Banks are foraying into e-commerce territory through payment solutions

By N Shivapriya, ET Bureau | 7 Jul, 2015, 01.15AM IST

Shashi Kumar Singh, a handicrafts store owner in Moradabad, wants to gift his son a pair of Nike shoes. He's just passed his tenth standard and the indulgent father has shortlisted a pair of running shoes that cost around Rs 10,500. The two shops he's visited don't have it in stock it so he goes online and buys the Nike Air Max Mesh Running shoes Rs 10,299. Singh's first port of call for the purchase isn't Amazon, Flipkart, Snapdeal or any of the othere-commerce vendors but Payzapp, his bank's mobile app.

He's just installed the app from HDFC Bank a few days back on his smartphone after he got a call from a relationship manager at the bank. The bank is also offering a 10 per cent cash back offer on the transaction.

A purchase that would have otherwise been sealed on an ecommerce site has just been routed through a bank.

Several banks are now moving indirectly into the e-commerce space through payment services, jostling with companies like Flipkart, Amazon, Bookmyshow etc, to enable customers to buy stuff online. Banks want customers to come to them, rather than e-commerce sites, to buy clothes, book taxi rides, buy movie tickets and to find out which Mexican restaurant has the best dining offers.

And, bank CEOs themselves are leading this furious charge into e-commerce territory, at least at SBI, ICICI Bank and Axis Bank.




"Our chairman (Arundhati Bhattacharya) moves so fast, we have told her to hold back," says VG Kannan, MD and GE (associate & subsidiaries), referring to the bank's digital initiatives. "We already have a large brick-and-mortar network. So the obvious conclusion now was to build our digital infrastructure," Bhattacharya told ET.

Meeting hot tech companies in Silicon Valley is now a regular part of Shikha Sharma's schedule. "I make it a point to look at strategy, projects and progress on each of these (e-commerce/digital) initiatives," says the MD and CEO, Axis Bank. The bank recently shortlisted six ideas from a hackathon it organised with Nasscom, where 40 app developers logged in to participate.

ICICI Bank MD and CEO Chanda Kochhar is one of the first users of any app the bank launches. It was on her suggestion that the app, for which users had to register with a pin and a password, became available even with ICICI Bank login and password credentials. "She is very hands on," says Abonty Banerjee, head (digital channels), ICICI Bank.

Watch out, the banks are coming

Now available only to account holders, HDFC Bank's Payzapp will later be available anyone who wants to download and use it. Merchants like Singh will also soon be able to participate in its marketplace as sellers by downloading a version for small vendors.to match the ease of use of mobile wallets," says a high net worth customer with one of the large private banks, who uses Paytm's mobile wallet to pay for Uber rides.

Flipkart, which also powers HDFC's SmartBuy e-mall, declined to respond to an e-mail from ET on the subject.

In a glass-fronted room in another building, a 34-year-old Axis Bank executive is showing off a nifty payments app, Ping Pay, launched last month that sits on the mobile and allows customers to send money to anyone in their universe of contacts on Twitter, Facebook, Whatsapp, email or phonebook. Or ask them for the money they owe you.

The killer feature of the app though are its looks and ease of use. Like status messages, users can select any of the witty pre-configured messages on the app or enter their own to go with the payment. They can also click a picture, or record an audio or video message instead. The bank plans to follow this up with an ecommerce play in the near future.

The bank scouts for UX agencies that could be located anywhere in the world to help it design its apps and they don't have to come with experience in building financial apps. Ping Pay was developed in partnership with an agency in Singapore and its mobile banking app was developed in partnership with an agency in Australia.

"We see competition as not just banking and financial apps but all apps — because the customer is spending time across all apps on the mobile phone," says Rajiv Anand, group executive & head (Retail Banking), Axis Bank ICICI Bank, which was among the first to launch non-banking transactions by allowing booking of movie tickets through its Pockets app on Facebook, re-launched it as mobile app with a wallet that can be funded through any bank account about three months ago. It also allows a Pockets physical pre-paid card to be generated from the wallet for offl ine purchases.

"We think the apps could be even further than person-to-person payments on social media," says Sridhar Iyer, head (digital), Citibank India, which is currently working on a product for e-commerce payments on social media.

Indeed, mobile wallet companies which are banking on their ease of use to drive adoption may suddenly find a new rival in banks that are shedding their stodgy image and behaving more like startups with little time to lose.

