Recently, there were reports that the Adani Group will enter the "regulated payments" space. The speculation forced listed payments firm Paytm to announce to stock exchanges that reports that its founder Vijay Shekhar Sharma was in talks with Adani about a potential stake sale were untrue.

Adani is not the only latecomer to the payments space. Mukesh Ambani-led Reliance Industries has already entered the market in 2023 with Jio Financial Services. With their vast resources, extensive business networks and deep understanding of the Indian consumer, these companies have the potential to introduce innovative financial products and services. Their entry will intensify competition and force incumbents to improve their offerings and improve customer service.

However, Adani and Ambani's success in this field is not assured. They too must navigate regulatory challenges, establish trust with consumers wary of new financial entrants and differentiate themselves from a market already dominated by established companies like Google Pay, PhonePe and Paytm. Their ultimate impact will depend on how seamlessly they integrate these services into their broader business ecosystems and deliver better value to customers.

Also, while digital payments have emerged as an indispensable element in India's new society, it remains a loss-making business due to significant customer acquisition costs, low margins and overall profitability. In India, charging consumers for these services is prohibited, further compressing potential revenue streams. B2B companies in the digital payments space are therefore more profitable than their B2C counterparts, leveraging scalable business models and institutional partnerships to generate revenue.

Consumption, Content, Capital, Clarity

Both Adani and Reliance operate a wide range of businesses that interact directly with consumers' spending habits. Their strategic positioning in both traditional and new-age sectors enables them to become key players in India's emerging embedded finance landscape, potentially establishing a duopoly that will reshape the country's financial services sector.

Reliance Retail—the retail subsidiary of Reliance Industries—is one of the largest chains in the country, spanning groceries, electronics, and fashion. In contrast, the Adani Group, while largely B2B-focused, has direct consumer engagement through the group's airports and CNG pumps, as well as its fast-moving consumer goods joint venture with Indian pantry staple Adani Wilmar.

Reliance Jio, which has revolutionized India's telecommunication sector, is part of the Reliance stable with the largest subscriber base in the country, while Jio Financial Services recently launched its latest offering, the 'Jiofinance' app. The app, currently in beta, provides users of all levels of familiarity with financial technology with convenient money management solutions at their fingertips.

Key features of the Jiofinance app include digital banking, UPI transactions, bill settlements, insurance advisory and a unified view of accounts and savings. The app offers instant digital account opening and bank management, enhancing user experience and convenience. Future plans include expansion of loan solutions, starting with mutual fund loans, to cater to the diverse financial needs of users.

Jio Financial Services aims to simplify the entire spectrum of financial services on a single platform and cater to users across all demographics. In short, Jio Financial Services wants to become the go-to platform for every Indian's financial needs. Leveraging Jio's telephony services and powerful data insights about Indian consumers, the company is well positioned to offer customized and personalized financial solutions tailored to individual preferences and requirements.

Adani's presence in energy and utilities, including electricity and gas distribution, provides greater opportunities for customer engagement. Integrating financial services with utility bill payments or offering energy-efficient financing options deepens customer relationships.

The Adani Group exited NBFCs last year with Bain Capital buying stakes in Adani Housing and Adani Finance. The group has also not yet been successful in acquiring financial services. However, the Adani Group is keen to diversify into the fast-growing e-commerce and payments segments.

The move is in line with the group's interest in expanding its presence in areas with significant growth potential. By entering homes directly through the power distribution business and the FMCG business, the company can use this digital intersection to broaden its business canvas.

Recently, Adani launched co-branded credit cards with established companies like ICICI Bank. These partnerships provide access to established payment networks and enhance the credibility of Adani's financial offerings. Adani aims to unify digital services through a super app called Adani One, launched in 2022. This integration enables seamless access to payment services along with other digital offerings and enhances user experience and driving engagement.

Adani's acquisitions in the travel retail sector, including Flamingo Travel Retail and Cleartrip, focus on strengthening travel services. The integration of Cleartrip as the group's online travel aggregator adds value to Adani's digital ecosystem, engaging users with comprehensive travel booking services. The recently launched co-branded cards are also travel-centric, with an attempt to capitalize on this presence and leverage various Adani-owned airports across the country.

Beyond this, Adani's ventures into green hydrogen, energy and data centers, along with Ambani's diversified interests, provide additional touch points for customer engagement.

Looking at these large companies, their individual competitive streaks and parallel efforts in this space, they have the potential to reshape the financial services sector, offering consumers unprecedented convenience and choice in managing their finances.

Additionally, the deep pockets of these conglomerates enable them to attract top talent and provide lucrative incentives to build fundamentally innovative businesses.

As Reliance has done with their retail ventures, they can leverage global partnerships similar to Jio's collaboration with BlackRock to bring in expertise and knowledge from around the world. While this heightened competition will ultimately benefit consumers through better services and lower costs, it has raised concerns among competitors and regulators about market concentration and fairness.

Current situation in the country

India's emerging market, with its vast population, expanding economic base and per capita income, presents an irresistible opportunity for global companies looking to grow and expand. Home to nearly one-sixth of the world's population, India offers a large consumer base for goods and services in a variety of sectors.

