- Launching Android Pay in India looks great on paper to tap the country's 1 billion mobile subscribers.
- However, India's low AFA cutoff, small mobile payments industry and low consumer spending dampens the prospects.
- Google would be better off if it launched Android Pay in other developed markets.
Alphabet Inc-C (NSDQ:GOOG) Android Pay is available in the U.S and U.K but Google isn’t stopping there. The software giant intends to expand its payment service to Australia and Singapore, along with several other countries, in the coming months. In fact, speculative discussions in online forums suggest that Android Pay could also be launched in India going forward. But will this be a feasible venture? Let’s examine the opportunities and risks involved with the launching of Android Pay in India to have a better understanding of the matter.
- Let me start by saying that India is a huge market for smartphones. India is expected to surpass the U.S and emerge as the second largest smartphone market next year with projected sales of 192 million devices during 2018. So, in theory, launching any kind of mobile service or software in India has a great potential, given the sheer size of the country’s phone market, at least on paper.
- More to the point, the country is seeing a widespread proliferation of NFC devices across all price points. For instance, there are a whopping 422 NFC-enabled smartphone models retailing in India. Let’s be clear, these don’t include discontinued models; they are actual devices that are currently on sale in the country. Out of this pool of devices, about 108 NFC-enabled smartphones carry a price tag of less than $250. This widespread penetration of NFC smartphones across varying price points suggests that launching a service built on NFC could find several million users in India.
- Also, Indian banks have started to realize the potential of NFC-based mobile payment solutions. Major banks such as HDFC, SBI, ICICI and Axis Bank are all expanding their NFC terminal networks across India to promote the use of the next-gen tech amongst their users. Backing from the bankers makes the launch of Android Pay all the more feasible; there is already infrastructure in place to leverage the growth prospects of NFC mobile payments, so Google won’t have to start from scratch.
- A key factor to note here is that there’s a huge opportunity of carrier billing in India. There are more mobile subscribers in India than credit/debit cards: 1 billion mobile subscribers compared to about 670 million credit and debit cards. So by linking the Android Pay directly to the consumer’s mobile billing accounts, I believe Google could actually increase its total addressable market even further.
Now that we have discussed the opportunities, let’s take a look at what all challenges and risks Android Pay could face in India.
- First and foremost, the average consumer spending is relatively lower in India compared to other developed nations; the chart attached below highlights that in detail. This may not mean much in isolation but we have to realize that Android Pay is a for-profit venture. Lower consumer spending means lower commission revenue for Google. So a massive Pan-India launch of Android Pay may not be worth it at all if it isn’t going to generate sizable returns for the software giant.
- Another roadblock that could hinder Android Pay’s growth in the country is that the Reserve Bank of India has imposed an “Additional Factor of Authentication” restriction on all transactions above $30. It basically requires you to enter a PIN at the merchant’s point of sale terminal if the bill is above $30. The whole premise of the NFC mobile payment technology is to make transactions faster and safer, but with the mandatory PIN requirement, that may not happen. Consumers may not opt in for any NFC-based mobile payment service in India if it doesn’t save time. Google is probably better off launching its service in other countries where the AFA-cutoff is relatively higher.
- It's also worth considering that India’s mobile payments industry is quite small, aggregating to just $1.4 billion in size last year, which represents just about 1% of the global market. Why would you launch a product in a small market when bigger markets are yet to be tapped?
- Moreover, there are several VC funded mobile payment companies in India such as Freecharge, Mobikwik, Paytm, Oxigen, Citrus Pay and mRupee but none of them have bothered to enter the NFC-based payment servicing segment. If there truly was a massive market for NFC payments in India, wouldn’t these companies have already entered the segment in hopes of a potential acquisition by Google? Maybe the Indian market isn’t large enough?
Putting it all together
Granted that the Indian smartphone market looks massive when we talk about the number of mobile subscribers and handset offerings. But these factors won’t singlehandedly drive the growth of NFC-enabled payments in India. I’m of the opinion that launching Android Pay in India at the moment would make a bad business decision due to the aforementioned reasons. There are several untapped developed markets, such as Singapore, Malaysia or Hong Kong, that would be better suited for Android Pay.