Amazon Pay sees big opportunities in small towns in India, offline payments

Amazon Pay India, the digital payments arm of e-commerce giant Amazon India, is focusing on delving deeper into offline payments this fiscal as it looks to introduce new payment methods and enhance security, CEO Vikas Bansal said. Mint on Tuesday.

He added that Amazon Pay will offer a variety of payment options, including Unified Payments Interface (UPI), credit cards and wallets, rather than specializing in one segment.

“We see opportunities for deeper penetration of offline (physical stores), various new modes of payment and continue to invest in security to control and reduce fraud… We continue to invest in UPI,” Bansal said on the sidelines of the release of a report titled How does urban India payin cooperation with the consulting firm Kearney.

After Amazon Pay tied up with ICICI Bank Ltd for credit cards, the payments aggregator is exploring more partnerships with banks for credit cards and also opportunities to work with the government’s Open Network For Digital Commerce (ONDC), Bansal said.

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With over 4.2 million users, Amazon Pay-ICICI Bank Credit Card accounts for about 28% of the entire private bank credit card user base as of June 30. It has also introduced voice-based UPI payments through Alexa-enabled devices.

Amazon Pay is taking a number of steps to strengthen its payments business for both consumers and merchants, including securing a prepaid payment instrument license and a payments aggregator license from the Reserve Bank of India.

Still, Amazon’s share of the retail payments segment in India is much lower than that of Google Pay, PhonePe and Paytm, which together control about 90% of the market.

A chance for a small town

Bansal also highlighted the opportunity presented by the growing adoption of digital payments in smaller cities. According to an Amazon Pay-Kearney report, 65% of consumer transactions in tier-2 and tier-3 cities were digital, while 75% were in larger cities. The report is based on a sample study of 120 Indian cities.

“It is a positive surprise that earlier there was a huge gap between small towns and big metros like Mumbai. Now the gap is just 10%, which is a significant drop,” Bansal said, highlighting that digital payments adoption has picked up pace in tier-II and tier-III cities.

With this growth, he sees an opportunity to expand credit in small towns. “In small towns, credit is used less often than in big cities, and this is an opportunity,” he added.

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According to the report, the largest growth in digital payments in India is currently happening through online channels such as e-commerce platforms, with only 10% of consumers preferring to pay in cash compared to offline channels such as shopping at retailers, where 52% of transactions are done in cash.

The report also revealed that other payment methods, such as payments via wearable devices, voice assistants and buy now, pay later (BNPL) plans, are becoming increasingly popular with consumers.

“BNPL is a credit-based payment option, especially for transactions ₹5000. It is a popular payment method, known to about 87% of respondents. However, its use is moderate, with only about 34% of respondents using it,” the report reads.

As per the report, the next wave of growth in digital payments will be driven by increasing digital penetration among consumers from lower-income groups and smaller cities. New payment methods such as UPI Lite and UPI Lite X should be promoted among these consumer segments, it added.