Easy money

If only you could walk into your favourite clothes store, pick the pieces you like, and sashay out. If only you could wave goodbye to those painful queues, especially those that lengthen during the weekends. Now, you can, and without setting off a store alarm. Now, your phone can make the payment with help from Amazon-backed ToneTag, which enables mobile payments through sound waves.

The company’s technology converts the store into a sound zone, so when you enter the store, it recognises you and your phone. Your phone, on the other hand, picks up the store ID and connects it to your payment app or card and bank seamlessly, while you are browsing through kimono-styled suits or polka-dotted dresses. The process is simple — the encrypted transaction details are sent through sound waves and the customers receive a pop-up with the transaction details. You just have to click a button to approve and complete the transaction. 

While sound-zone technology is being tested across 120 stores in India, about 350,000 merchants are already using ToneTag’s tech. The big one is yet to take effect — e-commerce giant Amazon is working to integrate the technology into its app to enable payments at offline stores.  Google Pay, too, uses sound waves for money transfers, but that’s only from one mobile to another. 

ToneTag has built software that lets your phone, even a feature phone, chat with any payment device in the store. “We are the first company to enable sound wave based payments through existing card machines without any hardware changes,” says Kumar Abhishek, founder and CEO.

ToneTag’s software can be integrated with any machine — including a merchant’s phone or swipe machine — or any customer payment app — such as Amazon Pay or any phone banking app. The merchant gets a sticker to paste on his point of sale (PoS) machine that accepts sound-wave-based payments. The company also offers its own low-cost retail payment pod where the customers just have to tap on their phone and pay.

ToneTag is using blockchain to ensure that the payments are traceable, transparent and secure. There is a public record of every transaction that has been made and can be verified. 

Abhishek looks at it as a fight they have to win against cash. Cashless and cashier-free stores are already booming in China, with more than one-third payments in offline stores done by mobile-wallet providers WeChat Pay and Alipay. “In India about 77% of payments are made in cash,” he says. If they need to convince people to try other payment options, they need to be able to accept payments from every consumer device, including feature phones, he adds. Tonetag has the solution. In the case of the feature phone, you dial 99 (an Interactive Voice Response or IVR number) and tap the merchant device. The customer’s phone then records a unique tone that is generated with each transaction and is sent to ToneTag’s server . The server then decodes the tone and sends it to the customer’s bank, which then releases a confirmation to the merchant. ICICI Bank, Airtel Money, Shoppers Stop, Mobikwik, First Abu Dhabi Bank, Japanese technology conglomerate GMO, and several toll operators are already using ToneTag technology, with the company looking to develop more use cases beyond payments.

The fintech race

India, along with China, is leading the adoption of fintech globally. Cheap data and a gazillion smartphones are driving this change. “A large unbanked and underserved population now has access to financial services,” says Ravi Narayan, CEO, T-Hub, an incubator in Hyderabad. Indian start-ups in this space have nearly tripled, from 700-odd in 2014 to over 2,000 in 2019. 

According to a report by Google and Boston Consulting Group (BCG), digital payments in India are expected to exceed $500 billion by 2020, which is 10x the $50 billion in 2016. This dramatic shift has also been shaped to a large extent by government policies. “We have built a robust digital architecture — be it Aadhaar or the credit bureau — which start-ups can tap into to develop cutting-edge technology,” says Abhinav Bansal, principal, BCG. 

While Credit Information Bureau (CIBIL), which broadly tracks the credit history of individuals and corporates, was founded way back in 2000, the rest of the architecture has come up rapidly post Aadhaar. As a part of that exercise to allot a digital identity to every Indian came a whole bunch of application program interfaces linked to Aadhaar, on which anyone could build apps for cashless and paperless payments, among other transactions. 

While several start-ups began using things like Aadhaar and eKYC for various purposes like employee background verification, digital identity management, biometric-based authentication etc, the real boost for digital payments came from the introduction of Unified Payments Interface (UPI), an interbank money-transfer system, in 2016. UPI allows you to pay directly from your bank account to different merchants, without the hassle of having to remember your card details or net banking password. All you need to do is download a UPI app in your mobile phone, create a virtual ID, and link your bank account. You are now ready to send and receive payments.

Once this was in place, many companies built payment apps on top of this interface. Today, UPI transactions outstrip both wallet and card payments — in volume and value. These transactions touched 733 million in volume and Rs.1.52 trillion in value in May 2019 (See: Game changer). 

UPI spawned many payment apps but they had trouble working together. For example, you may have Paytm but the shopkeeper may be partial to mVisa. So, BharatPe decided to build a QR-code-based product for offline retailers that would accept payments from any UPI-enabled app, including Paytm, Google Pay, PhonePe, BHIM, Mobikwik and True Caller. “We had about 150 payment apps on the UPI network, but the merchants didn’t have the option of accepting payments from different apps. So, we clearly saw interoperability as an opportunity,” says Ashneer Grover, co-founder and CEO, BharatPe. 

The company has about 850,000 merchants on its network and is currently processing payments worth $100 million annually. “Our target is to have 10 million merchants on our network in the next two years. We can see the network effect kicking in, since merchants on our platform are already recommending it to other merchants. We are signing close to 200,000 merchants a month,” says Grover. For the merchants, deploying QR codes does away with the use of costly card-swiping machines you see at the check out counters. According to BharatPe, it costs about Rs.200 to install a QR code, which leads to a much lower cost of customer acquistion as compared to the traditional cost of acquiring a merchant for banks at about Rs.2,000-Rs.3,000. The app also allows merchants to keep track of their cash and credit sales customer-wise, and raise receivable requests through SMS, among other things. The firm, currently clocking 300,000 transactions a day, is in talks with Tiger Global and Ribbit Capital to raise about $75 million. This could be one of the biggest series-B funding round raised in India.

