The entry of global messaging leader WhatsApp is poised to disrupt the digital payments business in India. But market leader Paytm is responding in interesting ways.
Demonetisation was the stimulus that unleashed the digital payments business in India. Dozens of non-banking entities filled the gap of scarce currency with easy-to-use applications or apps and the public embraced names like FreeCharge, MobiKwik, PayU, Paytm, PhonePe and others to ease the pain of paying for a host of services from taxis to mobile phone recharges to door deliveries of meals and groceries.
Once the cash was back in circulation, many of these services saw diminished usage of their online payment gateways – but there was enough stickiness to create a burgeoning new ecosystem of paperless small payments. And the government stepped in albeit after some false starts to create a common platform and regulatory framework for all these private initiatives: the Universal Payments Interface (UPI). It also rolled out a robust digi-pay app of its own – Bharat Interface for Money (BHIM) and nudged banking and non-banking payment solutions to integrate with BHIM.
Within its own hype cycle (jargon popularised by Gartner to assess new tech trends), digital payments in India had settled from a peak of expectations into a period of steady consolidation: Global biggies signed up: Google came on board, with its India-specific payment app, Tez; Samsung Pay did likewise.
The Facebook-owned WhatsApp, the world's largest messaging app – with a 200-million plus footprint across India, has had many useful learnings in this country: unlike anywhere else, it noted, India's bottom-of-the-pyramid enterprises (to use C K Prahlad's memorable characterisation) had converted WhatsApp into a free and potent tool to grow their business. If you can't fight 'em, join 'em – which is exactly what WhatsApp did a few months ago, rolling out a small enterprise-focused avatar, WhatsApp Business a free-to-download Android app that would make its money in other ways.
One obvious way, of course, was to link WhatsApp to digital payments – and last month, the company launched its first-ever peer-to-peer digital payments service in India, not just for business user, but for all its active Indian users. Albeit in beta and still putting in place its mandatory integration with BHIM-UPI, the WhatsApp payment app has gained early traction, not least because government voices like NITI Aayog Chief Executive Office Amitabh Kant tweeted instant enthusiasm: "Just made my 1st payment through WhatsApp! It’s easy, simple, seamless & simply awesome! Will be a winner! Takes digital payments to another level!"
Incumbent players are not about to roll over and die: Market leader Paytm has been vocal about the structural lacunae in the WhatsApp payment tool and has warned that its owner Facebook is creating a walled garden which flies in the face of the government's UPI mandate. At the time of writing, it appears, the National Payments Corporation of India (NCPI), nodal agency for UPI, is working to address some of the issues and ensure that the WhatsApp payment app meets the requirements it has set for all such tools in India and does not flout any considerations of security, in the pursuit of ease of operation.
Of the India-based e-payment solutions, Paytm has best managed the consolidation post demonetisation. In recent months, it has averaged around 255 million transactions, thanks to innovative tie-ups with a number of other e-commerce players. Founder Vijay Shekhar Sharma suggests that in the next seven years, India would add $2.5 trillion to its economy, with the digital payments sector contributing a large chunk. But the fact remains that e-wallet operations are not yet profitable in India. “E-payments in India are already witnessing unprecedented growth since the government's announcement of demonetisation in late 2016. Now with the foray of WhatsApp, the country’s smaller and struggling e-payments companies fear a unique threat in an already crowded and competitive ecosystem,” said GlobalData senior technology analyst Prarthna Tiga.
"We expect consolidations to be the force in the next few years, with the bigger players focusing on opportunities to expand their footprint in India and other markets. In the meantime, smaller e-payments players are tapping into unidentified opportunities to stay relevant in the market," Tiga said.
Is there room in India for 60 odd e-wallets in the non-banking sector alone? Possibly not – mergers and takeovers might change the landscape in the months to come and while biggies like Paytm can expect their long pockets and wide reach to help them hold on to their chunk of the market, innovation may yet be the key differentiator. Some of it was in place even before WhatsApp's "pay-day": six months ago Paytm launched its own payments bank and for any Paytm user who has already met its KYC, the process of opening an account takes just a minute. In another interesting foray, Paytm joined ICICI Bank to offer instant short-term digital credit – the first such tie-up between a scheduled commercial bank in India and a digipay platform. Based on credit scores, users can avail 45 days interest-free credit in the range Rs 3,000 to Rs 10,000. A shot across the bows of WhatsApp?
In what seems like the ultimate irony, Paytm has also launched 'Inbox', a messaging platform with in-chat payments. You can chat with friends and family and also send or request money with one tap. If a messaging app like WhatsApp can foray into payments, a pure pay app like Paytm can embrace messaging and compete on its own turf!
As global brands and local leaders stake out their territory in India's digital payments market, the stage seems set for some close encounters of the monetary kind. Interesting times are ahead – and the customer is the only sure winner.