Zuckerberg's Start Small, Dream Big Indian Payments Bet
(Bloomberg Gadfly) -- After lobbying in vain for his silly and controversial idea of a basic internet for people too poor to pay for data, Mark Zuckerberg is finally doing something useful in India. The Facebook Inc. boss is bringing a much-awaited payments feature to the country's 250 million WhatsApp users.
In anticipation of this move, commentators had already predicted a "WhatsApp moment" in banking, whereby technology disrupts the cash-heavy, inefficient methods by which people currently settle dues in developing countries. Zuckerberg's thunder, however, was stolen by Sundar Pichai. Google Tez, which launched in India last September, had 12 million customers by the end of the year and had processed 140 million transactions.
Over the past 12 months, India has emerged as a large laboratory of sorts for mobile-based payments. The country's banks have come together on a shared interface for accepting and receiving money into and from customer accounts via mobile phones, affording Zuckerberg, Pichai and homegrown e-wallet Paytm's Vijay Shekhar Sharma a perfect experiment.
Why are the lenders dancing at their own funeral?
Soon after its debut, Tez cornered a 70 percent share of all transactions on banks' unified payment interface, or UPI, making it rather obvious that lenders' own apps won't be the dominant medium.
But banks don't have a choice except to play along. After New Delhi banned 86 percent of the country's currency in circulation in a shock move in November 2016, it became impossible for them to hold back UPI from angry customers queuing for hours at teller counters and ATMs. While cash has since returned, digital payments have taken off. Paytm is witnessing a sixfold year-on-year growth in acceptance by bricks-and-mortar merchants.
Enter Zuckerberg. Hassle-free money transfers among WhatsApp users in India are the starting point for his payments feature. That's a tad disappointing because the big prize is in the person-to-merchant segment, which Google is already targeting.
Not that person-to-person payments are to be scoffed at. The tiniest of Indian merchants -- the fishmonger, the vegetable pushcart-owner -- are unincorporated businesses, and for them to be able to take a WhatsApp or Google or Paytm payment, means they get money directly into their bank accounts. (Paytm now has a payments bank.)
Micro businesses thus get an opportunity to build a history, which can help get them credit from finance companies down the track. Having a customer database also means being able to target them with message broadcasts.
Yet it's the larger merchants that have a bigger use for data analytics. Besides, even where transaction values were large enough for cash to be inconvenient, low-margin bigger businesses never did warm to cards because of high fees. The complex retail architecture across India's cities, towns and villages has thus far been almost completely cash-based. With New Delhi trying to bring this informal economy into a goods-and-services tax net, unrecorded sales are becoming impractical. For both the payer and the payee, going digital is making more and more sense.
Payments, though, are only the hook with which tech companies will draw large numbers of sellers and even larger numbers of buyers into a triple-headed marketplace for content, commerce and financial services. While keeping Western firms out, the BAT trinity in China -- Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd. -- has achieved just such a trifecta.
India isn't in the same league; but it's the only available opportunity of its size. Watch Zuckerberg, Pichai and Sharma slug it out, but don't ignore Mukesh Ambani.
The richest Indian's shiny new telecoms firm has ushered in a revolution in cheap data, deflating the entire premise of Zuckerberg's basic internet idea. He won't let rivals maximize profits while he runs a utility. And if Jeff Bezos of Amazon.com Inc. also decides to add payments and financial services muscle to his growing clout in Indian e-commerce and content, it'll be a five-cornered fight.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.
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