The U.S.’s tech giants have globally been behind the curve on fintech, so it is not a surprise that they have underperformed in an ultra-competitive digital finance market like India’s. Despite its best efforts, whether through taking a stake in Jio or via WhatsApp Pay, Facebook has struggled to develop a market niche in the subcontinent. Amazon, which has a sizable e-commerce business in India, has been unable to convert Amazon Pay into a prominent e-wallet in the country. Even PayPal, the U.S.’s most prominent fintech company, exited India’s domestic payments market in early 2021.
Google Pay is an exception to this rule. According to Watcher.guru, the payments app has 67 million users in India, by far its largest single market – Google Pay has roughly 150 million users globally. It has the second-largest market share on the paramount United Payments Interface payments rail and is now pushing into consumer and merchant lending.
Alignment with UPI
Google Pay has been highly successful linking up with UPI, the most important retail payments rail in India. Since 2018, according to India’s Ministry of Finance, UPI transaction volume has surged from 920 million to 83.75 billion, while the value of those transactions has jumped from 1 trillion Indian rupees ($12 billion) to 139 trillion Indian rupees ($1.7 trillion). It is no coincidence that the most successful digital payments apps in India are also those with the strongest presence on UPI.
Throughout this period, Google Pay has usually managed to maintain at least a 33% market share of UPI payments. At present, it has around a 35% share, second only to Walmart-backed PhonePe based on data from the National Payments Corporation of India.
It is true that PhonePe has eaten away at Google Pay’s market share in recent years and taken a commanding lead with about 50% of the UPI market based on the NPCI data. Still, other competitors have been unable to dislodge Google from second place. Paytm has been stuck at 15% or less and WhatsApp Pay cannot even crack 5%. Nor Can Amazon Pay according to the same dataset.
Meanwhile, given where its market share sits, even if a pending 30% cap on monthly UPI transactions processed by third-party payment firms were to be implemented by regulators as planned in a year’s time – we suspect it might be quietly shelved instead given its lack of practicality – Google Pay would be affected significantly less than PhonePe.
Managing regulatory and legal challenges
In addition to its savvy focus on growing UPI market share, Google has managed to avoid being tripped up by regulatory and legal travails even though it has been ordered to pay stiff fines by India’s antitrust watchdog. While hefty at $162 million and $113 million, the two fines, respectively imposed in late 2022 for abusing the dominance of Android and refusing to open up the Google Play store to third-party payment apps, came after Google had already established a dominant market position. Google Pay cannot be easily dislodged now given the ubiquity of its ecosystem in India’s digital payments market, while for a company the size of Google, the fines are manageable.
Now imagine if Google Pay had faced the same kind of obstacles as WhatsApp Pay. The Facebook-owned firm has always been viewed by some observers in India as endowed with unfair advantages in payments given its large messaging app user base and thus has been restricted in terms of what it can offer Indian users. At present, WhatsApp Pay can still only offer services to about 100 million of its 500 million Indian users and it entered the market so late anyway that it is playing a game of perennial catch-up.
For its part, Amazon has been ensnared since 2019 in a drawn-out legal battle with Indian retailer Future Group, while Amazon Pay was in March fined 30.7 million Indian rupees ($375,000) by the Reserve Bank of India for non-compliance with directions on prepaid payment instruments and know-your-customer regulations.
Patiently building an ecosystem
Looking ahead, we expect Google Pay will patiently and methodically build on its strong position as an e-wallet in India to develop a larger digital financial services ecosystem. Co-founder Sujith Narayanan hinted at this approach back in 2020 in a Tech Crunch article: “When we were building Google Tez [Google Pay’s predecessor], we realized that a consumer’s financial journey extend beyond digital payments. They want insurance, lending, investment opportunities and multiple products,” he told the publication.
Three years later and we can see Narayaan’s vision is becoming to come to fruition. In October, Google Pay announced that it was teaming up with Indian banks and other financial institutions in a bid to expand into both consumer and merchant lending. Per Tech Crunch, a partnership with Axis Bank will allow that institution to provide loans to individual Google Pay users of up to $9,600, while an agreement with ICIC Bank will provide credit lines atop of UPI to merchants.
It is unclear how lucrative these partnerships will be for Google Pay since it is not providing loans itself or underwriting customers – it lacks the necessary licenses. That said, the tech giant’s digital payments division is on the right track, segueing from low-margin payments into higher-margin segments of financial services.
Perhaps if its luck holds on the regulatory front, Google could consider trying to acquire a local bank in the future (with all of its accompanying licenses), especially a smaller lender that would benefit significantly from being part of the tech giant’s ecosystem – though for now sticking with strategic partnerships is likely for the best.