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Amazon Amps Up Its Fintech Push in India

Sep 7, 2020 5:51 AM 4 min read

Amazon is expanding its fintech operations in India at a relentless pace.

Last week, it added insurance and gold to its suite of fintech offerings.

And that’s on top of dabbling in credit cards, auto insurance, having a digital wallet and executing online payments at large. Users can tap the once-ecommerce-only giant to pay for food delivery to flight bookings.

Amazon is also busy buying stakes in Indian fintech startups. These include online gift card platform Qwikcilver, financial products marketplace BankBazaar, app-integrator Tapzo, online lender Capital Float and online insurer Acko.

Cherry on top are ties with Orowealth and Kuvera which distribute savings products like mutual funds to customers.

In June this year, Amazon launched a “Smart Store” feature wherein SMEs could set up digital storefronts on its marketplace.

As per latest reports, Amazon may also now consider investing around $4bn for a stake in telecom major Vodafone Idea along with US wireless carrier Verizon. This development was reported on the heels of the recent Supreme Court decision to give telcos 10 years’ time to repay their AGR dues. If data is the new oil...then telcos are the new pipes carrying this oil. Backward integration? 


What’s Amazon up to?

On some level, the answer is instinctive. India is the second-largest internet market in the world. It has a staggering 700 million internet users (for context: that’s about two times the population of the USA) - and about the same number yet to come online, so there’s a lot of untapped potential.

And with hundreds of millions of middle-class consumers and a growing economy (which, if you discount the COVID-19 hiccup, is expected to grow swiftly in coming years), it offers many customers for Amazon’s many business verticals - ecommerce, subscription services (Amazon Prime, for which Amazon has an estimated 10 million users in India), music and video streaming, fintech, and even cloud computing vis-a-vis Amazon Web Services.

For the sake of brevity, let’s focus on Amazon’s fintech bet.

As per CB Insights, a majority of Amazon’s fintech investments and M&A are concentrated in India. The company aims to make its payments processing service - Amazon Pay, which was launched in 2016 - the country’s “payment method of choice”, as Mahendra Nerukar, head of Amazon Pay India, put it.

But how does one become the dominant player in a country whose digital payments market is expected to double in value to a massive $135bn in the next three years?

By making Amazon Pay the gateway to access a myriad of products from insurance to investments, the company is trying to normalise and popularise its usage.


What’s standing in the way of Amazon’s aspirations to become a payments tsar in India?

Now, the growing collusion between ecommerce and fintech is visible across the world, particularly the US and China. In India, where the ecommerce and fintech sectors face unique challenges, this interaction can be quite beneficial to companies with a leg in both sectors.

That being said, Amazon Pay’s road ahead is bound to be an uphill one. Here’s why...

One: There's stiff competition, many players by foreign giants with fat wallets. SoftBank and Alibaba-backed Paytm, Alphabet-backed Google Pay and Walmart-backed PhonePe being the most popular examples. Facebook’s WhatsApp Pay is still awaiting regulatory approval, but its entry could be the biggest game-changer yet, since WhatsApp has over 400 million users in India.

Two: The challenges aren’t only from rival players: the very nature of India’s fintech ecosystem makes it a difficult one to navigate for any company, no matter how deep-pocketed it may be.

It may seem as if digital payments are in vogue today, but India remains a cash-based economy where 190 million people lack even bank accounts. (Amazon has been trying to lure Indians into paying online. One way it did this was through its Doorstep feature, launched in 2018, that allowed customers to load money onto their Amazon Pay wallets by using a cash pickup service.)

Three: Speaking of banking - much of it is informal and not strictly regulated. This is true for individual consumers and companies too. Case in point: barely a third of MSMEs’ lending requirement is met through regular banking channels (commercial banks, NBFCs etc.). If the field is so fractured that players are alien to even formal credit, bringing them to join the fintech revolution would require overcoming years of regulatory and technological inertia.

Four: Internet penetration, while being much better than ever before, still has limitations due to patchy networks, rural roadblocks and digital illiteracy.

Five: The fintech industry is predominantly a loss-making one. Profit margins for companies are razor-thin due to deep-discounting and government protection (UPI for example, on whose backbone most of the payments sector rests, is virtually free for the end user). Many players don't expect to turn profitable until 2022, which would require significant volumes uptick in a sector where offerings are quickly getting commoditised.

Six: Regulators are generally amping up scrutiny over global tech giants’ business practices - and installing checks and balances to curb their influence.

These include a Google Tax aka equalisation levy to counter Big Tech’s tax-evasion habits, new data policies to force user data to be stored within the country, antitrust investigations against tech leviathans, and new ecommerce rules that clamp down on steep discounts and exclusive deals.

So, it’s clear to see why Amazon faces a fight unlike any other if it wants to realise its dreams of dominating the Indian fintech market anytime soon.


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