Amazon India has received permission to run a wallet license in India, becoming one of the 84 companies authorised by the Reserve Bank of India to operate payment licenses. The license has been given to “Amazon Online Distribution Services Private Limited”. The license was issued to Amazon on the 22nd of March 2017, and is valid till the 31st of March 2022. The wallet will probably be linked to Amazon Pay, which Amazon introduced in India last December, although then it was seen as a rebranding of its gift cards business.
Why Amazon needs a wallet in India
Remember that India has a 2 factor authentication system, which means that after adding the card details and the CVV, users either have to authenticate a transaction using a one-time-password sent to their registered mobile phones, or authenticate via a separate password on a bank payment gateway. This adds time and errors to the payments process, because of which ecommerce platform may lose customers. A wallet addresses this issue: users can store money in a wallet via a single transaction (which will require the 2nd factor of authentication), and then purchase products without a need for further authentication. A one-click payment option doesn’t work in India, without a wallet. Amazon also offers customers faster refunds with Amazon Pay, within 24 hours. Storing money in the wallet will help Amazon ensure that the money is spend on Amazon directly, and also allows it to offer cashbacks on purchases, to wallets. This strategy was used by Paytm to scale.
Remember that Uber had incorporated the Paytm wallet for this very reason in 2014, after the Reserve Bank of India pulled them up for not using the second factor of authentication. Also read about the time that Flipkart shut its wallet, back in 2013.
Regulatory uncertainty around wallets in India
Amazon has gotten a license at a time when there is regulatory uncertainty around wallets in India: the Reserve Bank of India has a consultation which appears to be enforcing fairly stringent norms on the operations of wallets. More on that here, and our analysis of key issues here. Worth noting here is a requirement that wallet companies need to submit a list of all their merchant partners to the escrow bank.
Apart from this consultation, the Ministry of Electronics and Information Technology has recently closed its consultation on issues around security and privacy measures for wallets.
Note that Amazon is already invested in a company with a wallet licence, called Qwikcilver, which uses the license to operate gift cards for consumers, including those on Amazon and its key competitor Flipkart. Qwikcilver had raised $10 million from Amazon and Helion Venture Partners in 2014, and Amazon had also participated in an investment round in July last year, where Sistema Asia Fund had led.
With Amazon now getting its own license, we wonder if it will now migrate its gift card offerings to its own wallet service.