Why India's move to diversify its digital payment system is very good news for Amazon and Google

India’s move to diversify its digital payment system presents an enormous opportunity for technology giants such as for example Amazon, Facebook and Google, who happen to be keen to tap the country's rapidly expanding market.

The Reserve Bank of India (RBI), the country’s central bank, invited companies last year to apply to establish alternatives to the retail digital payment network run by the government-operated National Repayments Company of India (NPCI).

The move is likely to reduce the country's reliance on one network and mitigate risks. Additionally, it may help companies looking to gain a foothold in India’s burgeoning digital obligations industry, analysts say.

“It's a welcome move, since it opens up the possibility of additional specifications that could potentially deepen digital payments penetration,” says Utkarsh Sinha, the managing director of Bexley Advisors, an expenditure advisory firm located in Mumbai.

India's digital payments industry has been expanding rapidly recently and is projected to more than triple to 7,092 trillion rupees ($97.5tn) by 2025 from the 2020 financial calendar year, according to RedSeer Consulting. It attributes this development to the country's fresh population and speedily rising smartphone ownership. Authorities policies have a job to play too, as Primary Minister Narendra Modi pushes for a digital economy.

The Covid-19 pandemic has helped accelerate digital payments in India, particularly after Asia’s third-largest economy was placed into lockdown this past year to stem the spread of the pandemic, according to a PwC report.

“Digital has become an all-pervasive mega-trend, dramatically changing the lives of individuals, business models of enterprises, and the market of India,” says Nitin Seth, the writer of Winning found in the Digital Age.

Currently, digital payments will be processed simply by the NPCI that was established in 2008 simply by the RBI mainly because a not for profit firm to operate the retail payments and settlement systems in the united states. It really is backed by dozens of retail banks.

The NPCI runs the Unified Payments Interface (UPI), launched five years ago. Users link their mobile phone numbers to their lender accounts through this technique and they may easily transact online on retail systems such as Amazon and through software such as Paytm to give online.

In total, 31.7tn rupees of transactions were processed in NPCI's payments interface between April 2020 and January 2021, and it taken care of about half of India's 41 billion over the internet retail transactions, according to data from Bloomberg. Presently, there is no alternative to the UPI system, but that's set to improve with the government’s move.

As digital payment volumes boom, authorities and companies are concerned that reliance on one system could make it more challenging to control risks such as for example cyber fraud. That prompted the RBI to start the marketplace to other organizations to create for-profit retail payment systems, under what it refers to as “latest umbrella entities”.

“There should be multiple quicker payments platform in a huge country like India,” says Ajay Adiseshann, the founder and leader of PayMate, an Indian payments solutions firm. “NPCI has already established a monopoly with UPI and that is not healthy.”

“A sole institution like NPCI could be a systematic risk to the repayment system of the country,” says Suresh Rajagopalan, the principle executive of Wibmo, a digital payments company located in the US and Bangalore, India.

Mr Adiseshann says new repayment systems may possibly also help “foster technology beyond selected types of repayments”, that can be achieved by allowing companies to use commercially found in this space, while the RBI is planning to do.

Beneath the central bank's guidelines, foreign companies can only own up to 25 per cent of a new umbrella entity.

At least six teams have been formed to try for the licences, according to Bloomberg. Included in these are a consortium of companies incorporating Amazon, Visa, and Indian banks ICICI and Axis. Mastercard can be planning to obtain a licence along with Indian conglomerate Tata, regarding to Bloomberg.

India's richest guy Mukesh Ambani's Reliance Industries possesses teamed up with Facebook and Google - which this past year both invested billions of us dollars into Reliance's digital services company Jio Systems. Meanwhile, home grown electric payments huge Paytm and ride-hailing iphone app Ola are comprehended to have became a member of forces to apply for a licence.

Google Pay, Amazon Shell out, and Facebook-owned WhatsApp Obligations are available in India, but they all currently rely upon the UPI system for his or her transactions to be processed.

Google and Amazon didn't react to requests for comment. A Facebook spokesperson said the business would not touch upon the matter.

Competition will get stiff seeing that the RBI is merely expected to award one or two licences. The deadline to apply can be the end of this month and industry insiders claim the initiative gets the potential to convert the sector.

Mr Rajagopalan says the brand new umbrella entities could bring many deep-pocketed players who can “accelerate the Digital India mission in tier several and three centres [smaller towns and towns] where digital payments are actually burgeoning post-Covid”.

The RBI, when it first invited companies last year, said that the scope of activities of an umbrella entity - alongside operating new payment systems in the retail space in India - would include “identifying and managing relevant risks such as for example settlement, credit, liquidity and operational and preserve the integrity of the machine” and “monitoring retail payment system advancements and related issues in the united states and internationally in order to avoid shocks, frauds and contagions that may adversely affect the system or the economy generally”.

The brand new licensees would also be expected to work on areas such as improving awareness about the payment systems, the RBI said.

With the creation of new entities, “payment industry players can leverage their existing payment platforms and infrastructure to set up new payment methods, spouse with payment aggregators, and broaden their footprint among competitors”, in line with the PwC report.

But analysts explain that implementation will be a concern and it remains to be to be seen how factors pan out for those that gain a licence.

“One has to celebrate with caution,” Mr Sinha says. “The prevailing standards will work well and UPI is perhaps among the best systems obtainable globally. We have seen in the past how companies hurry to adopt newer RBI licences, but little adoption happens on surface causing the licences to languish.”

However, there may be significant rewards for those corporations that do actions this effectively after they win a licence.

“What gives this particular licence more teeth” may be the fact that in addition, it allows the new licensees to create and operate ATMs, point-of-sale devices and remittance services, alongside a digital repayments interface, Mr Sinha says.

While companies will be able to earn a living from transaction fees, it's the data from electronic transactions that “represents the true value”, he adds.

Customers may possibly also stand to benefit from having more choice and the platforms might offer incentives to vendors as they compete to seize their show of the market. But they will have to wait a while for the brand new systems to get right up and running.

The RBI said that it's aiming to complete the processing of the applications it receives within six months.

The central bank is likely to examine “the pedigree of the entities, history of operations, usual financial metrics, and in cases like this payments experience and background” before awarding the licences, Mr Adiseshann says. That could mean stalwarts such as Amazon, Google or Facebook in fact stand an opportunity to tap into India’s digital repayment sector.