HDFC Bank took five months to build PayZapp, and Axis Bank says it refreshes its banking app every 45 days with new features. The most used feature on Axis Bank's mobile banking app is its recharge feature, much like it is for the likes of Paytm and Freecharge.

The writing is on the wall. Kotak Bank decided to keep its peer-to-peer payments app open to anyone with a bank account (any of the 26 banks in the country that offer IMPS) and not just its own customers, thus reaching out to a potential target audience of nearly 250 million people. "Technological advancement and increased connectivity allow non-banks to offer services which are not traditionally in their domain. Banks thus have to ensure that they offer their customers products and services in keeping with the competitive landscape," points out Shanti Ekambaram, president (consumer banking), Kotak Mahindra Bank.

The bank is now working on the next version its payments app. "Our theme is to make it a universal payment application. Our idea is to make it available beyond the 26 banks and look at initiatives where more people will use it," adds Deepak Sharma, executive vice-president (digital initiatives), Kotak Mahindra Bank.

HDFC Bank's senior executive vicepresident Parag Rao says the bank sees taxi rides as an important category and will soon look at adding payments to taxi services like Ola and Uber on Payzapp — in other words, eliminating one of the key reasons why people download thirdparty mobile wallets today Unlike mobile wallet companies, banks already have a captive customer base in their existing customers. HDFC Bank, for instance, has over 30 million customers, including those for its debit and credit card. Additionally, he says, banks are not constrained by spend limits like mobile wallets are — customers can splurge online as much as the limits on their credit and debit cards permit.

"Banks and telecom companies have customers, no doubt, but it's creating compelling used cases that will determine success," says Vijay Shekhar Sharma, chairman and MD, One97 Communication, which is the market leader by far.

For March 2015, the latest month for which figures are available, Paytm alone recorded 75 million transactions on its wallet as compared to 150 million recorded for credit and debit cards issued by all banks, says Shekhar Sharma, who is unfazed by the entry of the banks into wallet payments and e-commerce. On the contrary, he says it will create more awareness about wallets in the market, which is nascent, and help the consumer choose the best wallet available.

Shekhar Sharma wants to make Paytm the largest consumer engaging platform in the next three years. Paytm does approximately Rs 700 crore worth of transactions every month, he says.

"Most wallet providers have to tie-up with individual e-commerce players and the wallet can only be used on those sites," counters ICICI Bank's Banerjee. The virtual Visa card provided by the bank's Pockets app can be used for purchases on any site.



Can banks make the cut? 

What's in it for them? Several existing customers are also sceptical about banks matching up to what they are saying, given what they have experienced so far with their services and internet banking.

"My view is that banks will never be able to match the ease of use of mobile wallets," says a high net worth customer with one of the large private banks, who uses Paytm's mobile wallet to pay for Uber rides.

So why are banks going beyond banking apps? One of the reasons is customer engagement. A customer may check Whatsapp 5-10 times, Facebook two to three times a day but log on to his bank once in two to three days, says Axis Bank's Anand. The bank hasn't launched an app that facilitates commerce but it's only a question of time before it and other banks do that.

"It appears to be a defensive strategy. I don't think banks have a clear view on the threat from new fintech players and therefore, the threat may seem exaggerated. But they can see their customers being attracted to e-commerce platforms, which have also started their own payment mechanisms or are tying up with non-bank payments players," says Shinjini Kumar, leader (banking and capital markets), PwC India.

"Ease of transaction and integration with commerce is where innovators can disrupt," she adds. Regulations do not permit banks to own marketplaces, which means today they still have to tieup with the likes of a Snapdeal or Flipkart. Section 6 of the Banking Regulation Act lays down what businesses the banks can engage in.

So SmartBuy, HDFC's e-mall or virtual storefront that's integrated with its PayZapp app, comes with a disclaimer, "SmartBuy is a platform only for display of offers extended by Merchants to HDFC Bank's customers, and HDFC Bank is not selling/rendering any of these products/services.... If the customer proceeds from here, any purchase of a product/service will only be through the HDFC Bank's credit/debit cards/net banking facility."

"Banking as a function is not very engaging. You want to buy a car or take a foreign holiday. These are what excite people. Banking is more of a necessity," says Saurabh Tripathi, partner and director, BCG India. "Banks are recognising early that customer traffi c is not for the bank but for the real things out there. And they have to be there where it is happening — only then will they stay relevant in a customer's life."

