Alphabet Inc, which runs Google, is folding Tez – a payments product it had launched in India and other emerging markets – into Google Pay, its global payments play as it continues to consolidate its payment products under one brand and push deeper into India’s financial services market.
The move is seen as Google’s second coming in the payments game in just 11 months. Tez was launched in September 2017. “When Tez was launched, it was the only company doing UPI, but soon many others jumped into it and Google lost market share,” said a senior executive with a large telecom operator, which also has a payments business. UPI is short for unified payments interface, a real-time payments system developed by the National Payments Corporation of India (NPCI).
In August 2017, UPI transactions, which were only 17 million has grown 14 times since. In the process others like PhonePe, Paytm, Amazon Pay, among others gained market share. “I don’t think that the momentum has come down… but after we joined, a lot of others joined so obviously the share are going to change,” Caesar Sengupta, general manager (payments) and head of next billion users initiative at Google told FactorDaily on the sidelines of its annual Google for India event.
What Sengupta looks at is the growth in users and usage. He said that in India, the payments business has crossed the transaction run rate of $30 billion and has 22 million active users. Its rivals don’t give specific numbers, but PhonePe, considered India’s largest UPI-enabled payments platform with 40% market share said in June that its run rate was $20 billion. To be sure, UPI payments yet make for a small percentage, just 0.16% per Reserve Bank of India data, of all electronic payments systems in India with the bulk still passing through netbanking, Visa, and MasterCard platforms, and others such as Paytm. But, it is the fastest growing.
The bulking up of Tez provided the context to make the next shift. “A few months ago, we brought together our payment teams globally. As we looked at the product, we realised there is so much we can take from India and vice-versa,” Sengupta said. Payments, he added, is a five to 10 years commitment and it’s just the beginning.
India’s internet landscape is fast-changing. “India has 390 million monthly active internet users…,” said Rajan Anandan, Google’s vice-president responsible for South East Asia and managing director, Google India. That makes India the world’s second-largest country by internet users after China. Unlike in developed countries, the internet user in India accesses the data through mobile phones and not desktops. Data usage (now, 8GB per user a month) in India shot through the roof after Reliance Industries launched its Jio-branded telecom business, which offered 4G speeds at ultra-low costs.
Google is betting on payments made on the mobile phone and digital wallets On Tuesday, the company said that Google Pay users will soon be able to make payments at offline stores as well as a larger number of merchants online.
Building the ecosystem
When Tez started, it only had a few features like peer-to-peer money transfer and audio QR. Sengupta said that every three months Tez comes with new releases and upgrades. “Now we have bill payments, recharges, you a ton of online places where you can pay… I think that progress has continued to happen,” he added.
Google wants payments to be a part-and-parcel of every experience of what a Google account does. “Why shouldn’t you use Gmail if you have to attach money? Things we have done in the US, we can bring here. We want to make sure that payments become a core part of your Google account, the same way as email or storage,” Sengupta said.
He also plans to bring some global features like card payments to India and take some features of Tez to Google Pay globally.
But none of this would be possible without integrating a large number of services with Google Pay in India. Vijay Shekhar Sharma, founder of Paytm, India’s largest digital payments company, calls it the network effect, where users can use Paytm for everything commerce – from buying grocery to paying bills and from banking to buying gold. Be it utility, entertainment, travel or investments – Paytm has built use cases in all areas.
“Payments is not a standalone business, it’s a wedge. It is a platform business, where 10-fold services are built on top of it. Services is what will make money for payment companies,” says Daman Singh Soni, chief marketing officer, WeCash, a credit enablement platform. “Essentially, payments is becoming a distribution business. You keep layering different fintech and commerce services.”
Google is just starting with it. Sengupta said that now Google will have online, offline, big brand retailers as well as the small kirana stores and chaiwallahs on board. Google Pay can be used at over 2,000 merchants online including services like RedBus and BookMyshow and also at over 15,000 retail stores like Big Bazaar and FBB.
It also has 1.2 million small merchants who have used Tez to send or receive money in the last 11 months – a high number for the short period considering Paytm has on its platform six million offline merchants to date. “And that (the speed of onboarding) is one of the reasons we’re now focussing on bringing more merchants,” said Sengupta.
The Google Pay app will now also show pre-approved loans to its users in partnership with banks including ICICI Bank, HDFC Bank, Federal Bank and Kotak Mahindra Bank.
