India’s lockdown, announced with four hours notice in March, brought the country’s bustling neighbourhood markets and a budding ecommerce scene to a halt overnight.
Much of Indian retail, both bricks-and-mortar and online, has since been in limbo. That has had a dramatic knock-on effect on what had been the world’s fastest growing digital payments market.
It is a market that has attracted plenty of interest, with tech giants such as Google and Amazon, as well as Paytm — India’s highest valued start-up, backed by Alibaba and SoftBank — competing for a slice.
The lockdown ended the roaring growth in volumes through the Unified Payments Interface, a government-backed system that allows easy, instant bank-to-bank transfers.
After doubling in 12 months, UPI transactions fell to under 1bn in April from over 1.3bn in February. The figures for May, when the government started to ease lockdown measures, recovered to 1.2bn but remain lower than they were at the end of 2019.
The drop was not surprising and is one that many companies will brush off. Coronavirus and social distancing is expected to push the proportion of online transactions higher over the long term, ensuring that digital payments will be more ingrained in consumer behaviour in a post-Covid-19 world than ever before.
Yet in India the pandemic also risks upsetting the financial equation for companies and investors who have spent billions of dollars in a race for market share.
“We’ll continue to see a secular shift to digital payments. People will not want to hand cash over,” said Nandan Nilekani, a veteran entrepreneur who led a central bank committee to boost digital payments.
Mr Nilekani added: “The economy itself is not going to be buoyant. Payments is a proxy for the economy . . . A large part of that was predicated on the economy growing fast.”
While UPI has led to a boom in transaction volumes, its nature as a quasi-public utility has also lowered barriers to entry, eroded margins and left fewer clear paths to profitability. Paytm’s net losses doubled to $559m in the year ended March 2019, the most recent for which figures are available, as it battled Google Pay and Walmart-owned PhonePe.
Rather than a route to quick profits, the race for market share is instead a broader punt on India’s digital economy, one of the world’s most promising thanks to the country’s population of 1.4bn, fast economic growth and rising incomes. Payments can serve as a route into more lucrative opportunities such as lending, selling online content or even mutual fund investing.
But the blow to India’s economy from coronavirus is expected to be severe, and analysts fret that growth will not rebound easily. That could leave cash-burning payments players facing an extended period in the wilderness.
“It will be unclear, possibly for 12 to 24 months. One doesn’t know how long,” said Rehan Yar Khan, a managing partner at Orios Venture Partners, which has invested in a payments company. “If retail is going to continue to be subdued, then payments are going to continue to be subdued.”
Deep-pocketed US tech players may be better equipped to deal with any rough spells than those who depend on raising new funds from venture capitalists. New rules in April subjecting all foreign investment from China to Indian government approval could make funding harder to come by for companies such as Paytm, for whom Alibaba’s Ant Financial has been an important investor.
Investors say that the opportunities remain enormous, even if Covid-19 means tempering some of their aspirations. The companies are still collecting “all of this customer data, and [seeing] what to do with this customer data,” said Shravan Shroff, co-founder of Venture Nursery Advisors.
“They know exactly where the money came from and what the money was spent on. In a time like this, that will become very valuable.”
Quick Fire Q&A
Company name: Hastee
When founded: 2017
Where based: London
CEO: James Herbert
What do you sell, and who do you sell it to: Hastee is an earnings on demand company that allows employees to access some of their wages in real time.
How did you get started: The idea came through another company, where people needed early access to earnings to afford the train fare to work.
Amount of money raised so far: $276m
Valuation at latest fundraising: N/A
Major shareholders: Umbra Capital Partners
There are lots of fintechs out there — what makes you so special: Hastee is the first company to provide a card that dynamically links earnings to spending power.
Further fintech fascination
Crypto chronicles: Libra, the Facebook-backed cryptocurrency project, has appointed Credit Suisse’s Sterling Daines as chief compliance officer, reports Finextra. Mr Daines was head of financial crime compliance at the Swiss bank, and has experience in anti-money laundering, anti-bribery and anti-fraud measures.
Trendwatch: Sifted asked jobs review site Glassdoor to take a look at employee satisfaction at some of London’s biggest fintech companies. ThoughtMachine, TransferWise and Checkout.com came out at the top, while Klarna, Tide and WorldRemit were at the bottom.
Follow the money: The UK’s Metro Bank is in exclusive talks to buy peer-to-peer lender RateSetter, reports the Financial Times. The bank said that buying RateSetter’s platform would help it “to grow its unsecured consumer lending book”.
Follow the money (2): Codat, a start-up that aggregates financial data for small businesses looking for loans and insurance, has raised $10m in a funding round led by Index Ventures, according to TechCrunch. Codat’s system helps to assemble information from accounting software and payment terminals into a standard format.
Follow the money (3): Wahed, a digital Islamic investment platform, has raised $25m in a funding round led by the venture capital arm of oil company Saudi Aramco, reports TechCrunch. New York-based Wahed plans to expand into countries such as Saudi Arabia, Indonesia, Nigeria, India and the Commonwealth of Independent States, a group of countries including Russia and other former Soviet states.
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