crore market cap. Though there has been no formal valuation, the number has been derived on the basis of lending book, banking transactions, profitability and potential. Many fintechs are valued at billion dollars-plus despite their much smaller loan books and far fewer payment transactions.
The size and scale of SBI puts YONO, an extension of the bank, on a pedestal. But its valuation is not as easy as it seems because of complexities of running a traditional bank and uncertainty about the future business model. Let us deep-dive into factors that will influence SBI YONO's valuation.
Reincarnation As Startup
SBI YONO is reimagining banking to thwart disruption by fintechs, which are gradually eating banks' lunch. A recent Federation of Indian Chambers of Commerce & Industry (Ficci) and Boston Consulting Group (BCG) report talked about 'India FinTech: A USD 100 Billion Opportunity.' There are already many billion-dollar fintechs in the market. BharatPe, a payments start-up which also lends (Rs 1,200 crore loan book), has reached a billion-dollar valuation in just three years. Bangalore-headquartered Cred, a credit card bill payment platform that rewards people for paying on time, has achieved a billion-dollar valuation in a similar time period. Razorpay, a digital payments facilitator for businesses, is valued at $3 billion. PineLabs, a merchant payments solutions company, is valued at a billion dollars. The number of Indian fintech unicorns will more than double over the next few years, says the Ficci-BCG report. YONO has been designed to offer customer convenience and innovative products to target customers who opt for products from players such as Cred or Pine Labs.
One of the biggest element of YONO's valuation is the pre-approved personal loan segment that it has grown to Rs 24,000 crore. It is attracting thousands of leads and requests on a daily basis. Its USP is the bank's huge customer base with historical data of savings and spends based on which it offers pre-approved loans. The service could be later extended to new bank customers. The average loan size is Rs 2.5 lakh. "Banking apps have an advantage as banks can provide all services. The apps can serve as a unified platform for the captive customer base without competition. The size and scale in terms of products also give them an advantage in the digital world," says S. Anand, CEO & Co-founder, PaySprint, a fintech venture.
Srikanth Bureddy, co-founder of Buddy Loan, says banking apps are a convenient option for millennials & MSMEs. "A low-cost model, user-friendly interface, multiple features, quick turnaround time are the next most important factors to consider while valuing an app," says Bureddy (See Growing YONO Numbers).
YONO's valuation is also factoring in future loan segments. For instance, SBI is in the process of digitising the entire process for retail products like two-wheeler loans and high-end express credit. New financial infrastructure such as accounts aggregator and digital signatures will open doors for more business. An account aggregator will collect customer data from multiple banks and share with anyone who needs it for offering a banking service or a loan.
SBI YONO is also offering cardless cash withdrawal at ATMs through a one-time PIN. This has been well-received by young customers. The bank is doing 30,000-70,000 cardless transactions a day. "The ability of banking apps to lure a new set of customers or cater to the captive existing customer base will also get them a higher valuation," says Anand.
YONO will also gain from the shift in banking from the high-cost branch model of acquiring and servicing customers. Super apps like YONO would mean huge savings for banks. They would also reduce the cost of operating existing branches. "The cost of acquisition of a customer in a branch is Rs 1,000-1,200," says Ravindra Pandey, Chief Digital Officer at SBI. This reflects in SBI's cost to income ratio of 52.46 per cent. HDFC Bank has the lowest cost to income ratio among large banks at 38.64 per cent; ICICI Bank is at 43.48 per cent.
Many experts, however, say YONO cannot be compared with new-age players. They say fintechs are targeting under-served customers and creating a value proposition. Fintech customers are 'new to credit' micro-entrepreneurs such as a tea stall owner or a cobbler. The loans are approved based on cash flow. The loan size is also much smaller. Second, fintechs are run by entrepreneurs who are constantly thinking about innovations and making banking seamless. "Fintechs are generally valued based on target segments (like new to credit customers) and superior credit assessment through digital tools," says a fintech founder.
YONO For Others
Investment bankers are betting on YONO as a platform for other banks. This will add substantial value that is not reflected in the traditional bank set-up. YONO is currently operating largely as a lead generation platform for SBI. Due to SBI's huge reach, about 3.7 crore customers have already registered themselves with the app. "They include both existing and new customers. We also track how many are doing transactions," says Pandey. In FY21, YONO sourced leads for Rs 10,000 crore retail loans, which included Rs 6,000 crore home and Rs 4,000 crore car loans. This shows the future potential of this cost-effective platform. "It is safe to assume that without a digital platform like YONO, these digital-savvy customers would have taken loans from other online platforms," says Pandey.
The bank has also added YONO Krishi. It has customised offerings, 15 mandis (online marketplaces) and Mitra (agri information and advisory services). The bank has also created YONO Business to cater to the entire life cycle of SMEs and corporates. It provides internet banking, cash management products and forex and other services for non-retail clients.
