India's mobile payments sector is warming up as Covid-19 drives digital adoption

Sachin Kharvi, who sells vegetables and fruit in a bustling market in India’s financial capital Mumbai, only accepted cash for his products until four months ago.

But as the coronavirus pandemic spread over the length and the breadth of the united states, Mr Kharvi and other vendors available in the market were forced to roll out mobile payments options as customers shied from cash because of safety concerns.

“Now, 50 per cent of my customers are employing mobile payment software like Google Pay and Paytm,” he says.

India's digital payments sector was booming long before the pandemic. Mobile payments alone registered a 163 % growth to $286 billion in 2019 compared to the previous year, according to an S&P Global report.

It is a sector that companies are keen to tap and the competition is heating up as international players look to get a slice of the booming payments market in Asia's third-largest economy.

WhatsApp this month became the most recent entrant to India's flourishing payment industry. It will require on the three most significant companies in the space: Google Pay, Walmart-owned PhonePe, and Paytm, which is backed by Softbank and Alibaba.

“WhatsApp is definitely likely to be a large disruptor in this space,” says Utkarsh Sinha, the managing director of Bexley Advisors, a Mumbai-based advisory firm that works with technology companies. “Few companies have the might that WhatsApp does to upend the market.”

The Facebook-owned messaging app aims to capitalise on its large user base of some 400 million persons in India, which is its largest market.

WhatsApp users already are on the iphone app multiple times a day and that is a significant advantage it has over your competition, Mr Sinha says.

“I would be very surprised if [WhatsApp] will not become the number one or number 2 [player] within the next couple of years,” he says.

Google Pay is currently the most popular software for mobile payments, with some 75 million active users in India on its platform transacting in-may. PhonePe had 60 million users and one-time market leader Paytm, had 30 million in the same month, according to a written report by Bernstein.

Underpinned by rising smartphone ownership along with lower handset and data costs, the sector is primed for further growth .

A written report published in September by RedSeer Consulting projects mobile payments in India to grow 58 % annually to attain 245 trillion rupees ($3.3tn) by 2025.

The Covid-19 outbreak is giving yet another 5 % boost to these projections, in line with the report.

“Individuals are now pushing this because they're safety conscious and they're calling retailers to accept digital payments,” says Anand Kumar Bajaj, managing director and leader at PayNearby, which partners with small local stores to facilitate their use of digital financial services. “The pandemic is a key driver.”

Mobile payments “are catching on like wildfire”, says Mr Sinha. “And it's really not just [at] the top of the pyramid; it's [at] underneath of the pyramid too.”

Digital payments are also being propelled further by Prime Minister Narendra Modi's government which has pushed to carefully turn its largely cash-based economy cashless. India's widely-publicised demonetisation move around in 2016, when both highest value banknotes were banned overnight in a crackdown on hoarding of illegitimate cash, was also area of the country's efforts to build up digital payments.

“I'd say a push from the government and the banking regulator towards greater digital payments adoption is working,” says Nitish Asthana, president and chief operating officer at Pine Labs, a platform for retailers in India, providing transaction technology and financing. “While India is still a cash-dominant economy, the mind-sets are steadily changing. ”

He says that “India’s rising and aspirational middle income with increasing household income is preparing to experiment with digital modes ... and increase that the young demographics which is internet savvy ... and the surroundings is ripe”.

Consequently, Mr Asthana says “the market is huge and there is room for everybody”.

“WhatsApp will [also] be a major [game] changer, especially in smaller towns where WhatsApp has already been well-known for the majority of the populace,” says Mandar Agashe, the founder and managing director of Sarvatra Technologies.

“We have not scratched the surface of the markets and we already talking about numbers in billions of transactions,” he says.

But there are a few restrictions on the pace of which WhatsApp - which started testing its service in India in 2018 - can grow.

The National Payments Corporation of India has limited the business to 20 million users initially and WhatsApp will only be permitted to expand gradually.

Mr Agashe at Sarvatra Technologies says these restrictions supply the ecosystem time “to be equipped for an abrupt surge in transactions”.

Payment services including Google Pay and WhatsApp are powered by the Unified Payments Interface, or UPI, produced by the Indian government. This means that the platforms need to be linked to a bank-account and debit card, and instant money transfers are created bank to bank, as opposed to the amount of money being moved to and held in a separate digital wallet.

The National Payments Corporation of India, which controls UPI transactions, on November 5 - the same day WhatsApp's roll out was announced - said that every third-party app could only handle up to 30 per cent share of the full total UPI transaction volumes. This cap makes effect right from the start of 2021, but companies already operating on the market will have 2 yrs to adhere to the rule.

Google Pay, the market leader, has hit out against the move. “A choice-based and open model is paramount to drive this momentum,” Sajith Sivanandan, the business enterprise head at Google Pay, India, said in a statement in reaction to the federal government measure. “This announcement has come as a surprise and has implications for millions who use UPI because of their daily payments and could impact the further adoption of UPI and the finish goal of financial inclusion.”

But industry insiders say it will help in protecting against a monopoly available in the market.

“It's to greatly help citizens or there may be monopolistic moves that could swing the pricing, therefore i think the intent of the cap is not bad,” says Mr Bajaj.

With several companies operating in the sector, industry insiders say market leaders will emerge eventually.

“While it's a crowded space, competition is always good from a consumer innovation perspective,” says Ashwin Sivakumar, the co-founder and chief of digital business growth at JugularSocial Group.

“We are now more likely to see more innovation and much more integrated value propositions from all the players in this space. We would finish up seeing some market consolidation and emergence of several clear leaders in this space.”

Meanwhile for WhatsApp - which is largely used by individuals - getting businesses up to speed to use its payments service may be the key to eventual monetisation, analysts say.

Google Pay, the market leader, has hit out against the move. “A choice-based and open model is paramount to drive this momentum,” Sajith Sivanandan, the business enterprise head at Google Pay, India, said in a statement in reaction to the federal government measure. “This announcement has come as a surprise and has implications for millions who use UPI for his or her daily payments and may impact the further adoption of UPI and the end goal of financial inclusion.”

But industry insiders say it can help in avoiding a monopoly on the market.

“It's to help citizens or there may be monopolistic moves that could swing the pricing, so I think the intent of the cap is not bad,” says Mr Bajaj.

With several companies operating in the sector, industry insiders say market leaders will emerge eventually.

“While it's a crowded space, competition is always good from a consumer innovation perspective,” says Ashwin Sivakumar, the co-founder and chief of digital business growth at JugularSocial Group.

“We are now more likely to see more innovation and much more integrated value propositions from all the players in this space. We may wrap up seeing some market consolidation and emergence of several clear leaders in this space.”

Meanwhile for WhatsApp - which is largely employed by individuals - getting businesses up to speed to use its payments service may be the key to eventual monetisation, analysts say.

A number of the groundwork towards it has already been laid.

This year, Facebook invested $5.7bn for a 10 per cent stake in Jio, a technology platform handled by Asia's richest man, Mukesh Ambani. Jio is dealing with famous brands Amazon as it vies for a chunk of the e-commerce market in India. WhatsApp will probably play a substantial role in the fight for dominance using its payment service, having already tied up for an online booking service with JioMart that facilitates purchases and delivers groceries from local stores.

All the factors are set up for WhatsApp Pay to achieve India, financial technology authorities say.

“It's a question of whether WhatsApp eventually ends up unseating Google Pay as the greatest player in India,” says Mr Sinha.