Amazon, Google expansion in offline payments will trigger consolidation; sector specific players to survive, say experts

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Updated: March 28, 2019 6:51:37 PM

Initial players in the offline payments space have almost withered away with only Paytm retaining the lead along with Walmart-owned Flipkart's PhonePe scaling significantly in last few years. However, as Google and now Amazon are now looking to deepen its presence in the market, experts believed that it would trigger consolidation.

Google, on Wednesday, announced partnership with the point of sale (POS) solution provider Pine Labs to get access to its 3,30,000 POS terminals across 3,000 towns in India

Even while digital payments market in India is set to grow to $1 trillion size by 2023, estimated by a Credit Suisse market study, the fact that offline transactions continue to drive payments in India is why it has got players like Paytm, Google Pay, PhonePe focusing on acquiring merchants in both — organised and unorganised markets. Moreover, not just it acts as another yet cheaper acquisition channel for companies to acquire customers but also helps to add to the stickiness element around the app as an added mode of payment even in the absence of cash backs and discounts.

Offline Play

Amazon too, which runs online payments processing service Amazon Pay, is looking to cash in on the opportunity with its Scan & Pay (QR code) facility at neighbourhood stores, as per a media report. This is expected to not just probably have more customers using the service but also might direct them to online shopping on their e-commerce platform.

However, what does Amazon’s entry into the offline payments space means for other players? Market experts with whom Financial Express Online spoke believed that it would lead to consolidation in the market.

“Amazon, Google are big players who have lobbying on their side. On the other hand, there are other companies, which have created this space, are going to become somebody’s lunch. So, either they will be bought or get killed systematically,” Deepak Natraj, Managing Director at Aarin Capital told Financial Express Online. Aarin Capital is the proprietary investment vehicle of Manipal Group’s Chairman Ranjan Pai and former Infosys CFO T.V. Mohandas Pai.

“The big guys will have the disproportionate advantage. The difference between winner and loser in this market will not be in cents, it will be billions of dollars,” added Natraj.

Paytm, Mobikwik, Freecharge were the first set of players in the market that created the market. While Paytm continues to retain the lead, Mobikwik hasn’t been able to gain a similar scale while Freecharge was acquired by Axis Bak from Snapdeal reportedly for Rs 385 crore in 2017. Paytm, last October had claimed of having more than 33 per cent share of UPI payments in India. There were over 405 million UPI transactions in September last year recorded by the National Payments Corporation of India.

Vertical Survival

Apart from the large players, experts opined that there would be the existence of vertical payments companies that are use case specific.

“Once the dust settles, there would be two-three large players in the market. It is a huge market in terms of opportunity, so there could be smaller players as well used for specific use cases like Ola Money for cab fares. However, the larger share of the market will be taken up by 2-3 players,” said Ujjwal Chaudhry, Associate Director, Redseer Consulting.

Google, on Wednesday, announced partnership with the point of sale (POS) solution provider Pine Labs to get access to its 3,30,000 POS terminals across 3,000 towns in India, the two companies said in a statement. Google Pay was launched in India in September 2017 and is said to have 12 million users, and 25 million monthly active users. The expansion through Pine Labs network would help Google Pay deepen its presence in tier II and III towns.

Also, it would help on-board local merchants in the unorganised segments, which would anyway be tough for Amazon. However, spending millions of dollars and reaching out to them to partner is not the reason why it would be tough.

“Offline is certainly a very difficult case. If you look at the unorganised offline market, the initial players have been able to create a moat,” said Chaudhry.

While the market is difficult to scale up but increasingly what has been happening and could potentially happen is that some of the players now have an interoperable system. Hence, their QR code can be used across any other application.

“For example, Bharat Pay is doing that (interoperable QR). If this happens then it is not a competitive advantage for existing players,” added Chaudhry. PhonePe already has an interoperable code even as Paytm was also reportedly testing a similar service.

Google declined commenting on the story while comments from Paytm, PhonePe and Amazon are awaited.

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