Government policy has created encouraging tailwinds in India's payments market, which has caught the attention of e-commerce giant Alibaba.
Earlier this year, Alibaba announced a US$680 million investment in Paytm, the largest mobile payments platform in India. Despite the strong growth potential in already China’s domestic payments market, Alibaba is eyeing overseas expansion opportunities, especially in India.
To say digital payment volume in India has grown dramatically over the past few months would be an understatement. Since Modi’s demonetization policy in November 2016 the monthly digital payment volume via India’s Unified Payments Interface (UPI) has increased by almost 2300% as of March 2017.
The Indian government has been taking steps to push digital payments in-hand with demonetization. In 2016, the Reserve Bank of India introduced the UPI system. It allows users with multiple bank accounts to make payments via a single application. Currently the app is compatible with 29 banks including the likes of Axis Bank and ICICI Bank. Users are also able to add money to their Paytm wallets using their UPI ID.
Alibaba's investment, Paytm, is now the largest payment platform in India, with over 200 million users. Paytm processes over seven million transactions per day. The company announced late last year that it would be partnering up with insurance firms in handling some of their digital collections. The company is currently live with HDFC Ergo, Religare Health Insurance and ICICI Prudential.
Facebook-backed WhatsApp is also entering India’s booming payment market, planning to take market share from Alibaba-backed Paytm. Alibaba is also competing with Wechat in China, the country's most popular social media app.
Other major players in the Indian payments market include Freecharge and Mobikwik, both of which have raised millions in funds to fight for a larger market share over the past few years.
According to Mary Meeker's 2017 internet trends report, India has 355 million internet users as of June 2016, with a penetration rate of 27%. The report expects this will grow to 460 million users with a penetration rate of 31% by June 2017.
