Daybreak - Google Pay India needs an overhaul

Episode Date: February 6, 2023

With a dipping market share and no leader in India, many in the industry say Google Pay is losing its agility in the country.  While the reasons range from slow roll-out of new features to overlooking merchants, one has played a big role in Google Pay's current position.  And it has a lot to do with the relationship it shares with its banking partners.  Tune in

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Ramon, Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Three years ago, while talking about GPA, CEO Sundar Pichai had described the payment app's success as tremendous.

And so it was. The previous year that is in 2019, nearly 60% of digital transactions were carried out through GPA. It emerged as a market leader. And ever since, GPA has played a crucial role in making UPI accessible to millions of users. But as GPA grew, so did UPI. A host of other equally credible apps appear in the market. And soon enough, in fact, in 2020 itself, phone pay overtook GPA.

Still, maintaining a second position with nearly 7.8 billion monthly transactions is no small feed. But Gipay's market share now is dropping. In the two years between 2020 to the end of 2022, it slipped down from 38% to 35%. Meanwhile, phone pay grew from 40% to 47% in the same period. Arunati Ramanathan, Deputy Editor Addukeh Ken, took a deep dive into what is. is really going on with GPA's dipping market share. She spoke to a senior executive who has worked with multiple payment apps, and they told her that Google has slowed down in terms of how quickly it executes. And this is just one of the reasons why it has lost its edge. Another big

reason, and this may surprise many, is that Google Pay is currently operating without an India head. Plus, there are many other factors too. It is time it seems for GPEC, to revamp. Welcome to Daybreak, a new podcast from the Kemp. I'm your host, Nickda Sharma, and I don't chase the news cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Monday the 6th of February.

It was in September last year when Sajid Sivanandan quit Google and joined the streaming platform Disney Hot Star. In the five months since, Jipa India, has been operating without a head. A Google executive that Arundati spoke to said that despite expectations for filling Sivanandan's role, there are currently no talks regarding his replacement. Google, meanwhile, called this speculation and Sivanan declined to comment.

But what a payment executive said holds true, that you need a market face to drive partnerships. Also, according to the payment executives who spoke to us, as in the Ken, Google Pay takes longer to roll out features compared to phone pay. But Ambarish Kenge, the VP of product at GEPA, says that the readiness for any launch on UPI, has many interdependencies on the rest of the network, including the many partners. This in turn, he said, impact the time to market.

Another reason for its falling market share is how GEPA has kind of overlooked merchants. merchants are an important part of the digital payments ecosystem. The Indian government even got rid of merchant fees just to woo them. But a former employee told us that GPA always thought of itself as a peer-to-peer or consumer payments company and did not pay enough attention to merchants. And one of the reasons why GPA did this is also because of the interloperability aspect of UPI, which basically lets any app except payments from any other app. This is why GPA did not see the need to acquire its own merchants.

But like I said, merchants are very important for payment companies. Building for merchants is what would drive consumers to engage better. A payments executive explained it to Arundati. He said that when you have deep merchant integrations, you can give more value to the customer, such as faster refunds and tracking of payments. But GP's Kenge maintained that it has always seen payments. as a two-sided network powered by the user merchant flywheel.

While all of these have been adding to GPA's recent woes, the most important factor has to do with banks. Coming up next, we talk about GPA's relationship with its banking partners. In the early days, the NPCI or the National Payments Corporation of India expected GPA to take on UPI transactions. So it created a provision that would allow GPA to partner with multiple banks. This was an effort to do away with risk by diversifying its service providers. GPA picked India's biggest banks, SBI, HDFC Bank, ICICI Bank and Access Bank. PhonePay on the other hand chose to rely mostly on Yes Bank. Ironically enough, this very decision to partner with multiple banks is now coming in the way of

GEPA's progress. By 2021, as UPI hit 2.3 billion monthly transactions, the UPI infrastructure within banks was unable to handle the volatility. And that is why there is a rise in payment failures on GPA. To fix the issue of payment failures, GPA is now migrating its partner bank's UPI infrastructure setup to the cloud, starting with ICSA Bank. These efforts will be co-funded by and the banks, but the proportion is unclear. To draw comparison, let us look at how phone pay dealt with this issue. Turns out, it managed to avoid it. And that is because it took on greater ownership of the UPI infrastructure for its partner banks.

It helped by designing UPI stacks for banks. And its partner banks, such as Yes Bank, on their part, have a dedicated setup comprising of distinct systems, channels, networks, and data centers. A yes bank executive told again that this arrangement ensures that UPI volumes do not disrupt regular operations and the transaction experience becomes much smoother. The fact that GPA relies more on banks also requires it to make extra effort to launch new features. Every time the NPCI introduces a feature, GPA has to implement it across all four of its bank partners requiring four times the effort.

Add to that, GPA's relatively smaller manpower compared to phone pays. And this challenge gets even tougher. GPs Kieng meanwhile told the Ken, and I'm quoting, this is a competitive market and the ecosystem has leading challenges, which resulted in some transaction share drop from the peak for GPA. Coming up next, we talk about how there might be an opportunity lurking for GPA to reclaim its power. When it started out, Alphabet, Google's parent company, looked at GPA as a potential vehicle to attract the next billion users.

This would be through its status as the most preferred payment app amongst Indians. But now the tables have turned and it is time for GPA to show results. And there is an opportunity in the horizon. In fact, GPA seems to be already aware of it. Even though banks have traditionally been skeptical of UPI, things are now changing. There are plans to link UPI users with a credit card. The NPCI in September 2022 said UPI users could soon make payments from a rupee credit card instead of their bank accounts. Now, even though this comes with its own set of challenges, GPA needs to figure out a way around the factors that have been restricting it.

Like Arundati said in her story, not only does it need to reinforce its position within Google, but also in terms. India's payments ecosystem. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras. Head to the Ken.com and click on the red subscribe button on the top of the website.

I am Snigda Sharma, your host, and today's episode was edited by my League Rajiv Sien.