The bank is also toying with the idea of offering YONO as a neutral platform, without the SBI brand, so that it can be a marketplace for other banks to offer their services. At present, BankBazaar offers its platform to all banks to showcase and sell their products. Similarly, Policybazaar is a one-stop shop for insurance. Given that SBI is the largest bank in the country and the PSB space is undergoing consolidation, this will throw up a lot of possibilities. Old private sector and cooperative banks would also be keen to join YONO by connecting via YONO API (application programming interface) without accessing the bank's core banking platform, say experts. The marketplace model will help SBI earn a risk-free fee.
But the big question is; will other banks and fintechs join the SBI platform? Does SBI have superior products and services that can help it prevent customer traffic from moving to other banks?
Yono as Future TechFin Player
In the longer run, YONO could emerge as a technology giant or a techfin (technology-led financial player). It is already gearing up to face the challenge from techfin players such as Google, Amazon and Facebook that want to offer financial services. "Techfins are the real threat to the bank. Google Pay and Amazon Pay have deep pockets. They are burning cash to create a foothold in the financial services market," says a fintech player. These global technology players, armed with customer data, are keen to play the balance sheet game (lending) like banks. "Using technology and data, they can offer products that meet their customers' requirements, engage more often and provide a superior banking experience," says Suresh Rajagopalan, CEO of WIBMO, a fintech company. In fact, it is lending, not payments, where big money is made globally. "They are ready to take more risk than banks. They are already nibbling away banks' consumer base in payments," says a banking expert.
Clearly, SBI is looking at an interplay of traditional banks, new-age fintechs and techfins to help YONO go the extra mile. "In the next decade, we see a wave of financialisation. Finance would be digitalised. Banks will become just custodians and trustees of money. The rest of the things will be done by fintechs," says Raj N., founder of Zaggle, a fintech company.
New technology-led offerings and close knowledge of the customer will add to the valuation of YONO. So will customer stickiness. "For banks which have taken the technological leap, valuation of their services will not only depend upon how well they know their customers but also their lifetime value," says Rajagopalan of WIBMO. "In the fintech world, valuation is done based on future benefits," says SBI's Pandey, without going into the specifics of YONO's valuation. "The valuation is actually based on future potential. It looks at customer footprint, transactions and geography-based profiles. Based on this, you can also devise a future product or service," says an investment banker. A customer's digital footprints give out a lot of information that can help the service provider get more business from him. YONO is also following this path. It has partnered with over 100 ecommerce players in more than two dozen categories. At present, it doesn't earn any money from these players. But these tie-ups help it engage with bank customers for non-banking needs. In addition, the spending data provides new information about customers' interests, habits, etc. "It helps increase customer stickiness and loyalty," says Pandey. These tie-ups also increase the scope for doing lending or payments business with suppliers of e-commerce companies.
However, there will be challenges on the way. Experts say any app needs a fintech entrepreneur for continuous innovation. "The bank has got a good start but the challenge is manning the app and competing with fintechs and new-age banks," says a fintech player. The app will require focus, a management team and market talent. "Banks have huge advantages because of scale and size of their customer base and product basket. We need to see how they build on top of it (app) to retain the flavour of a fintech in terms of agility, innovation, etc," says Raj of Zaggle.
"The challenge is only about the ability to think and create a user experience. Are you ready to hire a Flipkart CEO or any other professional? If they want to run it as a department, they will not go anywhere," says a fintech player.
Nestled Inside The Bank
SBI YONO is not an independent entity. Many call it a department of the bank. Expert say one has to look at many factors for valuing the app. "There would be tons of downloads. But how many are active users? After active users, how many are transacting users. This is what matters," says a fintech player.
The average revenue per transacting user also matters just as telecom companies focus on average revenue per user. "The success of a platform is known when the rubber hits the road," says another player, adding that the finer cost and revenue details are not out in public (See Valuation Challenges).
Another issue is that YONO has the bank's core banking platform at its heart. "If they have to hive off YONO, they have to apportion the cost of core banking, which will be high," says an investment banker.
There is also no clarity on manpower, infrastructure, marketing/sales and legal costs. "YONO is a subsidised product. We don't know the hidden expenses and costs. Will it be able to sustain as an independent entity?" asks a banker
SBI, though, claims to have a strong YONO team. There are two sides - IT and business. The business side is managed by a chief general manager supported by two general managers and deputy general managers. The final shape and strategic direction was given by McKinsey and IBM. "We have people directly recruited from the market. We have hired engineers, MBAs. There are a lot of young people. We work according to an agile garage method," says Pandey. SBI also does apportion some costs to YONO. It has been making separate disclosures about YONO in quarterly accounts but is waiting for the right time to hive it off. On valuation, the bank prefers to keep quiet as of now. "When the time comes, you will know the valuation," says Pandey.
Markets will wait for that with bated breath.
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