TechFin 2.0: How American Tech Giants Are Applying the TechFin Playbook to India
India is the fastest-growing internet market in the world, with an internet user penetration reaching over 700 million users in 2020. Accelerated by COVID-19, the number of monthly active users is likely to reach 639 million users by the end of 2020, with a near equal distribution of rural users vs. urban users. With this increase in internet users, coupled with a similar increase in mobile ownership, there has been a natural increase in users' payment apps and e-commerce. Aided by a push by the government and the RBI to move the society from a heavily cash-based society to a digital economy, the market size and opportunity have attracted more companies, large and small to start offering their services in the space.
India boasts of over 2,200+ Fintech startups, with nearly 400 startups in the Payments space and over 440 startups in Lending as of the end of 2019. A detailed analysis of the numbers of startups by segment in the Indian Fintech landscape is soon to be released in the India Fintech Report 2020 by MEDICI. The current Fintech landscape in India is probably the most exciting ecosystem in the world. Not only have we seen a sharp increase in the number of local Fintech startups and services, but we are also seeing extensive participation of global technology giants in the space. Although there are parallels to be drawn with the Chinese payments landscape, the Indian landscape has quite a few differentiating elements which have made the industry more competitive as well as highly diverse.
The last decade in Fintech was largely led by Chinese Tech giants redefining the digital financial services playbook, bringing into play the “TechFin” model, as coined by Jack Ma. Alibaba and Tencent have dominated the payments landscape in China, with nearly 90% of the digital payments market share between the two TechFin giants, with WeChat having a larger market share owing to a larger base of users. While we have also seen the likes of JD.com, Baidu, and Xiaomi entering the financial services market in the non-payments, such as digital banking and lending, none of these firms have been able to challenge the hegemony of Ant and WeChat Pay in the payments market. Though one could attribute a range of factors and reasons why the two players have been able to dominate the landscape, the main reasons for them to be able to continue their leadership position are as follows:
The first was the early mover advantage that Alibaba had with Alipay as the pioneer payment system to enable e-commerce sales in real time. In contrast, Tencent’s QQ platform had firmly established itself as the primary online messaging platform in the country.
The second was their ability to transform their models rapidly for the mobile payments economy, which has grown from 100 million users and a size of 3 billion USD to 800 million users and a projected 47 trillion USD in 2020. Tencent set up WeChat as a mobile-first app, and built it from the ground up, rather than making a mobile version of QQ. Alibaba similarly adapted to the mobile economy as well as driving QR code-based payments.
The third was the “platformification” of their services coupled with the large ecosystem they created. Both Tencent and Alibaba built out the platform economy simultaneously, with each of them offering dozens of services via their major platform, ranging from entertainment to lifestyle and social media to finance. This helped them have high stickiness with users and ensure that users largely remained in their ecosystems for online services.
The last was the home advantage as a result of the regulators restricting international firms to offer services in the space. This meant that the only competition for them would be other local Fintechs and the banks, most of whom did not have the distribution network that the Ali and Tencent have.
When it comes to the Indian payments landscape, the growth of mobile payments has shown major strides, particularly in the last five years. The massive increase in mobile internet users has been driven by the likes of Jio, with India having the lowest average 4G rate globally at $0.26 per 1GB. A significant factor for the growth of mobile payments in India has been the different approach to technology infrastructure viz., the IndiaStack.
Built over the last decade, the IndiaStack is probably the first and largest digital infrastructure built by any country. Having over 1.2 billion Indians enrolled on the Identity layer with Aadhaar (universal biometric ID), IndiaStack provides the Fintech players an opportunity to leverage on the payments infrastructure viz., the Unified Payments Interface (UPI). The UPI was built by the National Payments Council of India (NPCI), and it can enable all types of interoperable payments, real time and otherwise. In February 2020, before the COVID-19 lockdown in March, there were over 1.325 billion monthly transactions, with a value of nearly 30 billion USD via UPI. This was driven by 150+ banks and a large host of payment players showcasing how the infrastructure has grown and its importance in the ecosystem.
With an open ecosystem and a large number of players, the digital payments space in India is highly competitive. Being open to foreign entrants, the Indian markets are seeing the large American technology giants – in particular, Google, Amazon, and Facebook – looking to apply a similar playbook to the Chinese TechFins the Indian market with a host of financial services products on offer in the country.
One reason, among others, for the offering of financial service products by tech firms, is probably down to the global financial crisis, owing to two factors: 1. Launch of smartphones and the ability to transact in real time in 2007 with an iPhone. 2. Banks going into survival mode between 2008–2013. With most banks not being able to be nimble and leverage new technologies, the Fintechs were starting to take a piece of the pie, especially in the payments space. Amazon had initially launched its payments product for the e- commerce platform, Flexible Payment Service (FPS), in late 2007, which has since evolved into Amazon Pay, which goes beyond e-commerce payments. This was followed by Google Wallet in 2011 and Facebook’s e- money license in Ireland in 2014, after which it subsequently launched Facebook Payments in the USA in 2015 via Messenger. The other main reason, of course, is how payment plays an integral part in most online services.