In this landscape, Ambani's Reliance and Adani's conglomerate stand out as the potential business partnership gatekeepers with the biggest pockets, most ambitious visions and access to the largest customer base. Their strong presence across multiple industries, from retail to telecommunications and energy, represents them as key companies shaping India's economic trajectory.

Ambani and Adani's influence and reach are expected to grow further as they continue their journey to become a global financial powerhouse. Their vast resources, their strategic vision, excellent project management and execution skills and deep understanding of the Indian market make them formidable competitors to domestic and international companies alike.

Adani and Ambani have the financial clout to not only challenge but disrupt the dominance of American-owned firms in India's payments sector. Their extensive resources enable them to leverage payments business and B2B services to enable global business. Although success in financial services is not bought by money alone, their considerable financial backing combined with their policy influence can attract the best talent and expertise, increasing their chances of success.

Walmart's PhonePay and Google Pay currently dominate India's mobile payments market, jointly processing 86% of all transactions on the UPI network, which handles over 12 billion transactions per month. Despite concerns from competitors and government agencies about Google and Walmart's growing market share, regulators have yet to intervene.

Adani and Ambani's entry into the payments space poses a strong challenge to this duopoly and may even create a new duopoly. With their financial expertise and potential policy influence, they can not only compete but also innovate, potentially reshaping the landscape of India's mobile payments market.

Reimagining the bank for the 21st century

While the Adani group has already launched its Super app, Reliance has yet to do so. Its loyalty program, coincidentally called Reliance One, has already been integrated across the company's various consumer platforms, fueling speculation that Reliance's Super App offering is not far off.

Building a successful super app for all or most Indians is an unprecedented achievement. The diverse and highly fragmented nature of the Indian market creates a maze of complexity for which it is wise to try to build an embedded financial ecosystem instead.

By focusing on integrating financial services into existing platforms, companies can leverage their existing customer trust and technology capabilities without the huge challenge of creating a fully integrated super app. This approach will provide a more viable path to achieving significant digital engagement and financial inclusion.

More than a century ago, banks were the most important one-stop centers for all financial needs, offering comprehensive services ranging from deposits and loans to deposits and insurance. However, technological advances and changes in distribution channels have fragmented these services, leading to the rise of specialized financial institutions. Today, digital finance is poised to usher in a new era of banking through embedded finance in a consumption-driven economy.

By integrating financial services directly into platforms where consumers are already active—be it shopping, socializing, or using various online services—embedded finance offers a seamless, contextual, and highly personalized financial experience. This approach not only serves customers' financial needs more intuitively, but also leverages the vast data and reach of digital ecosystems, suggesting that the future of banking lies in these integrated digital solutions rather than traditional isolated financial institutions.

In the 21st century, the attraction of a universal banking license allows institutions to offer a wide range of financial services under one umbrella, which has traditionally been the norm. Instead, corporate firms may see control of digital ecosystems, data, and consumer behavior as the new frontier for services like banking. This shift is driven by the perception that digital platforms can provide financial services more efficiently and with greater accessibility than traditional banking structures.

Managing a digital pipeline enables corporations to leverage their existing customer base and large amounts of data to tailor financial offerings to customer needs. Using sophisticated data analytics, companies can understand customer behavior in real time, predict financial needs and offer personalized products. This capability enhances the customer experience and increases the likelihood of customer retention and loyalty, which is critical to long-term success in financial services.

For corporate firms, this digital-first approach represents a strategic advantage. By incorporating financial services into their broader ecosystem, companies can create seamless experiences that integrate lending, mutual funds and insurance into their existing customer touch points. For example, an e-commerce giant can offer financing options at the point of sale, or a telecom company can offer micro-loans and insurance products through their mobile platforms. These embedded finance solutions reduce friction for customers and provide additional infrastructure compared to setting up a traditional bank.

In addition, the regulatory environment is more favorable for non-banking institutions entering the financial services sector through partnerships and advanced financial technologies (FinTech). Corporate entities can offer credit services, mutual funds, and insurance products through third-party relationships, avoiding the need for a universal banking license while capturing significant market share in these categories.

In addition, obtaining separate licenses for specific financial services is more practical and easier than obtaining a universal banking license with strict regulatory oversight and capital requirements.

For example, companies like Jio and Adani can leverage their extensive digital and physical infrastructure to create integrated financial ecosystems. Jio's vast telecommunications network enables it to integrate mobile banking, payments and financial products directly into its service offerings, providing unparalleled convenience to users. Similarly, Adani's diverse business interests and digital initiatives will enable it to offer a range of financial services to suit the needs of its diverse customer base, from industrial clients to everyday consumers.

While the integration of financial services into digital ecosystems offers convenience and innovation, there is an important caveat to consider. If digital dominance is concentrated in the hands of a few dominant firms, similar to the current landscape with large tech companies, this raises critical questions about the ability of financial regulators to effectively regulate or guide these powerful firms. The extensive data access and influence of these entities can overwhelm traditional regulatory frameworks, making oversight and enforcement challenging.

Moreover, as these firms prioritize profits and market dominance over consumer protection and financial stability, the potential for monopolistic practices, data privacy concerns, and systemic risks will increase. Therefore, regulators need to proactively develop and implement strong and agile frameworks to ensure that these digital giants operate within safe and fair boundaries, protect consumer interests and preserve the integrity and stability of the financial system.