Fall has arrived in Boston and we are sizzling. The Red Sox clinched the AL East and the Pats are 3-0 — even with a third string QB. Not that we want to rub it in or anything.
There were a few other sizzles in payments this week that tried to hold a candle to these. They were …
Put one in the win column for Amex. In a very uncharacteristic move, an Appeals Court Judge overturned an earlier decision that would allow merchants to steer customers away from Amex to other cheaper forms of payments. In what was a huge blow for the DOJ, which brought the antitrust case to court on behalf of merchants, the 66-page decision said that consumers weren’t harmed and if merchants didn’t like taking American Express cards because the fees were too high, they could just not take them. Imagine that. It’s also an interesting bellwether about interchange fees, more broadly in the U.S. As we’ve said innumerable times, if merchants don’t want to pay the fees, they can always stop accepting cards. We’ll see if the government files an appeal. Regardless, the full employment act for lawyers on these matters continues as the Supreme Court just yesterday agreed to take the appeal of the New York state law barring retailers from imposing surcharges on purchases made with a credit card instead of cash.
Platforms On Top Of Platforms
Witness the power of platforms on top of platforms operating at scale. First there was Uber. Then Uber Puppies – where pups from local animal shelters were delivered on demand to offices in need of a pup pick-me-up. Then, UberEats, where Uber drivers were called upon to deliver food from local restaurants. Then, Uber Ice Cream, where SUVs loaded with coolers of Creamsicles and ice cream sandwiches could be summoned to deliver a little “good humor” to the office. Now, we have driverless Ubers and Uber Fleet – both intended to disrupt/transform the transportation model even further. It’s a perfect case study – happening in real time — of how platforms use their scale on both sides to enter new markets – drivers and consumers – and monetize the value of their platform.
Virtual Personal Assistants
Bloomberg said a few weeks ago that apps were out and bots were in. Well, judging by the news of the week, they may be yesterday’s news, too. The virtual personal assistant – the AI layer that goes anywhere a consumer wants it to go, independent of any messaging operating system — is the next big thing. Google’s Allo and Amazon’s Alexa, in particular, are two such players that seem to understand that consumers may not want to have to “log into” their messaging app and then interact with dopey bots that are as smart as the web circa 1997. It’s far easier to ask Alexa the weather, or to call Dad, or to order Caleb Carr’s new book, Surrender New York, then to have to log into three bots and spend 15 minutes getting feedback. Yeah, maybe the buzz over bots is getting, well a little too buzzy.
One hundred and eighty-one people can’t be wrong. That’s how many comments have been received by the CFPB reacting to their proposed rule-making which would, more or less, legislate the industry out of existence. More than 97 percent of consumers say they like the product and 96 percent of them would recommend to others in need. Nearly 75 percent of them are concerned over more regulation that would restrict the availability of the product they really like. The CFPB, newly emboldened over their bit of Wells Fargo exposure, also just levied a hefty $6.3M fine on LendUp – the “consumer friendly” payday lender that the CFPB alleges was not so friendly since it claims that the lender over-promised and under-delivered. With the rule-making process now in full swing, it might not matter how swell payday loan customers feel about the product. The CFPB doesn’t like it and has decided it needs to go – and just like Wells was the big fish on the line for the ongoing crackdown/smackdown of big banks, nailing the startup that went to market as the kindler, gentler side of payday loans may be the example that’s held up to put the rest of the industry out to pasture.
“Make their life hell.” Those are the words of Sen. Markey (D-MA) yesterday when giving the Fed Chief advice about how to deal with the big banks in the wake of the Wells fiasco, citing concerns over compliance lapses. Yep, as predicted here first in a piece penned by Karen Webster, thanks to the years of shenanigans on the part of the Wells Fargo team, all banks will now be assumed to be as bad, even if their actions are a normal part of doing business. Try to cross sell a credit card with a new mortgage? Better not. Try to raise fees on products since you can’t do as much cross selling (which, BTW, is something that every single business does 24/7/365), CFPB will say you can’t. Complain about regulators ringing the life out of innovation – well, too bad, they’ll say. If you weren’t doing so much bad stuff, you wouldn’t need us to keep an eye on you. The Fall of the House of The Retail Bank – an original series coming soon on Netflix.
It’s not that real-time payments are bad or even a fizzle. But the hypo-o-meter is in full swing on this one now and the din is starting to become a distracting cacophony. SWIFT has its thing, IBM is doing something else and allegedly with The Clearing House and Vocalink (although it’s been crickets from TCH for quite some time). ACI and Vocalink inked a deal. Early Warning aka Zelle is adding more banks and doing deals with the networks. Speaking of the networks, there’s Mastercard and Vocalink, not to mention Visa Direct and its work with PayPal, Fiserv and Square. NACHA just launched Same Day ACH – the only faster ubiquitous payments play in the U.S. with the distinction of not having a regulator mandate that the banks in the U.S. do so. And then there are all of the niche players with faster, real time and instant payments solutions for certain groups of consumers and businesses. It’s one big hot faster payments mess. We think that the race won’t be won by the fastest, necessarily, but the smartest and most flexible set of rails – and that just talking so much about faster misses a pretty big boat.
