SBI's Start-Up

State Bank of India claims YONO, its digital banking platform, is valued at $40-50 billion in just three years of its launch. Here are the nuts and bolts of the bank’s biggest initiative yet

IState 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, ` 21,000 crore- plus loans, 77,671- plus daily cardless transactions and leads for ` 10,000 crore home and car loans. The claimed valuation of ` 2.94- 3.67 lakh crore is more than SBI’s ` 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 (` 1,200 crore loan book), has reached a billion- dollar valuation in just three years. Bangaloreheadquartered 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

ndia’s largest bank,

grown to ` 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 ` 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 30,00070,000 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 ` 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’ microentrepreneurs 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.

“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”

Ravindra Pandey, Chief Digital Officer, SBI

Valuation is the sum total of three metrics

End to End Digital Banker - Online lending, payments & investments, replacing the high-cost brick and mortar bank

Platform for other banks(BankBazaar model) - Fee income by offering YONO platform to others

FutureTech player like GooglePay, Amazon Pay - Likely cashflows from e-commerce and other services