Whenever there is talk about Asia-Pacific, usually it is China which enjoys holding the ‘star of international eCommerce’ status. However, India has been showing some impressive spark, in its attempt to stand out from China`s shadow.
On the payments and eCommerce front, India has come a long way. Growth drivers include an increasing online awareness, smartphone adoption, the foreign direct investment (FDI) policy and a high level of demand from younger demographics. According to estimates, by June 2018 there will be 500 million internet users in the country. This has led industry observers to foresee big gains for eCommerce, with USD 64 billion estimated by 2021. Imagine the huge untapped potential which, in the business land, hardly ever goes unnoticed.
This article focuses on the main key trends and developments with a great impact on the Indian market.
Global players in the local game
Detecting tremendous market opportunity, international companies have not shown any hesitation in expressing a great interest in the local market. In the fight for dominance on the local eCommerce market, there are two global companies that have stolen the spotlights: Amazon and its rival Walmart.
Amazon has been aggressively spreading its reach in this market, where it has planned to spend more than USD 5 billion to grow its business. While Walmart, according to recent news, is set to acquire 60-80% of local eCommerce company Flipkart for USD 12 billion.
But even if competition is always part of the game, all these global companies do not play it by themselves. Of all the homegrown eCommerce companies, Flipkart, a key Indian online shopping website, deserves special attention. In 2017, Flipkart completed the merger with eBay India’s operations and it counts eBay, Tencent Holdings and Microsoft among its investors. In case Flipkart gets acquired, eBay can take back control of the eBay India brand name. Snapdeal, Paytm Mall, Jabong and Myntra are also among top Indian online eCommerce websites. Quite a crowded market, one might say.
Digitalization of payments
India has traditionally been a cash-based society. In 2015, almost 4 in 5 transactions were made in cash. However, demonetization policies encouraged by the government have paved the way for payments digitalization. A notable example: in November 2016, the Indian government outlawed the use of 500 and 1000 rupees notes, as part of a demonetization action. The aim? To encourage a digital India by making payments via digital means and creating a cashless economy. As a result, the measure took 86% of the cash out of circulation overnight.
Digital payment providers that were slowly expanding their reach quickly gained the attention of tech-savvy customers, as they started looking for payment alternatives to cash. As transaction volumes increased, payment services providers also began making more investments and plans to increase the efficiency of their services.
There has been a lot of interest in fintech and digital payments in the country, with technology empowering market players to develop tools which facilitate a cashless path. Currently, the user base for digital transactions has reached almost 90 million and is expected to triple by 2020, as a higher percentage of population from rural and semi-urban areas gain access to digital technology.
Such a trend is encouraged by notable developments and initiatives, such as:
- the Aadhaar-enabled payment system. Launched in 2008, the Aadhaar national database is one of the richest government-operated databases across the globe. The system assigns each Indian a 12-digit ID and records details such as home addresses, information on all bank accounts, mobile phone numbers, and all the biometrics details. The Aadhaar ID can be used as the basis for all financial transactions by citizens using bank accounts, mobile payment apps and mobile wallets. It can also form the basis for payments made through other apps and service providers that use the ID as a means of identification.
- Unified Payments Interface (UPI) service: a government platform launched in April 2016 by the National Payments Corporation of India (NPCI). Its aim is to facilitate bank account-to-account transfers instantly with a single identifier ‘Virtual Payment address‘.
- Pradhan Mantri Jan Dhan Yojana. It is regarded as the world‘s biggest financial inclusion program, with an aim to facilitate the creation of bank accounts for large underserved or unserved sections of the country‘s population.
The impact of mobile
India is one of the top markets globally in terms of mobile wallet adoption, overshadowing developed markets like the US and the UK. Besides government policies to promote electronic payments, relevant factors for this trend include a rise in smartphone penetration and improved payment infrastructure.
“Now what we are witnessing is the next phase where dirt cheap data and faster connectivity is enabling those with a smartphone to access a whole new world of digital services. The number of mobile internet users in the world is likely to top three billion by 2020 from the current level of two billion. Nearly a third of these new users will be from India”, a recent report by The Economic Times and ACI Worldwide shows.
With digital wallets, payment gateways, QR codes, near field communication (NFC) technology, UPI and Aadhaar Pay enabling the shift to digital payments, the smartphone is set to become an all-in-one device for the Indian consumer.
Due to its tremendous potential, India has been among the main target markets for international expansion. As 90% of relevant eCommerce in India takes place on marketplaces, international brands have been actively using this route to make their market entrance and ensure growth.
International retailers aiming to sell across India can capitalize on this opportunity only by understanding the local mentality, payments landscape and consumer shopping behavior. And while the internet may have eliminated geographical borders, distribution and regulatory aspects cannot be ignored.
On the consumer side, challenges include delivery charges, confidence in returns, security of payment, and availability of payment methods. In spite of such barriers, Indian consumers still want to buy internationally branded products online, for the simple reason that the latter are not listed on local websites.
As it is the case with each and every country, the particularities of the Indian market are essential to understanding its uniqueness. This is a goal each player should have – be it payment gateway, telecom or mobile wallet company – in order to fully take advantage of the payments and eCommerce opportunities (cross-border or not).
Upcoming event: India Ecommerce Expo, 15 – 18 May. We will be there, getting more insights from the relevant discussions. Reach out to our team for an on-site meeting or stay tuned for more India coverage.