Amazon plans to step up e-payments, financial services in India

The market in India that Amazon Pay is eyeing is huge. The digital payment space in India is expected to rise fivefold to reach $1 trillion by 2023
Mahendra Nerurkar had recently been travelling for four months. He went on a road trip with his family and pet canine, travelling to Goa, Pune, and Mumbai. Besides beating the pandemic blues, the trip also helped him spend more time with his family. As chief executive officer of Amazon Pay, the digital payment arm of the e-commerce giant, the trip also created a good opportunity for Nerurkar to explore different parts of the country to understand problems up close and share insights with his team to build innovative products.

“My team would get feedback every day,” said Nerurkar, adding, “I would say, ‘hey, I was talking to this merchant and customer and this is what they said’. It gives you a real-world perspective about what the problems and opportunities are.”

Indeed, Amazon is wanting to tap multiple opportunities ranging from insurance to credit via Amazon Pay. The firm is rapidly making inroads into India’s booming digital payment market and competing with Walmart-owned PhonePe, Alibaba-backed Paytm, and Google Pay.

The market in India that Amazon Pay is eyeing is huge. The digital payment space in India is expected to rise fivefold to reach $1 trillion by 2023. It would be led by growth in mobile payments, according to a report by financial services company Credit Suisse.

“I think the whole aspect about figuring out the right product to convert a cash-hardened customer into a digital one is a big opportunity,” said Nerurkar, an engineering graduate from the University of Mumbai and an alumnus of Kellogg School of Management.

Nerurkar said about 85 per cent of the country’s population still earns in cash and only 2-3 per cent have credit cards. Also, in the digital payment space, one in every four transactions experiences some failure due to which merchants have to incur costs like the return of products during cash on delivery. For that, Amazon is working on making digital transactions more seamless for customers.

Amazon Pay, which started as a wallet provider a few years ago, now offers a whole spectrum of categories, ranging from money transfer, bill payment to paying merchants. The firm said this makes it the largest provider of everyday payment use cases.

More than 4.5 million offline merchants use Amazon Pay. There are about 1 million Amazon sellers who use Amazon Pay. About 40 million customers use unified payments interface (UPI) on Amazon Pay. It is also witnessing an increasing demand for its service from customers and merchants from tier-4 and tier-5 cities.

What is also helping it to rapidly scale up its presence in the Indian market is the Covid-19 pandemic due to which consumers have been heavily dependent on e-commerce to purchase everything from essential goods to holiday gifts. 

Driven by customers’ need for hygienic, socially distant, and secure payment transactions for everyday needs, the firm has witnessed multifold growth in the adoption of contactless payments since last year. Overall, scan-and-pay transactions using Amazon Pay have increased 5x since April 2020. The number of scan-and-pay customers have increased more than 2.5x in the same time period.

Amazon is also betting big on financial services and is coming up with new products in areas such as insurance and lending for customers, as well as merchants and sellers on its platform. The size of the Indian financial services market could touch $340 billion in the next few years, said experts.

The company has partnered Acko General Insurance to offer insurance for two-wheelers and four-wheelers. It had also launched Covid health insurance to all its sellers in the country. Last year, Amazon Pay launched Amazon Pay Later, a service that extends a virtual line of credit to eligible customers. It partnered digital lender Capital Float and Karur Vysya Bank for this. The firm also provides co-branded credit card in partnership with ICICI Bank.

“Lack of credit creates some kind of ceiling on your consumption behaviour,” said Nerurkar, adding, “I don’t think we have even scratched the surface in terms of credit and lending products.”

The pandemic has also enabled Amazon to double down on building innovation in the area of financial products and payments. For instance, Amazon customers in India can now pay for electricity, water, gas, and other utility bills using the Alexa voice assistant.

Last year, Amazon Pay launched Smart Stores in India, which enables local shops contactless discovery of their products and payments. Customers need to scan the shop’s quick response code using the Amazon application to begin exploring the products available within the store. The Smart Stores feature empowers local shops with capabilities to increase footfall, improve customer experience, and generate more sales. Amazon Pay is taking many of the innovations implemented in India to the global markets.

Nerurkar also sees huge potential of biometric and voice-based technologies in the area of payments and making multi-factor authentication procedures seamless and reducing frauds.

“Not only would payments get more secure, but the authentication would also get more frictionless,” said Nerurkar.

Amazon is also making several fintech investments in the country where partners are enabling innovations and serving the company’s core strategic goals. It has backed Capital Float, ToneTag (harnessing the power of sound through soundwave technology), and BankBazaar (an online marketplace for financial products).

“They bring in new thinking, which we may not always have ourselves,” said Nerurkar, adding, “It is an exciting frontier for us and we continue to deepen those partnerships.”

When it comes to UPI payments, Amazon’s rivals, such as PhonePe, and Google Pay, have the lion’s share. PhonePe did 968 million transactions in January, whereas Google Pay processed 853 million payments. Paytm reportedly did about 281 million payments on UPI, whereas Amazon Pay did 46 million.  

But Nerurkar said what differentiates the Amazon Pay platform is that it is more diversified. Also, the firm launched UPI-based payments fully in 2019. “What excites me most is that 40 million customers have used Amazon Pay UPI,” said Nerurkar, adding, “When we look at their monthly retention rates and volume of transactions, we feel we have the right product.”

When asked if Amazon could become the next-generation big bank or a formidable financial institution, Nerurkar said the company’s approach is to be a marketplace for different providers to offer their services ranging from credit to insurance.

“We are not a bank. There are plenty of banks and lenders that are really well run,” he said. “The value that we can bring in is creating a marketplace, where those entities can offer their services.”

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