Global investing enthusiasts and eCommerce watchers have been reading the headlines about the coming explosion in Indian eCommerce for at least the last two years (possibly more, depending on how international one’s reading tastes are). Citing the ongoing series of investments flowing into Bangalore, Pune, Mumbai and Delhi, an inevitable wave of shoppers from the Indian subcontinent flooding the web’s shopping portals has long been stated as a coming inevitability by a certain segment of finance, commerce and tech writers.
But it’s an inevitability that hasn’t gotten much mainstream airplay —probably because, by the numbers, India’s eCommerce ecosystem is very small, despite its massive population. As of 2016, approximately a fifth of the world’s population resides in India — about 1.33 billion people — but only 27 percent of the population has internet access, or 370 million people. And of those 370 million, only 20 million (5 percent) are categorized as regular online shoppers, according to RedSeer Consulting. (“Regular” is defined as a shopper who shops online once a month or more.) That number is expected to climb to 50 million by the end of the year. That accounts for 13 percent of the internet-connected population and 2.6 percent of the total population.
Tyagarajan Sundaresan, former CEO of ChalkStreet, who has worked with both Amazon and Flipkart, noted that, for all the enthusiasm — eCommerce in India, until recently, has had only limited success because, at base, it’s a difficult and unusual environment to work in.
“India is an amalgamation of small markets, and hence, eCommerce companies in India cannot think of it as a single market,” noted Sundaresan.
But the good news is that the fragmented market in India is changing and drawing attention from some very notable corners, as players like Flipkart and Amazon have been able to efficiently — as Sundaresan said — “somehow crack the urban market.” And those cracks are drawing an increasing amount of international attention from some very non-obscure sources, as the big international players are suddenly very interested in a market that looks like it’s ready to start emerging quite quickly.
It’s enough to make it the sizzle of the week — with a little help from Walmart.
Walmart Bets On Flipkart
The big news this week is the reported talks going on between international retail Goliath Walmart and India’s biggest eCommerce company, Flipkart.
According to a report by Reuters, Walmart is eyeing a minority stake in the company as it looks to catch hold of the potential in the fast-growing online retail industry in India.
Anonymous sources claimed Walmart is looking to invest between $750 million and $1 billion in Flipkart, dependent on the direction of talks, as well as the startup’s overall value. Another option being bandied about is the two collaborating to use each other’s expertise in retail and supply chains.
If Walmart is successful, that would put it in more direct competition with Amazon in the country — it has been expanding its business in South Asia and has become the largest competitive threat to Flipkart in India.
“With Amazon slowly taking a lead over the Indian players, all these unicorns, including Flipkart and Snapdeal, are out there in the market to raise funds,” the source said in the report. “Companies like Walmart would be more long-term investors, but there aren’t too many like them willing to write such big checks.”
Flipkart’s reported valuation is presently around $11.5 billion. And while that sum is nothing to sneeze at, earlier this year, it was valued at $15 billion. Competition from Amazon has put a damper on some of the froth surrounding the firm. A few weeks ago, it looked as though Amazon had actually dislodged Flipkart from its long-term post as India’s number one eCommerce player.
And while India is shaping up to be the latest round in Amazon and Walmart’s ongoing battle for retail supremacy, the two are far from the only two giants eyeing the growing potential in India’s eCommerce scene.
Alibaba and Rakuten are both hunting for office spaces to scale their operations in the country. American Express and Uber for Business struck a deal to make sure riders in India wouldn’t be locked out of the ridesharing service due to local processing regulations. Some analysts predict that India will, in short order, become Uber’s largest market on the planet. Apple has been touting its plan for Indian expansion and growth since its first earnings call in 2016 — right about the time analysts started wondering if softness in the Chinese appetite for new Apple gadgets was about to take a big bite out of Apple’s bottom line.
After a lot of quiet hype, 2016 was the year that the volume went up on the India buzz, and now, it’s not just hot, but sizzling.
Creating The Heat
Apart from Amazon and Walmart’s natural inclination on any and all available battlefields, their big driver is the great expectations for India’s eCommerce marketplace, which, as noted above, remains untapped. India’s top 10 or so top-tier cities have what are called “expected” levels of internet connectivity, with a lot of room to grow on eCommerce usage. But what many analysts are looking at is the mass of second- and third-tier cities, where mobile usage and mobile web are starting to catch on.
The eCommerce market in India is set to reach $120 billion by 2020, according to Ashish Jhalani, founder of eTailing India, and the strong expectation is 65 percent of it is driven by the second-, third- and fourth-tier cities, where there is almost no activity today.
In short, lots of room for growth and lots of ground to grab, making it unsurprising that it has become such a popular place to try to build the next phase of the global eCommerce network.
Which isn’t to say it won’t be a challenge, as small details, like the average size of phone screens, are differences in India and make the needs of eCommerce providers challenging. In the developed world, seven-inch and larger screens are the norm these days, while, in India, four-inch screens rule. Displays need to be simpler and more concise.
And those are relatively easy questions. Much more complex is the vast number of Indian consumers that are cash-only and will only order online if they can pay on delivery. There are also the government’s ongoing attempts with its Unified Payments Interface to make Indian consumers less reliant on cash payments. The issues aren’t easy.
But the potential is great and big enough that big players, like Walmart, are willing to throw $1 billion at it to get in on the ground level.
That’s good enough for a sizzle in our book.