Mahendra Nerurkar, India CEO of Amazon Pay, says the company’s primary focus on financial services will still be on digital payments, despite a proliferating suite of other fintech investments in the country.
In the U.S. Amazon is assembling many pieces that could turn it into a bank in everything but name.
So too in India, which offers a unique mix of vast consumer numbers, an openness to Big Tech companies from the U.S., and a ready digital infrastructure, the “India Stack”. India is by far the company’s biggest investment outside of the U.S. What could be the same – and what might be different?
CB Insights issued a report in July, 2020 that breaks down all of Amazon’s fintech investments and strategies. Amazon has committed $7 billion of investment to India, with more on the way. The anchor of its strategy is Amazon Pay, its mobile wallet, which has over the past few years leveraged the acquisition of a local payments company, Emvantage Payments, and a 2018 stake in Capital Float, a SME-focused lender.
Since then it has acquired or launched a variety of services, including gift cards, contactless payments hardware and software, an API-driven P2P lending marketplace, its own lending program to sellers on its e-commerce platform, and a consumer credit card with ICICI Bank.
Amazon has maintained the pace this year. In April 2020, Amazon Pay entered the credit space directly by launching Pay Later, to allow shoppers pay for small, non-essential purchases in instalments, also in partnership with Capital Float (which does the actual lending). Pay Later is an Indian innovation, not available in the U.S.
And in June, it launched a service to let small businesses open a digital storefront on the Amazon marketplace that consumers can access through QR codes, and pay via Amazon Pay, credit or debit cards, or through Pay Later. This represents its first foray into providing business-to-business services in India.
The company has also made bold moves in insurance: first in 2018 acquiring Acko, an insurtech focused on the bike and car market; and then last year receiving a license to offer its own health, life, and general insurance, which it has begun offering cost-free to sellers on its platform.
Nerurkar spoke at the Global Fintech Fest, a virtual conference on July 22, and his interviewer didn’t ask him about any of these specifics or how they might tie together. So we were left to listen to what Nerurkar wanted to talk about.
That was mainly the company’s wish to drive digital payments. “Our mission is to make digital payments trusted, convenient and rewarding,” he said.
Nerurkar noted that 90% of transactions in India are still cash-based. There is at least a decade’s worth of work to do, he said. This is similar to the U.S. where, despite heavy investment in Amazon Pay, digital transactions are still quite few.
Therefore, he said Amazon Pay needs to offer distinct products across the spectrum of segments. It’s not just for rich people in the cities (although they’re more likely to use the digital wallet). The company also wants to cater to plastic, cash, and emerging spenders with Pay Later. “Four years ago we were a wallet provider,” Nerurkar said. “Today we support all payment instruments,” including offline.
Second, digital payments are increasing quickly. Amazon Pay, like other payment processors, leverages UPI, the United Payments Interface, so that consumers can use their mobile phone to make payments among many banks and wallets. This enables other use cases for consumers and merchants. More use cases requiring digital payments in turn speeds adoption. UPI itself processed over 1 billion transactions in June; Amazon Pay processes less but is growing at a similar clip.
This raises the tantalizing, but unanswered, question of whether Amazon Pay will end up doing bigger volumes and values of digital payments in India than in the U.S. Nerurkar did say that the newly launched UPI Autopay, for recurring payments, will create plenty of new use cases and drive volumes. “It’s a disruptive feature. Autopayments are the future,” he said, noting that subscription services for digital content is going to be a huge growth area. “We’re just scratching the surface.”
Third, Nerurkar talked about voice. In the U.S., Amazon is experimenting with features like bill payments via Alexa, its digital personal assistant. He said as cash and plastic have migrated to mobile, more use cases will shift to voice – particularly in conjunction with setting up UPI Autopay or Amazon Pay Later arrangements. The reason is security. “In India we’ve made voice a second factor in multi-factor authentication,” he said. “Voice is an exciting frontier,” although he said it will take a few years to perfect the technology to the point it can be deployed at scale.
In the U.S., Amazon is keen to move Alexa beyond home use and make it part of commerce and business. It is experimenting with Alexa for paying at gas stations, in conjunction with Fiserv. Amazon is also believed to be developing voice as part of biometric I.D. systems in the U.S. in partnership with VISA, Mastercard, J.P. Morgan and Wells Fargo, according to CB Insights.
But Nerurkar suggested the company’s voice ambitions are advancing more quickly in India, thanks in part to the country’s investment in digital infrastructure. “When it comes to voice, India is building services and products that are ahead of the global curve,” he said.
Credit and Pay Later
Fourth, the company is looking as broadly as possible: micro credit, insurance, wealth management, and lending are all on the cards as more customers become familiar with digital payments. Nerurkar mentioned insurance specifically. “We’re thinking of micro insurance, for buying a product on Amazon’s marketplace or for a flight ticket or a cab ride. It’s coming…you won’t make money just on basic payments.”
But it’s credit where the firm might make its biggest impact. As with voice, Amazon’s India business is ahead of the U.S. for instant credit to consumers with Pay Later. “That’s something that will have global applicability,” Nerurkar said. But Pay Later was designed for a country in which credit-card penetration is only about 2%, so its future overseas will also likely target people outside the formal financial system.
Pay Later is still brand new and will take a few years to win adoption. But Amazon can expand Pay Later’s parameters, to fill in more spaces where credit cards don’t play, all the while helping users build a credit history, creating a virtuous circle of eligibility to the point that some people qualify for a bank credit card. “We’re training people how to use credit responsibly,” Nerurkar said.