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Last Updated : Oct 18, 2018 07:33 PM IST | Source:

Google, WhatsApp's entry into digital payments to intensify competition for locals

However, most experts believe that competition between local and foreign players will benefit Indian users

Beena Parmar @BeenaParmar
Neha Alawadhi @alnehaa
Representative image
Representative image

Data localisation is set to increase competition for domestic companies in the digital payments space, leading to greater benefits to the Indian consumers.

As per Reserve Bank of India's (RBI) data storage localisation policy, all foreign players must have data centres in India to store data of all transactions in the country. The data will have to be stored on the servers within India.

Three industry experts in the Indian digital payments ecosystem told Moneycontrol that there was a sense that India and its domestic firms were losing out on leveraging its homegrown payments infrastructure with the entry of foreign firms like Google, Amazon and Facebook (through WhatsApp).


“In the short run, the domestic companies stand to gain as the big foreign players with deep pockets have to comply with the rules now, but will eventually come at a level playing field. So, over a period of time, say within six months to a year or year-and-a-half, if they are at par with the cost structure, it might hurt Indian companies due to the scale that can be achieved by the large players,” said a senior executive from one of the payment companies.

Digital payments have thrived in India over the last two years, especially after the announcement of demonetisation on November 8, 2016, which led to a sudden spurt in non-bank-led digital payment providers and its usage.

Homegrown players including digital wallet firms such as Paytm, Mobikwik, PhonePe and even the licences given to eight payment banks boosted the prospects of the payments market.

UPI steers competition

Amid the digital push, entered UPI or Unified Payments Interface, one of the biggest technological breakthroughs achieved by the National Payments Corporation of India (NPCI), which created the underlying technology platform.

UPI enables instant payments from one bank account to another through a virtual payment address (VPA) used to transfer smaller value funds.

This led to the entry of large international giants such as Facebook (WhatsApp), Google and Amazon Pay, that built payment apps on top of UPI using open APIs (application program interface), making payments seamless and convenient for customers.

UPI, launched in 2016, is seen as a game changer. However, it was the entry of Google Pay app (earlier Google Tez) last year that quickened the pace of UPI adoption.

In September 2018, UPI transactions increased nearly 30 percent to 405.87 million from 312.02 million in the month of August, showed NPCI data. A large part of the transactions was led by Paytm, PhonePe (owned by Flipkart) and Google Pay.

In value terms, UPI witnessed a 10.3 percent jump in September with Rs 59,835.36 crore worth of transactions against Rs 54,212 crore in August.

“With this (data localisation) mandate, I think a lot of entities are coming to India and setting up servers is also a good way of bringing money and investment back into India. It may not be the main benefit, but a side benefit of this move,” said Burgess Cooper, Partner Information & Cyber Security Ernst & Young.

A former RBI official said while there is no threat to the local companies as they are technically competent and have a financial backing of international investors anyway; Mastercard, Visa and American Express do control a major pie of transactions among banks even now.

“Players like Google have only ensured the growth of NPCI products, particularly UPI which was considered a precursor to “open banking”…This whole incident should not be seen as creating a level playing field between local talent/homegrown business and international business, he said.

According to him, competition is always good. "We have launched a series of reforms and have always encouraged both national and international institutions to do business in India. In the end, we have miles to go before we manage to serve the unbanked and underbanked segments of our society."

Another official pointed out that enough handholding was done for UPI and there were discussions even while UPI was being developed but local players never showed any interest in building on the platform. “It was only after Google and Facebook entered the arena that Indian private companies took UPI seriously,” the official said.

AP Hota, former CEO of NPCI said, “This move will only increase competition and is good for the customers and for UPI. The transactions will be piped through UPI and banks…The digital payment and requirement are huge in India, so everyone can create their niche product and service.”

I think the growth right now is at a good pace but there should not be a runaway growth and all players must ensure security and get ready to handle high volume transactions, he added.

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First Published on Oct 18, 2018 07:33 pm
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