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Berkshire's Paytm Backing Threatens GOOGL, FB & More in India

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The online payment landscape of India is currently booming due to the conducive environment created by the massive ongoing digitization in the country. Moreover, the recent fiscal reforms by the government have compelled Indians to adopt cashless transactions, giving digital payment sector a significant boost.

Further, the increasing penetration of smartphone and internet use is playing a vital role in driving growth in this particular sector. Additionally, growing proliferation of e-commerce shopping in the country has led to the rise in demand for mobile wallets and digital payment applications.

This presents significant growth opportunity for payment service providers in the country. In fact, per a report from Credit Suisse, this sector in India is expected to reach $1 trillion by 2023.

The strong growth projection was enough to allure Berkshire Hathaway , which recently invested $356 million in One97 Communications, parent company of payment services provider Paytm.

Moreover, tech giants such as Alphabet (GOOGL - Free Report) , Facebook (FB - Free Report) , Amazon (AMZN - Free Report) and PayPal (PYPL - Free Report) are aggressively trying to bolster their presence in the digital payment sector of the country.

However, Paytm’s backing by Berkshire now threatens the growth prospects of these companies.

Intensifying Competition in India

The Indian digital payment sector is highly competitive in nature given the rapidly increasing number of digital transactions.

Currently, the chief player in this space are Paytm, Google’s Google Pay, Facebook’s WhatsApp Pay, Walmart (WMT - Free Report) owned Flipkart’s PhonePe, Amazon Pay and government owned Bharat Interface for Money (“BHIM”).

In terms of transaction, Paytm has recently reached the annual run rate of 5 billion transactions and $50 billion of Gross Transaction Value (“GTV”). PhonePe has claimed that it has hit the GTV of $20 billion. Meanwhile, Google has witnessed 750 million transactions worth $30 billion since its launch in the country.

In terms of number of app downloads, Paytm reportedly leads the roster with 150 million downloads, courtesy its robust cashback facility and discounts as well.

Meanwhile, PhonePe, Google Pay and BHIM’s number of downloads are pegged at 133 million, 50 million and 32 million, respectively.

Can Payment Initiatives by Tech Giants Stall Paytm’s Advances?

The latest move of Berkshire Hathaway does not bode well for these tech companies’ growing investments in the country.

Recently, Google has teamed up with four commercial banks in India namely ICICI Bank, HDFC Bank, Kotak Mahindra Bank and Federal Bank to facilitate instant pre-approved loans via its Google Pay app. This is in sync with the strong focus toward enhancing it offerings in order to expand user base.

Further, this Zacks Rank #3 (Hold) stock offers the UPI payment facility which is in high demand in the country. Notably, Google Pay’s user base availing this facility per month stands at 22 million. Additionally, in a bid to boost its transaction volume, Google will soon deploy its payment app to 2,000 online merchants’ websites and 15,000 retail stores.

Alphabet Inc. Revenue (TTM)

 

Alphabet Inc. Revenue (TTM) | Alphabet Inc. Quote

Amazon, meanwhile, has injected Rs. 2.3 billion in its Indian payment arm, Amazon Pay to add efficiency to its operation in the country.

Moreover, this Zacks Rank #1 (Strong Buy) stock is aggressively pursuing partnership deals with commercial banks and fintech firms in India. You can see the complete list of today’s Zacks #1 Rank stocks here.

Furthermore, PayPal, which carries a Zacks Rank #3, has recently made a direct foray into Indian payment sector. Currently, Indian customers can access PayPal’s payment platform at some selected merchants but the company is planning to expand its merchant base in the country by providing global payments facility as early as possible.

Additionally, Facebook, which carries Zacks Rank #4 (Sell), has started offering in-app UPI payments services via its WhatApp Pay and has made this application available to general public. Moreover, the vast user base of WhatsApp will help the company in gaining traction in the country’s payment sector.

However, it is currently facing data localization and legal issues from the Supreme Court which remains a major concern.

Facebook, Inc. Revenue (TTM)

 

Facebook, Inc. Revenue (TTM) | Facebook, Inc. Quote

Nevertheless, Paytm’s popularity, expanding merchant base and user base poses a major threat to the above mentioned companies.

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