American Express, the US based Banking & financial products company, is in talks with Mukesh Ambani owned Reliance Industries Limited (RIL) to launch a JV in India that will offer financial services, including a payment gateway, according to a report in The Economic Times. The report cites unnamed sources saying that a payment gateway solution is high on RIL’s priority list, since it plans to launch broadband services. The spokespersons of both companies have reportedly not commented. Remember that RIL had bought 95% in wireless broadband auction winner Infotel, for Rs 4800 crore.

Why

– Telecom operators like Airtel, RCOM, Vodafone and Tata Tele etc offer primarily pre-paid services, and payments are automatically deducted from consumer accounts. They typically do not have standardized billing terms and conditions, and the reach of their billing services is limited to a few value added services companies. We’ve written about this issue before. RIL may be looking to tap a larger, merchant ecosystem, to open up commerce external on mobile and broadband. Remember that this approach appears to be similar to what InMobi is attempting with its SmartPay solution, offering developers alternative billing services.

– RIL is planning to launch LTE, which – according to industry rumors – is probably going to serve two functions – as a backhaul for 3G services (since existing mobile operators have limited spectrum), and mobile broadband services. An independent payment gateway solution will give it a broader playing field, taking it beyond just its mobile broadband services.

– Why AmEx? We checked, and payment gateways EBS and DirecPay, among others do not accept AmEx payment products. Since the company has positioned itself as a niche player in the payment products market, the move will enable it to directly authorize and process payments.

– Why a JV? From a technology perspective, there are payment gateway service providers that RIL could buy for a few tens of crores, so we’re not sure of why exactly they would be in talks with AmEx. AmEx does operate payment gateways on its own in other markets, so this could end up being a technology tie-up.

What If

The online payment gateway situation in India is ripe for disruption – I’ve hardly ever come across an e-commerce company that is happy with its payment gateway partner, and there are few plug-and-play payment gateway solutions available, that allow merchants to retail products, akin to Paypal, which is universally accepted, and easy to deploy. A plug-and-play merchant solution that doesn’t go down regularly and allows small merchants to set up e-businesses at a low set-up cost could well result in providing further scale for the e-commerce business. RIL typcially plays the economies-of-scale game, as it showed when it brought down mobile prices with the launch of Reliance Infocomm (later called Reliance Communications).

(with inputs from Anupam Saxena)