Tripathi feels regulations have to evolve in response to the disruption, else banks will become irrelevant over time. "How much to allow and how slowly are questions that need to be thought of and addressed. Regulations already permit corporates to set up payment banks. They can also have marketplaces. So banks are disadvantaged straight away," he points out.

The big game and the race for the customer

Last month State Bank of India, announced a slew of tie-ups, including with ecommerce biggies, Snapdeal and Amazon. "It's a hugely disruptive space because of the customer choices that are available," says Sunil Srivastava, deputy MD (corporate strategy and new businesses). The country's largest bank is betting on lending to merchants on these platform.

A valuable tool for financing these small and medium enterprises will be the data and analytics from these platforms on orders and payments. Take, for instance, an exporter of soaps — a first level authentication of the merchant is already done by the e-commerce platform. When the exporter gets an order for a shipment of 1,000 soaps — the market risk is mitigated because there is already an order and the credit risk is mitigated when the payment is made.

Earlier this year, the bank announced a similar tie-up with Ola to finance cars for drivers. Every time the driver receives a payment, a certain percentage is deducted towards the loan repayment.

A few days back, it launched a mobile app that allows its customers to shop online from more than 6,000 merchants and earn and redeem reward points. It also plans to launch a mobile wallet soon.

"Banks have to seriously look at various options to get the benefi t of customer engagement with the brand and the benefit of data from marketplaces, which is critical for activities like lending. Lastly, they have to participate in the payment fl ow of the marketplace," says Tripathi.



So far, regulation prevented non-banks from coming into banking activities but now regulation is preventing banks from getting into non-bank territory, he says, referring to how Alipay operates almost like a bank although it isn't one. Customers can put their money in Alipay and also take it out whenever they want.

Banks in China, India and other emerging economies such as Indonesia are leading the way in getting into these newer areas. "In other parts, banks either have too much legacy or the non-banking parts are so advanced that banks can't really intervene. In US, for example, Amazon is already so big but in India everything is up for grabs," says Tripathi.


Global Banks Are Feeling The Heat

Large US banks, grappling with the aftermath of the financial meltdown, and slow-moving Chinese banks found they were outsmarted by competitors they never knew existed - a new generation of payment services companies like Paypal, Alipay etc.

Non-banks could erode one-third of traditional bank revenues by 2020, according to the estimates by Accenture quoted in the Harvard Business Review. "Payments, a source of up to one-quarter of traditional bank revenues, is one of the most contested areas. PayPal is now the number one online payment method in some countries, and start-up companies like Square and Stripe are earning multibillion dollar valuations," the article authored by Accenture executives said.

Before US banks could react to the incursion, Paypal had made more inroads and captured an even greater share of the payments business and several more rivals had sprung up in the form of Apple Pay and upstart firms such as Square, founded by Jack Dorsey of Twitter.



Paypal, the oldest in the disruptive game, is also keeping the pressure up. Last week, it acquired Xoom, which offers international remittances through mobile phones. Xoom is used by people in the US to send money to friends and family in countries like India, Brazil and the Philippines.

Later this month, Paypal will be spun off from eBay and operate as an independent company, giving it more heft. Paypal also acquired Braintree in 2013, which had acquired the popular social media payments platform, Venmo, a year earlier. The social payments app is a hit with millennials and is expected to handle $90 billion in payments by 2017.

Every day some 12.5 million transactions go through Paypal and it has 165 active customer accounts. SourceMedia, a media firm focused on the financial services industry, quoted Jim Smith, executive vice president of virtual channels at Wells Fargo, in a June article as saying, "Customer expectations are shifting dramatically. They are not being shaped by peer-competitor banks. They are being shaped by Apple. They are being shaped by Google. They are being shaped by Amazon."

Alipay, according to some experts, could have a bigger impact than Alibaba and be more valuable as it does almost everything a bank does faster and better. It allows people to keep their savings, earn returns higher than banks, transfer money, make investments — all through the mobile.

"Alipay debuted as a simple e-payment system, but it's now a destination app (and website) in its own right. In addition to easing consumers into online shopping, Alipay, with its huge built-in user base, has recently made a range of financial services available to people who previously lacked easy access to tools for making payments, money market accounts, and small business loans," according to the MIT Technology Review.

Indian banks have read the writing on the wall and don't want to wait in the sidelines as nifty young tech rivals woo their customers away.

http://economictimes.indiatimes.com/industry/banking/finance/banking/wanting-to-be-your-flipkart-ola-banks-are-foraying-into-e-commerce-territory-through-payment-solutions/articleshow/47965490.cms