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Four reasons why PayPal needs a wallet licence in India, and might acquire an existing co

Global payments company PayPal is reportedly looking to get a wallet licence from the Reserve Bank of India (RBI), the Economic Times reported citing sources. Note that there have been several reports of PayPal trying to get a license through the acquisition of Snapdeal-owned FreeCharge. Meanwhile, the company is also reportedly in talks to invest in Flipkart-owned PhonePe. Whichever route it takes, the signals are there: Paypal is interested in a wallet license in India.

The RBI has stopped considering fresh applications for PPIs since September 2016, till the time it lays down new guidelines for wallets, but the Economic Times says that PayPal might have applied for it earlier. The company has missed the new batch of licences which includes Amazon and Pine Labs.  It is interesting to see that the three major e-commerce players in India – Amazon, Flipkart and FreeCharge – have complementary payments business by getting a wallet licence. As such, it looks like PayPal is now trying to play catch up. MediaNama has written to PayPal for a confirmation and will update once we hear from them.

Here is a look at why PayPal is looking at a wallet licence now

1. It’s all about the merchants: Merchant services (as opposed to P2P payments) accounted for around 85% of Paypal’s total volume in the last quarter; it wants to be more than just a payments option for a merchant:

“from predominantly being a button on our left side to now being fundamental underlying platform provider to merchants as they think about how did they take advantage of mobile, and that means that we are offering a host of services across a common platform that we never did before. Full checkout type of capabilities, credit capabilities, contextual commerce toolsets, rewards integration through API sets and the list goes on and on and so invoicing capabilities.”

With partnerships with AndroidPay, expanding merchant payments in high on the Paypal agenda. The problem for Paypal, is that there’s a risk that with the scale at which wallets are expanding in India, it will lose out to the incumbents. As it is, the three major e-commerce players in India – Amazon, Flipkart and Snapdeal – have complementary payments business by getting a wallet licence. Paytm Mall is an ecommerce business affiliated with the Paytm (currently a wallet, but in future, a Payments Bank). Globally, eBay accounted for 15% of merchant business for Paypal, a number which has been declining quarter on quarter, because of the expansion in its merchants business. With Ebay India now a part of Flipkart, it leaves Paypal very little to work with in the country.

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It needs to get into the game, and even that may not be enough: an acquisition in India cannot be ruled out.

2. Cross-border money transfer: The draft guidelines for wallets say that they could now undertake cross-border inward remittances. Note that in India, PayPal is primarily used to pay for e-commerce purchases from foreign websites. The company right now has a product PayPal.me, a digital peer-to-peer payment service aimed at freelancers and small businesses selling products and services across borders. Merchants can set their own profiles and get a personalized URL for their business with their existing PayPal accounts. This URL will help merchants to call for a payment without giving out their bank account details and IFSC or SWIFT code.

At the moment, the company has a markup on foreign exchange transactions which varies from 2-4% which might discourage merchants from setting up a profile. The wallet licence might allow the company to lower transaction costs for merchants to sell globally.

3. Local competition going global: With Naspers-owned PayU buying Citrus Pay last year, the company has made it clear that it wants to take on PayPal on their turf. In February 2016, PayU said that it is looking at emerging markets in Latin America starting with Brazil. PayPal is present in 202 countries and processes payments in 25 currencies, while PayU is present in 16 countries. For PayU, on the other hand, the total payment volume (TPV) increased 148% in Russia, 123% in Turkey and 46% in India in 2016, according to Naspers’ annual report.

4. Mobile payments: PayPal is actively targeting mobile payments. At the moment in India, Paytm seems to have cracked mobile payments for businesses through QR codes and has around 5 million registered merchants. Meanwhile, on a recent earnings conference call, the company said that it has changed its approach to merchant relationships over the last 3-4 years.

“We have moved from predominantly being a button on our left side to now being fundamental underlying platform provider to merchants as they think about how did they take advantage of mobile, and that means that we are offering a host of services across a common platform that we never did before,” PayPal CEO Dan Schulmann said.

32% of payment volume for PayPal came through a mobile device. Payment volume on mobile increased 51% to $32 billion(of a total of $99 billion processed), from $21 billion a year ago. A wallet licence will help PayPal break into the Indian market and also help with domestic payments.

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