Forbes India 15th Anniversary Special

Fintech in India: PayU's Citrus purchase reflects longer-term bets

Consolidation will help India's nascent mobile payments industry to tap the urban poor, profitably

Harichandan Arakali
Published: Sep 16, 2016 02:44:40 PM IST
Updated: Oct 27, 2016 02:21:49 PM IST
Fintech in India: PayU's Citrus purchase reflects longer-term bets
Image: Shutterstock

There were 54 companies authorised to offer pre-paid payment instruments in India, the permit that One97 Communications, Mobikwik Systems, Freecharge and others use to operate their mobile wallets, data as of Sep. 6 from the Reserve Bank of India, the country’s central bank, shows.

Of them, PayU Payments has since struck a deal to purchase Citrus Payments, reflecting the type of longer-term bets being placed by investors and the companies alike in India’s nascent, but rapidly evolving fintech and payments space. The $130 million deal, in cash, will take its consumer base in India to more than 30 million, PayU, backed by South Africa’s Naspers, said in a press release on Sep. 14.

“Fintech companies will play a large role in facilitating ease of transactions, and the acquisition makes sense for PayU, as it will  consolidate its position in a growing market. This is also in line with Naspers’s strong focus and presence in online business in India,” Ashish Basil, Partner – Technology, Transaction Advisory Services at consultancy EY, tells Forbes India.

Larger Indian rivals such as One97, which operates the country’s largest mobile wallet Paytm, and Mobikwik have both announced big fund-raising efforts in recent weeks. Those efforts have been strategic too. For example, Mobikwik added not just money, but also technologies to offer new, innovative, services to India’s low-income population segment.

Payments companies in India are now able to get people to not just make really small transactions, but also to go the next logical step to save in tiny amounts at a time — as low as a few rupees at a time. It could be argued that this micro-level transaction is the next frontier in the country’s developing payments and fintech ecosystem.

To a fair extent, the so called low-hanging fruit of educated, urban, English-speaking households are already in the net. Pun intended. At the next level, as these payments providers seek to add customers, they will have to add the urban poor. India’s cities are set to account for every other person in the country over the next two decades, from about one in four now.

Having the means to offer useful financial services in a user-friendly way, aka the mobile wallet, will mean the opportunity to significantly grow their customer base for the new-age payments providers. And from there on, it’s the same story of getting people to go mobile for pretty much everything. So the micropayments providers will become a very important pillar of bringing prosperity to India’s urban poor.

“Fintech is definitely going to be a very important segment if we have to talk about the growth of online businesses — not just ecommerce, financial inclusion, money transfer and so on,” Basil says.

For instance, micropayment solutions will be very important for selling virtual goods, he says. With more affluent consumers, such payments will revolve around entertainment or various personal purchases. Smartphone users in Japan, South Korea and China, spend a lot on everything from games to virtual fashion with which to dress up their online avatars.

With the low-income segment, micropayments will be vital for very-small-ticket savings and other purchases of necessity. In India, “till now there have been very limited options available around that, which we hope to get addressed with the upcoming fintech solutions,” Basil says.

As more people become habituated to using mobile wallets and other prepaid payment solutions, in addition to the credit cards, small payments will start getting facilitated — be it a cab ride or the purchase of smartphone apps. “In such a scenario, we could start looking to move faster towards a cashless economy,” he says.