Buy now, pay later (BNPL) is taking the payments world by storm, from the advanced economies to emerging markets. There seems to be a universal appeal for consumers - whether they are accustomed to using credit cards or not - to interest-free installment payments. That holds particularly true during the pandemic, when lenders control credit tightly. In India, some of the largest BNPL players include the unicorn Pine Labs, Vivifi (which operates Flexpay), Simpl and ZestMoney. All of these firms saw growth in their BNPL products in 2020.
WhatsApp Pay just launched in India for 20 million users. That is big news, given the long and drawn-out waiting period. Indian regulators, however, made a more consequential decision than giving WhatsApp Pay a belated green light, which is overshadowing the app's rollout. The National Payments Corporation of India will restrict the market share of third-party payment applications by capping at 30% the total transaction volume any single digital wallet can process on the preeminent Unified Payments Interface (UPI) platform.
The Facebook-Jio deal appeared to pave the way for the long-awaited launch of WhatsApp Pay in India. Thanks to its US$5.7 billion investment in Reliance's Jio Platforms, Facebook finally had a heavyweight local partner in the subcontinent. Political pressure is mounting on New Delhi to prevent foreign tech giants from dominating the digital economy. The Facebook-Jio deal directly addresses those concerns. Yet, more than four months after India's Competition Commission approved the deal, WhatsApp Pay remains in beta launch.
The fintech narrative has adapted swiftly to the worst public health crisis in a century. Digital banking is now depicted as an epochal shift, driven by drastic pandemic-induced changes in human behavior. In many cases, this is an exaggeration. But some fintech startups, like the newly minted Indian unicorn Razorpay, have turned this crisis into a genuine opportunity. The Bengaluru-based firm raised $100 million in a series D financing round that closed in October, co-led by Singapore’s sovereign wealth fund GIC and Sequoia India, and is now valued at roughly US$1 billion.
Amazon wants to make fintech a key part of its burgeoning digital services ecosystem in India, which is expected to become one of the e-commerce giant's largest markets over the next few years. With 100 million users in India, Amazon already sells lots of goods online to Indians, including content streaming services. A digital banking ecosystem could help it sell more, including more memberships in its Prime loyalty program and of course, various financial services themselves.
In the foreseeable future, India's payments market has nowhere to go but up, analysts say. In a new report, RedSeer Consultancy estimates that India's unique mobile payment users will grow fivefold to 800 million in 2025 from the current 160 million, while transaction volume will grow to Rs 7,092 lakh crore from 2,162 lakh crore. Rising mobile internet connectivity, increased availability of mobile point-of-sale devices and the advent of real-time payments are key drivers of the shift to digital payments in India.
It is not easy to stand out in India's crowded payments segment. Users are spoiled for choice. There's Google Pay, Walmart-backed PhonePe, Alibaba-backed Paytm, or Amazon Pay, and perhaps one day WhatsApp Pay - if Indian regulators ever let it operate in the subcontinent. In theory, the first payment provider that can build a super app that bundles together all the services users want in one place will be the biggest winner. But that has proven elusive. It might be enough to build the best digital financial services platform - and forget about the rest. Paytm's entry into the insurance sector follows this line of thought.
China and the U.S. have both invested big in Indian fintech. Google Pay is one of the most popular digital wallets in the country, along with Walmart-backed PhonePe and Alibaba-backed Paytm. Facebook recently invested in India's Jio in a bid to build the subcontinent's first super app. There's just one problem: Indian regulators are concerned that foreign companies may dominate India's fintech market. WhatsApp Pay has yet to receive approval to launch in the subcontinent, two years after applying for a payments license. At the same time, New Delhi is cracking down on Chinese apps and enhancing scrutiny of Chinese investment amid rising geopolitical tensions with Beijing.
Chinese investment into Indian fintechs is set to slow following New Delhi's decision to restrict foreign investment from countries with which it shares a land border and more carefully scrutinize new portfolio investors from mainland China and Hong Kong. India's immediate reason to target foreign investment is to forestall opportunistic takeovers during the coronavirus pandemic, which has infected about 152,000 and caused more than 4,000 deaths in the subcontinent.
Internet giants outside of China are trying to create a super app like WeChat, which users rely on widely to chat, buy goods on and offline, and bank. The payments application is the stickiest: Once WeChat became a preferred digital wallet, it had a captive audience for a much wider selection of banking services. For Facebook, which is shut out of China, India offers the chance to build a super app. There are more users of both Facebook and its messaging app WhatsApp in India than anywhere else on earth. Facebook has moved one step closer to that goal following its US$5.7 billion investment for a 9.9% stake in India's telecoms giant Jio, a subsidiary of the juggernaut Reliance Industries.
The India digital payments market makes for a fascinating contrast to China's. Unlike China, India has allowed foreign tech giants to compete on a mostly level playing field against its homegrown firms. In fact, Chinese tech giants are strategic investors in some of those Indian fintechs. Competition in the surging Indian payments market - Credit Suisse reckons it will grow fivefold to US$1 trillion by 2023 - is fierce. Google Pay is the market leader followed by Walmart-backed PhonePe according to research firm Razorpay. India's own Softbank-backed Paytm has fallen behind. AmazonPay is also vying for market share.
Entering into this fray is WhatsApp Pay, the digital wallet of the global messaging giant. WhatsApp Pay is aiming to do what in India what WeChat did in China: Segue from chatting and photo sharing into digital banking on the back of a popular messaging app. The difference is that WhatsApp Pay has a lot more competition. The only major digital wallet WeChat faced was Alipay. Interestingly though, WhatsApp has about as many users in India - 400 million as WeChat had when it expanded into digital banking in 2014. Today, WeChat has more than 1 billion users, mostly in China.
India fintech unicorn Paytm is shifting its focus to merchants in a bid to better compete with rivals Google Pay and Walmart-backed PhonePe. Paytm lags those two firms in its share of the transactions on India's state-backed real-time UPI payments system. As of October, UPI handled more than 50% of India's digital transactions, according to research firm Razorpay.
Credit Suisse reckons that India’s payments market could reach $1 trillion by 2023. Four or five major firms are likely to vie in India's payments market after consolidation, analysts say. A duopoly like Ant Financial-WeChat Pay in China is unlikely in the India market.
India was one of the world's hottest fintech markets in 2019 with related venture-capital investment in the first half of the year reaching $286 million. Investors are especially keen on the payments segment, which an Assocham-PWC India study predicts will more than double to $135.2 billion in 2023 from $64.8 billion in 2019.
Paytm is not just the most valuable Indian fintech firm: At US$16 billion, the digital payments company boasts the highest valuation of any Indian startup. It has long been considered a standout on the Indian fintech scene and counts Softbank and Ant Financial as its primary backers. Together, those two heavyweight investors own 60% of Paytm. In a recent interview with The Financial Times, Paytm founder Vijay Shekhar said, "We see ourselves on a healthy path."