Payments is a critical digital infrastructure sector, and Google’s decision to sign up for UPI is intriguing. At the launch of Google Tez, Finance Minister Arun Jaitley mentioned that Google CEO Sundar Pichai, and Next Billion Users head Caesar Sengupta had met Jaitley in January to propose the launch of Tez. That was when the government had given a decisive push for digital payments, unfortunately as an outcome of Demonetization, and the relentless push for digital payments after the launch of BHIM meant that Google could miss the bus in India. Without doubt, the government would have wanted for Google to participate as well, and it’s likely that they would have pushed for it.
So what choices did Google have and why did it decide to go with UPI, a platform owned and operated by the National Payments Corporation of India (NPCI)? Remember that NPCI is owned by Banks.
Google could have introduced the Android Pay platform, but India isn’t a market for NFC based systems yet. At the Tez launch, Sengupta said that “It’s still early in the game [in India] and a large proportion of the industry is still cash based. Many other players will have to innovate and play hard.” On Android Pay, he said that “Android Pay in its current form poses some challenges for India. We are working with Android Pay and as we add cards, we will look at those features”. Also, to make changes to the platform at scale is tricky and takes time, as Sengupta pointed out when someone asked about integrating Tez into the Android OS.
Remember that Google is in the platforms business: the model relies on maximising fragmentation, and monetizing its aggregation.
Platforms are like benevolent dictators in the technology space. It is in their interest to encourage more participation while also making changes to policies that benefit the majority as well as the platform owner. Google largely builds or buys platforms: think of Search, Android, AdMob, YouTube, Maps or even Google+. What platforms retain is control over how everyone else operates. But Google doesn’t own UPI, neither does it control it. It will forever be dependent on the policies that the NPCI enforces. For any large company that wants to operate at scale, this isn’t a good place to be in. Even at the Tez launch, Google said that they would wait for Bharat QR to be finalised, and will work with them then. Under more open circumstances, Google would have chosen to build their own QR code, and pushed everyone else to adopt it.
The alternative to UPI is wallets. They could have chosen to apply for a wallet license. Wallets give a company, in a manner of speaking, ownership of their customers, and rich information about how much money they store, apart from where they use it. Platforms get only the latter.
UPI is probably a better bet than a wallet for three reasons: firstly, it is still nascent, and the government appears to be choosing it over other payment platforms.
Secondly, UPI needs Google and Whatsapp (which is also planning a payments solution): at even such a small scale, the UPI market has consolidated. BHIM and Flipkart owned PhonePe are most of the market, and while the government is spending on NPCI owned BHIM (we see issues with that), NPCI (which has a conflict of interest because it runs both the UPI platform, and the BHIM app), needs more committed players to grow the market. Without more investment and better funded players, UPI will struggle to scale quickly.
Thirdly, it’s an easier fight than in wallets. When it comes to digital payments, India is largely a wallet market, but the regulatory winds are blowing payments in India back towards banks, and Paytm appears to be the stand-out player in wallets, and is also a (Payments) Bank. When we asked Sengupta about it at the Tez launch, he said that they have no plans to apply for a wallet license.
Putting up a fight in the wallets space is no easy task. Launching a wallet won’t just be about fighting with Paytm, it will also be about fighting with the banks (which don’t like wallets). Launching its own platform (say, it’s own version of UPI) would mean bringing all the banks on board, which could take years, and would be adversarial to UPI, which banks own. It’s a no-go.
“But it’s Google!”, you say. Typically, Google brings in the scale which most have no option to work with. That’s what platforms do. Well, let’s not overestimate Google’s ability to drive adoption for its own products anymore. Look at Allo, Duo and YouTube Go in India, the last of which was developed especially for India, and still has only between 1 million-5 million downloads on the Play Store. That is not Google scale.
It’s probably likely that the company saw a massive, concerted push for scaling payments in India, and if it acted too late, it would have missed out completely and missed out on an opportunity to be on the government’s right side.
But that doesn’t mean that a platform won’t eventually launch. Google missed out on messaging and social as platform plays, and it can’t afford to miss out on payments. It will need a platform that it can control the future of, and not remain dependent on a third party for growth. It will also need a platform that can be transnational, and aggregate different payment products in different countries.
It’s likely that that platform will be Android Pay, and Tez will be just one of the payment options there, just as Paypal is. In that case, Tez is to Android Pay, what Junglee.com was once to Amazon in India: a means of getting a sense of the market, and collecting data, before the larger platform is launched.
Google’s payments play in India has only just begun.