Amazon to continue investing heavily in payments business

Bengaluru/New Delhi: Amazon India, which has doubled down on building out its digital payments business in the country, plans to continue investing heavily in the business and introducing more local innovations for Indian customers over the coming quarters, even as it grapples with new know-your-customer (KYC) regulations from the Reserve Bank of India (RBI), which have slowed down growth of new users.

In an interview, Amazon Pay’s new India head, Mahendra Nerurkar, conceded that the RBI regulations around mandatory KYC processes have resulted in a slowdown of new digital payments customers.

“We take customer trust very seriously and also take regulatory compliance very seriously. So, there’s no cutting corners around that. We are asking customers for their officially valid documents, so that they can keep loading balances and using it. What we are seeing is that the adoption from new customers is being affected because of this. One of their primary reasons for using stored-value instruments was that it was friction-free and easy to use. And a certain amount of friction has been introduced as a result of these regulations,” Nerurkar said.

“I think we’ll need to be patient in terms of figuring out what the best regulations are...I don’t think we’ve found the right solution yet as an industry and we’re working very closely with the regulators to find that solution,” he added.

As per RBI’s latest guidelines, digital wallet players can issue two types of accounts. The first has a transaction limit of Rs10,000 per month, which can be opened with a one-time-password verification of a mobile number, combined with a valid identity document like a PAN card or a driving licence. The second type of e-wallet account has a transaction limit of Rs1 lakh per month—these accounts require a complete KYC, which means validating identity as well as address.

Nerurkar, however, said that despite the new regulations, the volume of Amazon India’s cash transactions has gone down significantly, while digital payments have grown since the government’s decision to ban large-denomination notes in November 2016.

“We began last year post demonetization with roughly 40% of our transactions being digital. Now, we are at roughly 60% of our transactions being digital in a year. I think all our initiatives, i.e. improvement in experience, affordability, creating solutions like cash at doorstep, finding new ways of driving digital engagement with customers, are adding to new digital customers. Cash transactions have come down from 60% to 40% in a year,” Nerurkar said.

Mint reported in October that Amazon India is preparing to increase investment in its own payments arm by at least five times. According to filings with the ministry of corporate affairs, Amazon has increased its authorized capital for Amazon Pay India Pvt. Ltd to Rs2,000 crore (roughly $305 million) from Rs400 crore.

Over the past 12 months, Amazon has infused capital into its payments arm a number of times, as it looks to gain a bigger chunk of India’s booming digital payments ecosystem. In May, Amazon pumped in Rs67 crore into the payments arm, while in July, it poured in Rs130 crore into the business.

In December 2016, Amazon launched its Pay Balance service in order to boost cashless transactions. In July last year, Amazon—which had applied for what is called a Prepaid Payment Instrument (PPI) licence—received the licence from the RBI.

Amazon’s payments business has seen significant growth over the past year. The number of digital transactions on Amazon India have doubled, while the share of digital payments for Amazon India grew from 48% to 60% in 2017.

Amazon also has some innovations in India, such as Paylink, which allows online consumers to pay for orders through a payments link. Overall, last year, Amazon Pay grew 126%, while its payments wallet, Amazon Pay Balance, grew by 409% in 2017.

For now, the company is focusing on investments that will lead to more affordable products for customers.

“The big challenge on the affordability part is that we have 20 million credit card customers in the country and that number hasn’t grown rapidly over the past few years,” said Nerurkar.

Amazon’s aggressive moves to gain a slice of the digital payments pie in India comes at a time when investor interest in the sector is at an all-time high. Arch-rival Flipkart is also spending millions of dollars on expanding its own payments business PhonePe.