We are mixing our cultural metaphors here. Yes, Sumo wrestling is from Japan and this post is about mobile payments reaching a tipping point in India. Yet the Sumo analogy fits when we are talking about the mobile payment giants of India such as Paytm, Chillr and Mobikwik. Without regulation, this would be a winner takes (almost) all market based on network effects. However, India has some Tech Smart Regulation called Unified Payments Interface that levels the playing field so that the whole economy benefits.
Paytm – aggressive growth
There is a a fierce battle for market share in mobile payments in India. This is where the winners emerge and those winners use a mix of aggression and smarts enabled by plenty of capital. We start with Paytm because they were the first Fintech Unicorn in India to hit our radar screen; we expect to see more Fintech Unicorns emerge in India during 2017.
Paytm is a kludgy name that stands for Pay Through Mobile. Who cares about kludgy names if it is so successful? They claim 120 million users, up from 12 million only 2 years ago and having been founded only in 2010. Post demonetization, Paytm was processing more than 7 million transactions per day.
That is phenomenal growth by any standards.
This growth upsets people, including some global players. Paypal accuses Paytm of Trademark infringement. There is also a battle with Uber. Within India we see criticism from rival Mobikwik about what they describe as capital dumping via China.
All those critiques come with being a leader. However, it is possible that, like some people say about Uber, Paytm could be buying a dollar for 99 cents through incentives. This is the norm in market share battles and the prize is big enough, but entrepreneurs have to know when to pivot when capital starts demanding profits. I suspect Alibaba, a big shareholder, takes the long view as does the big Indian shareholder, Tata. However, growth through incentives is a bit like steroids for an athlete – dangerous if you come to rely upon them.
Paytm has become a Payment Bank. The way they present their mobile wallet it is like a current/checking account – you can Add Money, look at your Passbook and Redeem loyalty points.
Then you can pay bills for everyday items. This is where you see the original driver which is paying your mobile operator. You simply enter your number, the Operator, the Amount and whether it is Prepaid or Postpaid. You can choose Fast Forward to pay directly from your Paytm balance. Paying your mobile operator may not seem like a big deal, but this is a mobile leapfrogging story. Indians spend 45% of their incomes on mobile technologies and platforms (vs only 11% in America). because mobile is the main point-of-entry to the Internet (PC penetration is 5% vs 75% for mobile).
Then you can pay for your DTH Satellite TV and Electricity. In a uniquely Indian spin, you can use it to buy Gold.
However, then you see an e-commerce service. In the West we grew used to payments (Visa, Mastercard, Amex, Paypal etc) being different from ecommerce (Amazon, eBay, Uber etc). China and India do it differently. Alibaba is Amazon + Paypal. Paytm is Paypal + Amazon; the placing of the + makes very little difference but the combination is game-changing. It is no coincidence that Alibaba is a big investor in Paytm.
Just after phone recharging and utilities, Paytm offers a lot of services that are part of everyday life in India – movies, bus, flights, trains. Buying these does not entail any supply chain logistics.
To put that in context, that would be like Amazon selling your air flights or train tickets.
Below that you can see a conventional online shopping mall. This could be Amazon or Alibaba or Flipkart. The key is that Paytm is an online shopping mall offered by a payment company.
This would be like Visa or Paypal offering an online shopping mall. This is ecommerce merged with payments. This is likely to be the future of both ecommerce and payments. This may drive mega mergers in America, but it is more likely that the real innovation will come from China, India and Africa (a leapfrogging First the Rest then the West story).
Mobikwik is another major contender with serious traction and plenty of capital. It looks like a bruising street fight between Paytm and Mobikwik. Literally, the action is on the street as both ventures win by signing up merchants. Merchants can accept more than one – this can be a Visa vs Mastercard story. Or the UPI standard could commoditize the whole Consumer To Merchant (C2M) business; when we use physical cash there is no transaction fee.
Mobikwik is also taking hard shots at Paytm for their ties to China via Alibaba.
“We must be sensitive to companies, especially those that have massive foreign investments,” said Singh. “They can come into the country, dump capital and gain access to data.”
Chillr has a different strategy to Paytm and Mobikwik. They don’t go after the Consumer To Merchant (C2M) market (apart from the ubiquitous phone recharging), but stay focused on Consumer To Consumer (C2C) payments.
Their lead investor is Sequoia Capital. Their massive win was Whatsapp and the assumption of many has been that Whatsapp will monetize through C2C payments, so this will be interesting to watch.
Chillr are getting distribution through partnerships with Banks. All transactions on Chillr are initiated directly from the users’ bank accounts and authenticated by a secure PIN provided by their banks.
Examples of Bank partners include HDFC and Federal Bank.
