Packed to the ceiling with textbooks, papers and pens, Anil Chowdhary’s narrow stationery store in a New Delhi market looks like it has not changed in decades, except for the QR codes, printed on pieces of laminated paper, lying next to the cash register.
India was suddenly pushed to adopt digital payments two and a half years ago, when prime minister Narendra Modi announced the demonitisation of all Rs500 and Rs1,000 notes, then the largest denominations, to crack down on corrupt officials, businesspeople and criminals hoarding illicit cash and evading tax.
The move may have failed to purge black money, but it did help spark an explosion in digital transactions. Today, India’s migration to digital payments has led to a fierce race for market dominance, and made the country, one of the world’s largest untapped digital markets, a test case for the future of mobile money.
“The radical change came after demonitisation — now people prefer to pay digitally,” said Mr Chowdhary. “In the beginning it was annoying, but it will benefit the next generation.”
Digital payments in India are estimated to grow by 20 per cent in the next four years, the fastest growth in the world, with the transaction value increasing from approximately $64.8bn in 2019 to $135.2bn in 2023, according to PwC research. But even with such rapid growth, India would still only represent 2 per cent of global transactions by 2023, reflecting the huge potential of a market where just one in four people own smartphones.
Today Google Pay, PhonePe, the digital payments unit of Walmart-owned Flipkart, and Indian start-up Paytm are the biggest participants in the Indian payments space. But unlike in China, where Tencent and Alibaba dominate with superapps that are one-stop shops for everything from banking to ride-hailing, in India the mobile money arena remains fragmented and fiercely competitive.
The country overtook China as the top Asian market for venture capital-backed fintech funding when investors spent $286m in the first three months of this year, according to market research group CB Insights.
Open the Google Play store in India today and there are dozens of different digital payments apps. Go into a kirana — a tiny corner store — and merchants have a small array of different codes that allow customers to pay for goods by scanning them with their phones.
“Today the battle is about acquiring customers, whatever you can do to create customer stickiness,” said Arnav Gupta, an analyst at Forrester. “Profitability isn’t the consideration right now, the consideration is having a larger slice of the pie.”
India stumbled on a unique model when the National Payments Corporation of India, an umbrella organisation for retail payments, rolled out its Unified Payments Interface in 2016. The UPI platform allows mobile apps to do an instant fund transfer between two bank accounts, enabling anyone who can build an app, from start-ups to multinational corporations, to compete on equal footing for the millions of Indians opening bank accounts for the first time. Google Pay, Amazon Pay and Samsung Pay all use UPI along with Indian start-ups Razorpay and BharatPe.
But the mobile money revolution is already moving beyond digital payments. Now companies are branching out into financial services with higher profit margins, such as lending, credit cards, insurance and pensions. “You want to expand into other revenue streams,” said Vivek Belgavi, an analyst at PwC, “all these become business areas for you”.
Uber’s India rival Ola debuted its credit card in May shortly after Paytm launched its own, offering cashbacks on taxi and flight fares. “The adoption has been good,” said Ola. “We have 150m customers and we have the ability to reach out to many more people. The credit card model is not a widely adopted model in India, we feel it’s about awareness, and we could help with that.”
Truecaller, a Swedish company that counts 100m daily active users in India, launched digital payments a year ago and is in the process of testing a lending business, offering loans from Rs50,000 to Rs500,000. “Lending is the next bit we are going after, people have a need for an instrument that they can trust,” said Truecaller managing director Sandeep Patil, a former Flipkart executive.
Last year, Truecaller acquired Chillr, a payments app that allows users to transfer money to any contact in their phone book. Mr Patil said the ultimate goal was for Truecaller, an app initially designed to screen spam phone calls, to offer a “full suite” of financial products, similar to China’s all encompassing virtual ecosystems.
One company that has the potential to create a WeChat-style superapp in India is Mukesh Ambani’s Reliance Industries. Valued at more than $120bn, it is rumoured to be preparing for the launch of an app that would provide multiple services on one platform. With a portfolio that spans data, content and retail, Mr Ambani’s chances of success may be higher than those of his international competitors, especially if government regulation is tilted in favour of local players.
The fight over India’s mobile money market is only going to intensify. WhatsApp, the most popular social media app in India, with an estimated 300m subscribers, has yet to step into the ring. It has been testing WhatsApp Pay for the past year, but has not officially launched because it is unwilling to comply with India’s data localisation rules, which prohibit companies sending financial data abroad.
Despite the boom in digital payments, analysts say that a cashless India is still far on the horizon. “India is not becoming a Sweden for the next five years,” said Mr Gupta, “so much of India’s economy is cash, and payments is about habits.”
Still, Mr Chowdhary believes that India’s cashless revolution is under way. “I think after a decade 70 per cent of the economy will be digitised,” he said. “But you’ll always have to pay a little bit of cash — it’s necessary in India.”