Indian start-ups tap into mobile payments technology

March 24, 2014 3:55 am

Indian start-ups tap into mobile payments technology

By Sarah Mishkin in San Francisco and James Crabtree in Mumbai

Good luck finding a local store or delivery person in India who accepts anything but cash. Even in a nation of 1.2bn, fewer than 1m retailers are set up to take a credit card.

A handful of Indian start-ups, aided by a growing number of global investors, are hoping to change that by rolling out types of mobile technology first popularised by Silicon Valley start-up Square, the payments company led by Twitter co-founder Jack Dorsey.

Square and its rivals, including eBay’s PayPal unit, make credit card readers that plug into smartphones, for use by small scale merchants from artisans to babysitters who often avoid the hassle of accepting cards.

Leading Indian start-ups such as Ezetap and Mswipe might not have Square’s heady valuation – which was put at about $5bn in January – but their technology works in much the same way, while targeting the more basic phones that remain common in India and other emerging markets. Ezetap, already doing work in Kenya, is looking to expand into other markets in Africa and Asia where similar technological constraints exist.

International enthusiasm for the sector for was underlined last week when American Express took a minority stake in Bangalore-based Ezetap, barely a month after the company raised $8m in its latest round of financing. Rival Mswipe completed its second round of funding last month.

The duo’s successes come at a time of heightened US interest in Indian mobile technology companies. In January, Facebook acquired a mobile analytics start-up based in Bangalore, while Google recently purchased Impermium, a small cybersecurity firm.

The interest in new ways to pay stems from India’s fast-rising middle class, who have access to bank accounts but still tend to use cash or cheques to pay for everything from telecom bills to home deliveries. Their accounts come with debit cards, which, because few local merchants accept them, are used mostly at ATMs.

“You would never hear of it in the US, but our cooking gas is delivered in cylinders, and there are networks of distributors where you have this guy coming in his little three-wheeler or cycle and will deliver a cylinder and pick up a payment – traditionally it’s cash,” says Manish Patel, founder of MSwipe.

But gaining users means overcoming a number of challenges, including developing dealer networks capable of reaching smaller retailers in India’s vast but highly fragmented market. Mswipe works with about 7,000 merchants in India and Sri Lanka, while Ezetap has 12,000 devices. The company is targeting 100,000 by the end of the year, according to co-founder Abhijit Bose. Square’s card reader, by contrast, is used by a few million people.

Among the current users of Mr Patel’s service are gas distributors in the cities of Mumbai and Hyderabad. India’s legions of small neighbourhood shopkeepers provide a potentially vast market in an economy where most transactions still involve cash, but reaching them is a “non-trivial task”, says Rishi Navani, managing director of Matrix Partners, one of MSwipe’s backers.

Payments companies are also making headway with India’s growing ecommerce companies, such as Flipkart.com – a site often known as the “Amazon of India” – whose customers also tend pay cash on delivery.

But Sanjay Swany of Bangalore-based start-up incubator Angel Prime, which provided early stage funding for Ezetap, says mobile payments growth is just as likely to come from larger enterprises.

“In the US it is used by hairdressers or dog walkers,” he says. “But in India it is also large insurance or telecoms companies who are using it to come to your door and collect payments. They are much larger businesses, doing this for the first time.”

Growth in the sector could be helped along by India’s central bank, which is set to adjust rules to encourage mobile money services such as Mpesa, operated by UK-based telecoms group Vodafone. Those services have taken off relatively slowly in India compared to their success in African countries such as Kenya and Tanzania.

Ezetap is hopeful that partnerships with Indian banks, in particular, will help it make a breakthrough, in part because the improved security offered by plastic means banks are encouraging their customers to accept it. “We benefited from a huge uptick in bank account creation,” Mr Bose says. Adds Mr Navani: “There’s a massive opportunity for a low cost infrastructure to be built.”