The Facebook-Jio deal may create competition in India’s e-payments—just like RBI wanted

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The $5.7 billion Facebook-Reliance Jio deal is the largest foreign direct investment yet in India’s technology sector.

For everybody grappling with the quantum of the deal, for a 9.99% stake, there is an endgame in sight that goes well beyond corporate advantage and into government-sanctioned payment infrastructure.

Facebook’s struggles with WhatsApp Pay in India are no secret. For three years, the company has been engaged in a back and forth with regulators to try and get the government’s Unified Payments Interface (UPI) integrated with the widely-used chat app. In 2018, Facebook was faced with new data localisation norms, implying a tedious infrastructural shift, which only now seems to be finding resolution.

For Reliance Industries, the conglomerate which owns Jio, there is unmatched tech firepower and access to digital India that Facebook brings. This would enable Reliance to outcompete even the most consumer-friendly fintech players in the Indian market today. The other aspect is one most pressing across corporates globally—debt reduction.

Mukesh Ambani, India’s richest person who runs Reliance, announced at the company’s August 2019 annual general meeting  that he was gunning for it to become a “zero-net-debt company in 18 months.” With the global economy where it is with the coronavirus pandemic, big capital would not have been easy to come by later.

The advantage

What takes the deal beyond the realm of corporate dynamics are recent moves by India’s central bank.

In February, the Reserve Bank of India (RBI) released draft guideines for a “New Umbrella Entity (NUE) for Retail Payments,” which opened the doors for a parallel payment infrastructure to the National Payments Corporation of India (NPCI)-operated UPI.

Some observers might see the Facebook-Reliance Jio move as threatening UPI and Indian public infrastructure, but in fact, this is exactly what is being encouraged by the government.

The RBI has been speaking repeatedly about the need for competition and innovation in payments, and issued the NUE draft with this aim. The UPI architecture was getting so constrained in capacity, especially by a few concentrated players, that last year the NPCI proposed setting quotas for different payment players.

For qualifying under a new payment framework, competition is stiff, as all major players—Paytm, Google Pay, and PayU—have an interest in qualifying for a licence. Reliance Jio was already formidable with the vast Reliance Retail infrastructure behind it. What the Reliance Jio wallet would have lacked in consumer-friendliness, Facebook and WhatsApp Pay would now make up for by a mile.

The deal goes beyond just being the largest tech investment into India. With capital drying up globally, and digital payment on a rapid rise with Covid-19, the deal was perfectly timed. It could well lay foundations for the next national payment infrastructure for India.

The user adoption in India stands at 100 million for UPI, 388 million for Reliance Jio, and 400 million for WhatsApp. With the interests of policymakers aligning with the two firms, this is a deal where everybody wins.

Facebook gains solid backing against regulatory and other market forces in India, Reliance levels up its tech play and finds a way out of its debt and the RBI gets a worthy competitor to the NPCI to expand digital financial inclusion past the next hundred million users.

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