Cash continues to command the loyalties of consumers in India. However, as demonstrated this summer, the country is not only embracing digital payments, but increasingly attracting competition from some of the biggest players in the industry.
In 2016, Prime Minister Narendra Modi put forth a policy that took the largest banknotes in circulation out of the system (500 rupee and 1,000 rupee bills), a move intended to reduce tax evasion and corruption. The central bank said in August that it had gotten roughly 99.3 percent of those devalued notes back, which means that people gave up those notes in quick order.
Still, cash is still king in India — now more than ever. In fact, the value of cash grew 37.7 percent during a period that was supposed to reduce reliance on paper notes. That certainly presents a challenge for anyone bent on moving consumers to digital payments, but that doesn’t mean the effort is slowing.
India has too many consumers in the middle class, or moving into it, among other factors that present opportunity for eCommerce and digital payment providers from around the world. The country is expected to have a digital payment market worth $1 trillion by 2023, a figure that represents “fivefold” growth from now, according to an estimate.
One of the most recent developments underscoring that point came from Google. The company is rebranding Tez, its digital payment app designed for the Indian market, to Google Play, which already operates in 20 countries. Google also said it was working with India-based financial institutions (FIs) — Federal Bank, HDFC Bank, ICICI Bank and Kotak Mahindra Bank — for an “instant loan” offering via the digital payment app.
Anyone doing digital payments in India must contend with homegrown Paytm, India’s largest online transaction facilitator, which could reportedly win a $286 million to $357 million investment from Berkshire Hathaway.
Meanwhile, Facebook-owned WhatsApp wants approval from the Indian government to officially launch its digital payment service across the country. In February, WhatsApp launched a payment feature in India that now has around 1 million users. Amazon, too, has gotten into bill payments, enabling consumers to pay for electricity, landline, broadband and other utilities with their Amazon Pay accounts. Walmart also has a role, via its ownership stake in online marketplace Flipkart, which is reportedly introducing two new payment products designed for when consumers want to convert a cash-on-delivery payment to another option.
Online Retail Growth
Online retail is another battleground in India, as eCommerce in the country will hit $200 billion by 2026, according to a Morgan Stanley estimate. That market will grow at a 30 percent compound annual growth rate (CAGR) until then. “An increasing number of internet users, all new to eCommerce, will help lead this growth,” the report said.
The competition heated up during the summer.
Alibaba is aiming to gain market share in India. The Chinese company is trying to strike a deal with Reliance Retail to build “a mega Indian retail joint venture” with an investment of “at least $5 billion” to mount a challenge against existing players, including Flipkart and Amazon India. Alibaba is reportedly looking to acquire a large portion of Reliance Retail to build and expand a digital commerce venture.
Amazon has its own plans, reportedly wanting to increase its investment by $2 billion — after already investing $5 billion in the country. News of that followed the approval from India’s antitrust regulator of Walmart’s $16 billion acquisition of Flipkart.
The path to bigger eCommerce market share will not be easy, though. A proposed Indian eCommerce law is calling for harsher controls in governing inventory held by foreign online retailers, which could limit the discounts those companies can offer to consumers.
Digital payments and eCommerce have a long way to go in the world’s second most-populated country. However, as the summer showed, the country has won the attention and investment of some of the world’s major players. Cash may retain its hold on consumers there for a long time, but digital promises to work its way further into the mainstream.