Blog: India’s E-Commerce Boom Paves Way for Digital Money
Having recently completed our in-market analysis of payments in India, I’m confident in saying the country represents one of the world’s most complex, yet promising, battlefields for digital money. India is poised on the brink of a huge economic transformation and making money digital is a crucial part of the solution.
Digital money has a tremendous future in India, and I see a convergence of several factors that combine to create an unstoppable wave. Firstly, mobile penetration is remarkable and is aided by the September release of budget Android One smartphones that appeal to a highly price-sensitive market. Secondly, a highly thrifty, large population desperately needs convenient ways to save and spend. And, last but not least is the will of the government. The recent meeting between Mark Zuckerberg and Prime Minister Narendra Modi highlights the opportunity that digitally connecting remote villages presents to businesses around the world from a wide variety of perspectives.1
The cash-centric Indian economy is at last moving towards non-cash payments. By end of September 2014 more than 53 million new bank accounts were added in India to disburse benefits and social security to recipients. This is one example of initiatives from the Modi government, strongly backed by the Reserve Bank of India led by Governor Raghuram Rajan.
As in Africa, mobile money is poised to strongly support financial inclusion goals. But there is more. In my book “The Digital Money Game” I describe how people expect a whole package of services across online, mobile, social and local situations, creating a multitrillion-dollar industry worldwide. India’s market is a perfect example and consumers are demanding convergent financial services from the start, as opposed to the mobile-centric services that took off in Africa. This requires, for instance, the ability to provide a service not just using mobile phones but through multiple channels and the ability to offer not just one service but many. Our research this year confirmed that this is needed to compete in emerging markets, and India is a prime example.
Underpinning the non-cash transformation is Aadhaar, the world’s largest biometrics project that goes across all segments of the population. This paves the way for middle-class consumers to make payments to their domestic help, for instance, while also using their new wallets to pay for higher-value airline tickets, goods and services. The rise of mobile Internet access aided by smartphone penetration is bringing young and highly connected shoppers online and is creating conditions for prepaid and digital wallets to thrive.
India’s US$4 billion e-commerce market is set to soar to US$20 billion by 2020.2 E-commerce is being driven by cheap handsets and mobile data plans that enable consumers to buy from their increasingly smart mobile devices. Our “Digital Money in India 2014 Viewport” released last week explains how the competitive landscape is unfolding in India, with case studies of how providers are creating unique solutions, and this article shares some of our findings related to e-commerce players.
|Around 20 percent of Indians have Internet access, so online sales have just begun to grow, but the opportunity is immense, particularly as consumers look for ways to digitize cash.|
India’s 1.25 billion people are spread across 29 states and seven union territories and, as a consequence, the complexity of the market has been likened to that of all the European markets put together. Marketing in this highly fragmented environment is challenging due to differences in regulations, income, religion and culture and, notably, the lack of government-issued identification. With just 58 percent of Indians registered at birth, it’s no wonder that India is the largest user of cash among all emerging countries. With little to no ability to verify their identities, unsurprisingly, just 48 percent of people have access to bank accounts and traditional payment cards.
Around 20 percent of Indians have Internet access, so online sales have just begun to grow, but the opportunity is immense, particularly as consumers look for ways to digitize cash. So far Indian consumers have not given up their reliance on cash to shop online. Instead, cash-on-delivery (COD)—a uniquely Indian phenomenon—has penetrated many urban markets. This involves consumers ordering online and paying for the goods when they’re delivered, generally at home. Flipkart popularized this convenient way for consumers to shop online with confidence and without plastic cards, and the company has been rewarded with wave after wave of investment.
But launching truly digital money services requires that players connect the dots between the online and mobile worlds and the offline world. As the Indian e-commerce market matures, COD is giving way to CBD (cash-before-delivery). COD has caused some problems for e-commerce merchants because many consumers refuse to accept items on delivery, after the initial flush of an impulse buy has faded. To meet the demand of merchants and to fit into the increasingly mobile-centric consumer lifestyle of Indian consumers, mobile wallets and prepaid payment instruments have flooded the Indian market and challenged the prevailing COD model.
For e-commerce players, digital money solutions that incorporate CBD will be critical. The race is on between Amazon, Flipkart and Snapdeal. So far Amazon, which recently invested US$2 billion in India, spent this Diwali in hot pursuit of Flipkart consumers. Meanwhile Flipkart shut its payment gateway Payzippy within a year of launch and its recent acquisition, Ngpay, is expected to provide the next platform for its attempt to extend into digital money.
As global e-commerce companies busily pursue their strategies to enter this nascent market and rub shoulders with the home-grown services, both categories of players must be mindful of competition from outside their immediate vision.
Recently released Shift Thought research explains why and how e-commerce strategies must evolve to compete in the new digital money industry. Our report provides facts and figures not just on the mobile wallet services that have been launched—and the unique way in which prepaid services are taking off—but on the whole set of services we term digital money. I believe that is the game that global providers will need to get right to capture the new opportunities presented by the Indian market.
Charmaine Oak is author of recently published “The Digital Money Game” and co-author of “Virtual Currencies—from Secrecy to Safety.” She is practice lead of U.K.-based Shift Thought, a consultancy that specializes in knowledge relating to how people pay in each part of the world and how payments are changing. Shift Thought offers access to its knowledge base through a self-service portal and provides consulting and research services to international customers, including banks, mobile operators, payment service providers and others. Charmaine can be reached at [email protected].