Post UPI, it was easy to move away from cash but the habit was a difficult one to break. What truly galvanised digital payments in India was the government’s controversial demonetisation drive, which was announced in November 2016. It can be debated if it served its stated purpose of unearthing black-money. But no one can refute that it pushed people towards digital payments as, for a while, it was the only available option. While ‘payments’ has been the poster boy of the fintech revolution, it has opened pathways to offer other services to customers such as lending, insurance, wealth management and banking. 

Credit on demand

Since a large part of the population lacks credit history, digital payment now gives them an electronic footprint and payment track record that can be leveraged by lenders. For instance, an e-commerce retailer, which offers payment services, can offer loans to its customers at the time of check out. Similarly, small-ticket personal loans are also picking up pace.

Digital lenders are leveraging big data, machine learning and alternative data to develop algorithms and innovative data-driven models, which can not only assess behaviourial risk better, but also process loans faster. Launched in 2016, MoneyTap can let you know if you are eligible for a loan in about four hours.

MoneyTap offers its customers a credit line of up to Rs.500,000 with the freedom to choose the number of installments. “Since the cost of customer acquisition is high for banks, they don’t want to do small-ticket and shorter duration loans. In our case, once the credit line is extended, you can decide the amount and the tenure of the loan,” says Bala Parthasarathy, co-founder and CEO of the company. Once approved, you have a lifetime credit line unless your repayment track record takes a hit.

Customers can apply through its patent-pending chatbot, providing all the necessary information to the banks. Once verification is complete, the money is transferred to the customer’s bank account, making it India’s first chatbot-based credit service. “We use a lot of analytics and machine learning to build algorithms that can not only study the repayment track record and other quantifiable parameters, but also judge the intent of the customer to repay,” adds Parthasarathy. 

Machine learning and analytics are also helping payment companies lend to smaller businesses. They offer loans after scrutinising the business’ volume of transactions and cash flow. Take the case of NeoGrowth, which has disbursed loans worth Rs.10 billion to more than 20,000 businesses. According to the company’s research, the risk of failure in a business is the highest in the first three years. 

They analyse a business’ bank statements and card-based sales of the past 365 days. Their proprietary algorithms then help them figure out the future sustainability and growth of the business, says Piyush Khaitan, founder and MD, NeoGrowth. The platform analyses data, such as on GST and credit payments, from various sources on an ongoing basis at the time of loan processingand during the lifetime of the loan. About 85% of its loans require daily repayment, ensuring a high collection efficiency of over 98%. In the next five years, the aim is to build a billion dollar balance sheet, says Khaitan. 

All small businesses welcome credit, but not all of them have the same risk reward or credit profile. These vary with business verticals. Indifi Technologies understands that, and has specific products and credit criteria for each vertical. Alok Mittal, co-founder and CEO of the start-up, says that this is what differentiates them. The company follows a hybrid model in which it lends to customers, as well as functions as a marketplace where it offers loans from banks and NBFCs. It is currently working with 10,000 businesses as its clients and seven banks and NBFCs to provide loans. 

Indifi serves travel firms, restaurants, small hotels, retail business and small-fleet truck operators. “While travel business and restaurants have been underserved segments, they now have extensive electronic data footprints, whether it is their banking transactions or online profiles, which you can use to underwrite the deals,” says Mittal. The firm has worked extensively with firms such as Zomato to understand the restaurant business better. “Our product is designed to manage the cash flows of the business. For instance, we provide term loans to restaurants for renovation or expansion, but for wire transfer or travel businesses, we provide working capital loans, as their cash turnover is very high,” he explains. 

Others give loans and step back, but Razorpay goes one step further. It helps maintain all aspects of its borrowers’ business. In December 2018, the company introduced an AI-driven banking platform. It manages salary and vendor payments for its clients, apart from receivables, seamlessly integrating Razorpay with their accounting and customer-relationship management (CRM) software. Their tech makes them a one-stop shop for all client needs. And yes, they have the lending bit covered as well — they offer loans to clients to solve their liquidity and cash-flow challenges. Since they have all the data about the business, they offer collateral-free loans and do quick settlements, deducting the outstanding loan from the payments processed. 

Co-founder and CEO Harshil Mathur says that they are a tech company first. Payment solution is just one of the things they do. The firm has seen more than 10x growth in its payment-processing value, from about Rs.4 billion two years ago to about Rs.40 billion currently. For the company, loans and banking services contribute only 12-15% of the revenue, but it is determined to increase this in the future. “While payments will continue to be the core of what we do, 40% of our revenue will come from non-payment business in a couple of years. Our goal is to provide our clients with the entire spectrum of services — from banking to lending to payments,” shares Mathur. It recently announced that it can process payments in over 100 international currencies as well. 

Hungry start-ups and existing digital infrastructure did speed up fintech adoption, but there is credit to be given to regulatory authorities — RBI, Sebi or IRDA — as well. They have actively encouraged innovation and made the environment conducive. Their enthusiasm notwithstanding, technology is always going to gallop faster than the speed at which we can build the regulatory framework around it. “We will always be playing catch-up. It remains to be seen how quickly we can adapt”, says T-Hub’s Narayan. 

The race is definitely gathering pace and Vivek Belgavi believes that the Indian ecosystem is already leading. “Our payment systems are the best in the world,” says the partner and fintech leader at PwC India. “Thanks to the interoperability offered by a common platform and low-cost, last-mile access, India is now becoming a reference point in the global fintech space. We will see the emergence of global companies from India.” BCG’s Bansal says that whoever can offer customers a seamless experience will take home the trophy. “Most of the firms will have a huge wealth of data through the customer lifecycle, but the ones that offer interoperability and ubiquity will win over the customer,” he says.