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Source: The post is based on the article “After 5G, here’s how Ambani will use financial services to tighten DNA loop” published in Business Standard on 26th October 2022
What is the News?
Reliance is planning to enter into the Financial Services market. It will use the self-reinforcing DNA Loop model to dominate the market.
What is DNA Loop?
The business model of big techs rests on enabling direct interactions among a large number of users.
An essential by-product of their business is the stock of user data. The data are then utilized as input to offer a range of services that exploit natural network effects, generating further user activity. Increased user activity then completes the circle, as it generates yet more data. This has been called as “data-network-activities” loop – or the “DNA” loop.
The DNA loop is self-reinforcing. More data generates stronger network effects, which elicit more activity, leading to yet more data. This means that big tech firms with an established platform have an advantage when they venture into financial services.
The source of their competitive advantage depends on the nature of their existing platform.
For instance, big techs with e-commerce platforms collect data from the activity of sellers and buyers and can combine them with financial and consumer habit information. These can be valuable input into credit scoring models, especially for loans to small and medium-sized enterprises (SMEs) and consumer loans.