OxigenWallet competes with Paytm and Mobikwik. Like Paytm, they have received in-principle approval from the Reserve Bank of India to operate under the Bharat Bill Payment System (BBPS), which will allow people to pay utility bills from anywhere at any time.
Oxigen expects BBPS to help more than double the company’s wallet user base to 50 million by December next year.
UPI Commoditizing the payment layer for the banked
The bad news about Mobile wallets is that if network effects rule – and they usually do – we might miss the credit card networks as we end up dealing with one or two behemoths that control cash, credit and e-commerce. The alternative scenario is that we all have mobile wallets that work with every other mobile wallet (just like physical wallets). That will be good for consumers, but it will force mobile wallet ventures to add value elsewhere.
There is a lot at stake in the geeky subject of mobile wallet interoperability.
So the Reserve Bank of India (RBI) was farsighted when they launched the Unified Payment Interface (UPI) in April 2016.
In the scenario where one or two behemoths rule, our wallets will be determined by our mobile phone operating system. Merchants will accept both Apple and Android/Google like they accept Visa & Mastercard today.
That scenario is unlikely in India, thanks to UPI. We believe that India leads the way on this Tech Smart Regulation front and other countries will follow.
Dominance by Apple and Android/Google is also unlikely because the other Global Big Techs – Facebook and Amazon in GAFA and BAT (Baidu Alibaba TenCent) – won’t sit still for dominance over something as critical as payments. Neither will Visa & MasterCard and the banks.
India does not want payments & ecommerce dominated by a few global players. India is sensitive to “digital colonialism”. They don’t want their digital life – which now has such a huge impact on the economy – controlled by companies based in America or China (i.e. GAFA and BAT).
There is as yet no GAFA or BAT equivalent acronym for India. We have had various incarnations of acronyms for the outsourcing giants such as SWITCH Satyam Wipro Infosys TCS HCL. However, the new Digital India behemoths are companies like Flipkart, Paytm, Snapdeal and Mobikwik. Somebody who is good with crossword puzzles will put them into an acronym.
The point of lumping Flipkart, Paytm, Snapdeal and Mobikwik into one category is that payments and ecommerce is converging, thanks to Alibaba.
How Alibaba changed the game
The lazy way to describe Alibaba was the “Amazon of China”. However, it would be more accurate to describe them as the Amazon + eBay + PayPal of China. It is not just that Jack Ma is hugely ambitious – he clearly is – but also that digitization erodes barriers between previously distinct categories. Payments and e-commerce are inextricably linked. Actually, to really describe Alibaba’s ambition, you would have to talk about the Amazon + eBay + PayPal of the world. In that game, India is the arena. The Indian government understands this and has been tech savvy and proactive.
This merging of payments and e-commerce has already played out in India.
An early mobile wallet pioneer was FreeCharge, which started out, like Paytm, enabling you to recharge any prepaid mobile phone, postpaid mobile, electricity bill payments, DTH and data card in India. Paytm moved into e-commerce and then Snapdeal Acquired FreeCharge in April 2015.
Moving upstream post UPI
If the payment layer is commoditised, which is what consumers want, mobile wallet ventures need to move upstream to become either banks or e-commerce portals or both.
Paytm has already become one of the 11 new licensed Payment Banks and a quick look at their site reveals an e-commerce portal.
UPI is about bank payments and millions Indians are still unbanked (233 million as per a PwC India report). Plus, cash is still king & queen. Yet India’s 150 million smartphone users is expected to grow to 500 million in the next few years.
Upasana Taku, co-founder of MobiKwik, which has 30 million wallet users cites Reserve Bank of India data showing mobile wallet growth to be four times more than mobile banking.
The on-ramp to financial services for the unbanked will clearly be mobile wallets. The future maybe less about adding a mobile layer to banking than adding a banking layer to mobile. India is where this will play out first.
UPI also makes mobile wallets work better, because it works quicker than the Immediate Payment Service (IMPS) that banks use for instant money transfers. UPI will make it faster to get cash to merchants and to load cash into consumer wallets.
Who will be the Alibaba of India?
In China we talk of the Google of China, the Facebook of China, the Amazon of China and so on.
In India, the Google of India is Google, the Facebook of India is Facebook, the Amazon of India is – maybe Flipkart and maybe Amazon and maybe Alibaba.
Flipkart understood that Cash On Delivery (COD) was essential in India. You could not simply replicate Amazon in India. Flipkart grew huge by innovating on the logistics front.
However, what happens when that cash at the door is a guy with a mobile phone and a mobile wallet? That is where the race to get consumers to sign up for a mobile wallet is so key. The mobile wallet is the key to the e-commerce universe.
You can see why Alibaba invested in Paytm and why Mobikwik is playing the made in India card (i.e saying that Paytm is too close to China).
It is a sign of the changing times in the Asian Century that we ask who will be the Alibaba of India?
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