Digital payments in India, already witnessing unprecedented activity since the government's surprise demonetisation announcement in 2016, is now poised for a great leap forward as global tech giants slug it out for a bigger slice of the pie.
Though digital payments in the country grew 55 per cent in volume and 24.2 per cent in value in FY2016/17 over the previous fiscal, it is still at a nascent stage. "Digital payments currently aggregate less than $200 billion, of which mobile is still at just $10 billion in financial year 2018 (estimated)," Credit Suisse said in a report released earlier this year, adding that cash still accounts for 70 per cent of all Indian transactions by value. And that is what makes India such a promising market.
Significantly, the investment banking firm believes that payment integration into popular apps in the country will drive the digital payment market in India to $1 trillion over the next five years. No wonder the space is already getting crowded - domestic players like Paytm, Flipkart's PhonePe and the government's BHIM are vying for users against the likes of Google Pay and Facebook's WhatsApp Payments.
However, Vinayak HV, a Singapore-based senior partner at McKinsey & Co, told Bloomberg that profitability isn't close on the horizon for the industry. Nonetheless, here's a look at how the various options available to Indians stack up.
India's largest digital financial services provider, which already counts behemoths like China's Alibaba Group Holdings and Japan's Softbank Vision Fund among its shareholders, now also has the Oracle of Omaha backing it. Warren Buffett's Berkshire Hathaway has just picked up a stake in Paytm parent One97 Communications - possibly the first direct investment in India by the legendary investor. According to the news agency, Paytm claims to have 150 million app downloads.
Pros: This homegrown startup became a household name post Prime Minister Narendra Modi's demonetization drive in 2016 because of its mobile wallet business model. The company has since built a wide network of merchants and outlets with a robust system of cashbacks and discounts to keep users locked in.
In fact, Paytm has built an entire ecosystem. It launched a payments bank in 2017 - the wallet, first launched in 2014, is now part of the bank - and it is also looking to launch its mutual fund distribution platform under Paytm Money Ltd.
Last month, digital payments major had claimed that it has achieved annual run rate of 5 billion transactions and registered $50 billion gross transaction value (GTV) in a year. GTV refers to the total transaction value through the platform in a given time period.
Cons: Given that it is a licenced payments bank, Paytm's users have to go through a multi-step enrollment process - a hassle many of its rivals don't require. Moreover, the RBI had recently directed Paytm Payments Bank to stop enrolling new customers temporarily for non-compliance with full-KYC norms, although it has since reportedly responded to the regulator's concerns.
Google Pay, previously known as Tez
According to the news agency, Google's India payment app crossed 50 million app downloads a few weeks ago. Today, during its annual event, Google for India, the company rebranded the app as Google Pay, and also launched its new features. The service will soon be available on over 2,000 online merchants and websites and over 15,000 retail stores in India. The company added that 22 million people use the UPI-based payment platform every month, and since launch it has seen 750 million transactions worth $30 billion.
Pros: The payments app has localized, supporting several Indian languages, and is chasing young users with games that offer cashbacks. Google today also announced that users will now be able to avail instant loans using Google Pay app. It has tied up with private lenders like HDFC Bank, ICICI Bank, Federal Bank and Kotak Mahindra Bank to offer customised loans, which will involve minimum paperwork.
Cons: Although Google has belatedly introduced a chat feature, it is lagging rival WhatsApp whose strong base of users come from its messaging service.
Facebook's WhatsApp Payments
India was one of the first markets to get the much-talked about service. After a beta launch in February this year, the company started its peer-to-peer (P2P) payments on the UPI platform but it is reportedly restricted to only about 10 lakh users.
Pros: The biggest advantage WhatsApp enjoys, even before it gets going, is its ready user base - it doesn't need to put in cash to acquire customers and that's a massive advantage. Currently the most popular messaging platform, it enjoys over 250 million monthly active users, including a huge number of first-generation internet users, which bodes well for financial inclusion.
Cons: The service has hit a roadblock over the ongoing domestic debate on data localisation and the impasse between the company and the government over offering traceability of messages in the domestic market. The buzz is that the government now wants WhatsApp to prioritise curbing of fake news on its platform over any other plan and is far from satisfied by its damage-control measures.
Making matters worse for WhatsApp, the Supreme Court issued a notice to the company yesterday, asking why it has not appointed a grievance officer in India yet. This may spell trouble for the Facebook-owned company, which has big plans for India - its biggest market in terms of the customer base.
The nearly three-year-old payments start-up acquired by Flipkart in 2016 claims to be among India's first UPI apps. According to the news portal, PhonePe has 133 million app downloads.
Pros: When Walmart Inc. acquired a majority stake in PhonePe's parent Flipkart Online Services Pvt., the payments app also acquired a global backer. There are already tell-tale signs that PhonePe is gaining from Walmart's financial heft - in July, Flipkart infused about $66 million into the platform to help it take on the increasing competition.
Cons: Flipkart arch-rival Amazon has been steadily pumping capital into its own wallet, Amazon Pay, and increasing its user base.
Bharat Interface for Money (BHIM)
Designed by UPI, this is the government's own play in digital payments and reportedly has 32 million app downloads. Being simple and fast, the app appeals to non-technologically savvy users in Tier 2 cities and beyond, including rural areas.
Pros: The government has been actively pushing BHIM, using Modi's face to promote its brand. In June, while interacting with beneficiaries of the various Digital India efforts, Modi had asked them to press traders and shopkeepers to install the BHIM app to facilitate paying for goods and services digitally. Moreover, in order to boost the user base, transaction targets are being laid down for banks and state-owned utilities.
Cons: It is being stymied by deep-pocketed rivals, constantly innovating and offering a broader reach of services.
Edited By Sushmita Choudhury Agarwal