The move to push deeper offline and launch instant loans underscores Google’s appetite to become a broader payments player, much like how Amazon has done in India with Amazon Pay. Amazon launched Amazon Pay in India and has taken it to merchant payments both offline and online and also other services like utility bill payments and mobile phone recharges.
“Behind peer-to-peer, there are loans now on Google Pay. What stops Google from integrating other services with payments,” asks Rajat Tandon, president of Indian private equity and venture capital association.
“This is just a different channel for banks for pitching their loans to consumers, though in a more contextual payment journey,” says Himanshu Gupta, who heads growth at Walnut App, a personal finance app. For instance, users could be prompted to avail a pre-approved loan at the time of check out on an offline transaction or at the payment stage online.
With access to 22 million Tez users, banks can now extend their products to a large pool of digital user faster. “It can be a one-app-play vs multiple-app-play. In any business, partnerships are the way to grow involvement and reach,” says Tandon.
Google has bigger ambitions with payments in India but isn’t yet ready with more specifics yet. “We’re hoping someday we can be as recognised and as large as Google Search or YouTube or any one of our products. But again, the way we’ve seen it happen is it takes long commitment,” said Sengupta. Payments in India has many players such as Paytm, PhonePe and Amazon Pay. So it won’t be an easy win for Google or any other player.
Earlier in February, the company brought together Android Pay and Google Wallet, under the Google Pay brand to streamline all its payments offerings and make it a unified payments experience across Google products. This also means several Google Pay features, such as attaching money to an email, that have been available overseas will soon come to India.
And to that, Sengupta said that Google will start pouring in money into marketing initiatives. So far, Tez’s growth, he said, was based on word-to-mouth and referrals.
The UPI game
The bet by Google Tez – as also other players – on UPI, the India born payments interface that has made it easier for peer-to-peer and merchant payments, seems to be paying off. Earlier this month, NPCI, which operates UPI, launched an upgraded version of the payments interface to support new features like linking of overdraft account and mandates to pay later. Giants such as Google, Amazon and Facebook have found it easier to break into India’s payments ecosystem by building their systems on top of UPI. Between April to July 2018, the volume of transactions on UPI has grown from 190 million to 273 million and in value terms, transactions have gone up from Rs 270,220 crore to Rs 518,430 crore.
As the number of payments grows, UPI is slowly penetrating deeper into India’s social fabric, and Tez hasn’t been different. Sengupta said that Tez was one of the products that was adopted by users in Tier II, III and IV cities, and not just the Tier I cities. “Most Google products start with the salaried urban class and then go much deeper. Tez is used in over three lakh villages and towns,” he said.
While cash backs can be Tez users’ biggest incentives, a large number of people are using it to send money back home. Sengupta said that a huge remittance market has come up, small merchants paying employees, people paying rent, and people making payments directly to bank accounts (not just by using UPI but also using just IFSC codes).
Google now wants to take some of these learnings to other countries. “A lot of governments in South Asia, Middle East and Africa have reached out to us to see how we can bring some of the innovations to those countries,” said Sengupta without naming them.
Also see: The coming UPI battle in mobile payments
As India goes digital, technology is bringing down the cost of providing financial services to consumers. Morgan Stanley, in a report India’s Digital Leap – The Multi-Trillion Dollar Opportunity, said in September 2017 that consumer credit will grow by around 17% CAGR over the next decade as technological systems bring cost efficiencies into the system. By using electronic Know Your Customer (eKYC) methods, the cost of opening an account can be reduced by nearly 90%. Banks using internal data and also data from the digitised Goods and Services Tax Network can make loan approvals faster, the report pointed out.
What next on the Google payments journey? How about making a money transfer or a payment just by talking into the phone. Google wants to revolutionise everything with voice — why not do that in payments, too? Sengupta is tight-lipped. “Stay tuned. Your insights are in the right direction…,” he said.
Lead visual: Rajesh Subramanian
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Updated at 08:35 am on August 29, 2018 to add a percentage figure for UPI transactions as a part of overall electronic payment systems in India. Also, added a snippet for the story.
Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures, Vijay Shekhar Sharma, Jay Vijayan and Girish Mathrubootham among its investors. Accel Partners and Blume Ventures are venture capital firms with investments in several companies. Vijay Shekhar Sharma is the founder of Paytm. Jay Vijayan and Girish Mathrubootham are entrepreneurs and angel investors. None of FactorDaily’s investors has any influence on its reporting about India’s technology and startup ecosystem.