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.
Chinese investment in India has flourished over the past decade, reaching a $8 billion as of December 11, 2019, as compared to $200 million a decade earlier in 2009. A significant amount of that investment is coming from China’s two tech giants, Alibaba and Tencent, which have been aggressively investing in Indian start-ups. Many of these start-ups have crossed the $1 billion valuation threshold to become unicorns.
Alibaba and Ant Financial have invested resources in five unicorns out of the six companies they’ve invested in, while Tencent has done the same for seven out of twelve startups they’ve funded. This would mean that Alibaba and Tencent have invested in approximately half of the 31 unicorns in India, according to a report from Iron Pillar. A six-fold increase of Chinese investment in India was recorded between 2013 and 2014, coinciding with the strategic restructuring of Alipay to Ant Financial. Experts believe that a majority of Chinese capital in India come from Alibaba and Tencent, or its subsidiaries.
2019 was the year of the aspirational super app - aspirational because no platform has come anywhere near the dominance of China's WeChat. WeChat never branded itself as a super app. It simply became one thanks to a timely arrival, its appeal to Chinese users and lack of serious competition.
Rebranding a successful tech startup as a potential super app is a good way to keep the funding gravy train flowing. What could be more enticing to investors? Just ask the Southeast Asian ride-hailing giants Grab and Gojek. But China is a unique market, where users are happy to sacrifice choice for convenience and a frictionless experience. Elsewhere, notably India, users prefer different apps for different functions.
India fintech sensation Paytm plans to reduce its losses by 1/3 to $400 million annually, according to The Times of India. Softbank and Alibaba-backed Paytm is India's most valuable tech startup with a $10 billion valuation, but has been burning cash at a torrid clip for years, like many of its peers across the region. In the 2019 fiscal year, Paytm lost a whopping $600 million, up 300% over the same period a year earlier.
India has long been a non-allied country. Amidst rising Sino-American tech competition, India's policy has not changed. It leans towards neither Washington nor Beijing. As India's digital payments sector surges, Chinese and U.S. tech investors shut out from each other's markets are instead competing intensely on the subcontinent. Consolidation will occur as India's digital payments market matures, as it did in the e-commerce, ride-sharing and food-delivery segments, analysts say.
India has one of Asia's most vibrant fintech ecosystems, highlighted by payments unicorn Paytm with a valuation of US$10 billion. In the first quarter of the year, the subcontinent attracted the most VC fintech investment of any country in Asia, beating out digital finance juggernaut China.
Given the excitement surrounding India's fintech scene, it is easy to overlook cash's continued paramountcy in the Indian economy, accounting for 95% of transactions. Indeed, cash not only remains the primary payment method in India, its use is growing. The reason is straightforward: Cash is convenient - especially considering India's large informal economy. The fintech ecosystem must penetrate far deeper into the Indian economy before it can begin to displace cash.
WhatsApp has moved one step closer to launching its payment business in India by setting up local data storage facilities, according to India's The Economic Times. As a condition of market entry, the Reserve Bank of India (RBI) requires digital payment providers to first set up local data storage facilities and then submit an audit report to the central bank. Market insiders say that WhatsApp Payments is expected to go live with its Unified Payments Interface-based service with ICICI Bank. Services through Axis Bank, HDFC Bank and SBI are likely to follow, they say.
Paytm’s payments bank (PPB) has become India's first profitable business of its kind, posting a net profit of Rs19 crore ($2.7 million) in fiscal year 2018-19. PPB says that it accounts for nearly a third of all mobile banking transactions in India and processes over Rs3 lakh crore worth of digital transactions per year, second only to India's top lender State Bank of India. With over Rs 500 crore deposits in its savings account, PPB is the top payments bank in India in terms of deposits.