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Google’s Tez App for India Taps Huge Payments Opportunity


Alphabet’s GOOGL Google is set to become the latest company to dive into the fast-growing digital payments market in India. An Indian publication called The Ken has reported that the company has set Sep 18 as the date for its launch event in New Delhi. The app will reportedly be called “Tez” meaning fast in Hindi.

Google has built the app with the Indian context in mind although there are plans for later expansion to other Southeast Asian markets. So it will support the Unified Payments Interface (UPI) for peer-to-peer mobile transactions launched by the National Payments Corporation of India (NPCI). UPI is a payments system that allows money transfer between any two bank accounts with registered mobile numbers and doesn’t require you to enter credit/debit card details, IFSC code, or net banking/wallet passwords.

Available for desktops, as a Chrome widget, as an app on Google Play Store, or a part of its new OS (and part of future updates thereon), it will also support other consumer facing payment services like Paytm and MobiKwik.

But it’s a crowded market Google is entering where Paytm is the leader (50%+ market share, 100 million odd users) with many other smaller players like Tencent-backed Hike Messenger, MobiKwik, Flipkart’s PhonePe, FreeCharge, Oxigen, Citrus Pay, PayU, ItzCash, Reliance’s Jio Money and Ola Money.

There are also international players like Truecaller, Uber and Amazon AMZN Pay. Additionally, Facebook FB and WhatsApp are working with the NPCI for a UPI-enabled payments platform.

But Why Is Everyone Flocking to the Market?

Huge growth potential: According to the trade body GSMA and the Boston Consulting Group (some sites say the study was done not by GSMA but Google), the digital payment market in India will grow rapidly over the next few years to touch $500 billion and constitute 15% of India’s GDP by 2020. By then, non-cash payment methods (cheques, demand drafts, net-banking, credit/debit cards, mobile wallets and UPI) will double to 40% of total consumer payments.

With 81% of Indian digital payment users preferring it to other payment methods, it’s currently expected that 90% of Indian consumers will likely use digital payments for both online as well as offline transactions. So it isn’t surprising that not just technology companies with their mobile wallets, but also telecoms, banks and e-commerce companies are jumping in.

A KPMG survey of over 320 Indians across a wide cross section of people showed that 26-35 year-olds were the most likely to go for digital transactions with men more comfortable with them than women. The firm found that while 88% people preferred digital transactions a lack of awareness and security concerns weighed on people’s minds. Around 78% of respondents felt that a strong cashless ecosystem was essential for adoption of digital payments.

Government initiatives: Government initiatives is perhaps the biggest reason for the expected growth because there are a number of infrastructure, security and other considerations that need to be implemented by the government to facilitate adoption of a digital payments system.

Moreover, since India is basically a cash-based economy, it will take a time to change this habit and the government is actually the best positioned to award incentives. The current leadership with Prime Minister Narendra Modi at the helm has taken a number of steps to realize his “Digital India” dream.

The first of these was bringing more of the unbanked population into the banking system (200 million people were brought into the banking system) and dispensing government benefits through these accounts.

The second was launching a digital payments app called BHIM (Bharat Interface For Money) linking Aadhar card details (includes biometrics for identification), which was downloaded more than 17 million times in the first two months after launch (KPMG). The government is launching two schemes to incentivize individuals with a referral bonus and merchants with a cash back facility that should spur further adoption.

The third was bringing Aadhar Pay, which is an Aadhar-enabled payment terminals for merchants helping customers to buy things using biometrics identification through these terminals even when they have no debit cards, mobile wallets, and mobile phones. The current target is to install 2 million terminals supporting UPI, USSD, Aadhaar Pay, IMPS and debit cards in the fiscal year ending March 2018.

Fourth, government bodies are building the infrastructure that could enable them to accept digital payments.

Fifth, the government is considering making it mandatory for operations likepetrol pumps, fertiliser depots, municipalities, block offices, road transport offices, universities, colleges, hospitals and other institutions to have facilities for digital payments, especially beyond a certain limit.

Sixth, the government advised the SIDBI (Small Industries Development Bank of India) to extend unsecured credit to small and tiny enterprises based on their digital transaction history.

Demonetization: The Indian government sprung a demonetization surprise in November last year, wherein 86% of the cash in the economy was withdrawn. The paucity of cash led to increased digital transactions and introduced the concept to many. This is expected to have a lasting effect on the move to digital transactions.

Favorable Demographics: India is home to around 1.25 billion people, or 18% of the global population. With only 26% of the Indian population accessing the Internet in 2016, the country was one of the biggest online markets with over 348 million Internet users, second only to China. By 2021, the Indian Internet user base is forecasted to reach 555.3 million, or a 44% penetration. (Euromonitor estimates)

Last Words

Suramya Gupta, manager of the SBI-FMO Emerging Asia Fund is very upbeat about the digital payments market in India. While his fund is focused on startups in back-end operations, he says, “I have absolutely no doubt in my mind that the front-end or the customer-facing end of the payments engine in India will be owned by very large, very deep-pocketed players.” The companies he mentions include Reliance Jio; Paytm, now supported by Softbank and Alibaba BABA; Amazon; WhatsApp; Facebook and Google.

Google’s greatest strength is in the fact that 97% of the Indian smartphone market uses its Android OS. So it can easily preload the payments software or push it out as an update on stock Android phones. The company recently tied up with Xiaomi, the number two smartphone vendor in the country to launch an Android One phone. Motorola also sells a stock Android device, but has a much smaller user base.

Worldwide, Google hasn’t done that well in payments, given that the 2015 launch of Android Pay reportedly has just a quarter of the users as Apple Pay, according to a 2017 study by Juniper. The research firm estimates that Apple Pay will hit 86 million users in 2017 globally, up from 45 million in 2016

It simply won’t do for Google to lose significant share to either Apple AAPL, or one of the local Indian players.

Google, Apple, Alibaba, Facebook, all carry a Zacks Rank #3 (Hold). But don’t miss the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

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