Though all three firms have had these payment products in play for a few years, none of them have managed to achieve the scale of users or breadth of services that Alibaba and Tencent did, both locally in the US and internationally. The fast-growing Indian market provides these three big techs an opportunity to have a real shot at truly becoming TechFins, leveraging off their respective large user bases in the country. India is already the largest market for all three, with Google having over 500 million users, Facebook having over 320 million, and Amazon having more than 100 million registered users. Below, we explore what each of their playbook to becoming TechFins could look like:
Amazon
The largest firm in the world by market cap, Amazon has invested over 10 billion USD in the market since launching in 2013. Primarily driven by supporting their e-commerce play, akin to how Alipay started, Amazon started with offering Amazon Pay in the market in 2019 and has looked to build the user base for the payments service first through its e-commerce users, with big campaigns on offer for users to pay through Amazon Pay and receive exclusive offers. This has been recently followed by Amazon getting into the lending space through the Amazon Pay Later service. This provides the company with a way to draw more users to its e-commerce platform and drive sales by allowing users credit to purchase goods, thereby increasing their purchasing power.
Although the company has some insurance products on offer in the US, Amazon is likely to mainly focus on the financial services products that supplement their e-commerce platform, especially considering the buyout of Flipkart by Amazon’s biggest rival, Walmart. In 2016, Flipkart acquired a local payment wallet called PhonePe, which has a significant user base in the country. In a battle for e-commerce, especially with Reliance making headwinds into the space with JioMart, it makes sense to safeguard its core business and build services around it.
Having been among the first wallets to launch in the USA, Google has been trying to further its financial services ambition, without significant traction globally. This, however, has changed ever since Google leveraged off the UPI platform to launch Google Pay. Google Pay has had considerable traction in the payment space and counts as one of the top wallets by the number of transactions via UPI. With Google Pay being a pure-play product, Google has been leveraging off its brand recall and deep reach across India to build the numbers.
The next step for them is likely to look at getting into banking, similar to their plans to partner with banks and credit unions in the US to offer a “smart checking” account. With several million merchants using Google for ads, the company has the pipeline to provide this service to the largely underserved SME market in India. Secondly, it can also use the detailed user insights it has across platforms ranging from Google search to YouTube to offer PFM and Wealth Management products tailored to the users’ needs.
Facebook has been dappling with financial services for a while with Messenger Pay, which was launched a
few years ago. Mark Zuckerberg has often mentioned about getting into Payments and finding the right partners. In the last couple of years, Facebook has started to make a big push into bringing into the mainstream. Firstly, with the Libra project, which is meant to be a global game-changer for cross-border payments given its 2 billion+ users. Although Libra 1.0 faced much resistance with regulators, Libra 2.0 looks like more of a possibility. It can have a significant impact on the Remittance businesses in India if it does come to fruition. India is the world’s largest remittance-receiving country, with over $80 billion remitted into the country last year.
Secondly, with WhatsApp Pay. While Amazon’s playbook relies on the e-commerce market, and Google from a search and social media perspective, Facebook’s WhatsApp Pay model is the closest to WeChat, which has more users in China than Alipay. WhatsApp already has over 400 million users in India and started offering WhatsApp Pay to 10 million users initially, which it is expected to offer to all users in a phased manner. With India being Facebook and WhatsApp’s biggest market, and with mobile internet users likely to increase over the next few years, Facebook will be hoping there is a stickiness to WhatsApp Pay considering WhatsApp also happens to be the biggest chat platform. There is also talk of WhatsApp getting into the lending market, considering it has mentioned credit as one of the services while filing with the regulators.
The third would be the play with Jio. With Jio being one of Facebook's most significant investments, Facebook will be hoping to leverage off not only Jio’s tremendous growth but also leverage the collaboration with India’s largest conglomerate, Reliance. JioMart is now being channeled through WhatsApp, and WhatsApp Pay will play a significant role in the payments element, once it is allowed to offer services across India.
If we take all of the three playbooks from Amazon, Google, and Facebook into account, it is clear that the companies are looking to grow their core business in India and build their financial services credentials. With the line blurring between Tech & Fin for these giants, India is now the battlefield for TechFin 2.0. Once they can achieve success, given India’s scale, they can then use the same models to enter other global markets, especially SE Asia. They are likely to use the lessons from India as they get ready to battle the original TechFins, such as Alibaba and Tencent, in SE Asia.
