Google and Walmart Push India’s Billionaires Out of Mobile Payments

After the Reserve Bank of India created a new kind of bank in 2014 just for handling consumer payments, India’s business titans piled in. Many may now regret it. At least five firms that won Indian licenses to handle interbank mobile and online transactions have shuttered operations or frozen investment, three of which are backed by some of the nation’s most prominent businessmen. Dilip Shanghvi, worth an estimated $7.3 billion, pulled the plug on his payments bank before it even launched after realizing how much cash the business would burn.

In their rush to tap what Credit Suisse predicts will be a $1 trillion market by 2023, Shanghvi and his peers underestimated the cost of competing with deep-pocketed giants like Alphabet Inc.’s Google Pay and Walmart-backed PhonePe. It will probably take at least three years for digital-payments companies to turn profitable in India, with only a handful of today’s nearly 90 competitors surviving, according to KPMG. “They carried knives to a gun fight,” says Ramaswamy Venkatachalam, a Bengaluru-based managing director for banking and payments at FIS Group.

If digital-payments adoption rates in India come anywhere close to those of China, the dominant players stand to profit by offering users an array of other financial products from loans to funds and insurance. For now, though, much of the industry appears to be in loss-making mode. Among the three major competitors that disclosed their financial results for the year ended on March 31, two of them—PhonePe and Amazon Pay—reported combined losses of 30.6 billion rupees ($430 million). Paytm Payments Bank, backed by China’s Ant Financial and Japan’s SoftBank Group Corp., swung to a profit of 190 million rupees after losing 207 million rupees a year earlier.

Comprehensive market share numbers are hard to come by, but clues as to the early leaders can be gleaned from data compiled by Razorpay, which serves as an intermediary between Indian payment apps and vendors. In October, PhonePe handled about 25% of transactions processed through Razorpay on the Unified Payments Interface, a system linking India’s banks. Paytm accounted for nearly 6%, while Google Pay had a commanding lead at 61%.

Google doesn’t break out detailed financial results for its India payments business, but Chief Executive Officer Sundar Pichai has said that it’s central to the company’s India strategy and its push into global payments. The company’s brand is more trusted in India than those of the nation’s banks, according to a report this year by Forrester, a research firm. Unlike Shanghvi and other business titans who have exited the market, Google built its India business without acquiring a payments bank license, choosing to partner with traditional lenders instead.

The payments banks have found it particularly difficult to achieve the scale necessary to become profitable. Aditya Birla Payments Bank, started by billionaire Kumar Mangalam Birla’s conglomerate, shuttered in July after what it called “continuing losses” and the “absence of a long-term business case.” Tech Mahindra’s payments bank, part of the business empire overseen by auto titan Anand Mahindra, gave up its license in 2016 before it had even rolled out a completed product. Representatives for Mahindra, Birla, and Shanghvi didn’t respond to requests for comment.

Not all of India’s tycoons are giving up on the business. Mukesh Ambani, India’s richest man, has been testing a payments service whose launch date is unknown. With an estimated net worth of $56 billion, Ambani has the firepower to take on giants like Google, Ant, and Facebook, which is developing an India payments system through its hugely popular WhatsApp messaging service. But he may need plenty of patience, too. “This is an extremely competitive race,” says Manish Jain, partner for financial services, digital strategy, and fintech at KPMG India. “Only the companies that stay invested in the long run and win the trust of the customer will last.”

©2019 Bloomberg L.P.