Amazon Pay aims to be at the top in payment aggregator space, says Vikas Bansal

In an interview with Mint, Bansal talks about Amazon Pay’s payments and credit (BNPL) strategies; why the company is less aggressive in the offline payments space where the likes of Paytm, Google Pay, PhonePe invest heavily; and voice-enabled technology. Edited excerpts:

What are Amazon Pay’s priorities? I mean it is into UPI/online/offline payments and credit (buy now pay later or BNPL) but in terms of strategy it is not clear whether Amazon Pay really wants to only focus on online payments or does it even have ambitious plans for offline too just like PhonePe, Google Pay, Paytm etc?

If you go back 2013 to 2015 even before the UPI was born, when we set up shop, our focus was to just simplify payments for our shopping and improve our success rates; and, then see how we can extend credit by working with the ecosystem. Once we started to get a lot of success, we thought can we now take this experience to other merchants outside of Amazon and that’s how online merchant and offline merchant payments were born. And, then we started looking for other use cases.

Amazon Pay is a differentiated payment experience, for our customers to pay on Amazon or off Amazon. It’s still very early days for the ecosystem as well as for us.

There are two clear categories out there under Amazon Pay – one is payments and second is credit. Hasn’t Amazon Pay reached a meaningful position yet in terms of both payment side and credit side when it comes to traction?

We’ve hardly scratched the surface. When we started, we were at 10-15% digital payments penetration rate. As per the RBI data, today it’s anywhere between 30-40%. But Sweden is 95%, and the US is between 80-90%. I don’t think when it comes to payments, we are still there.

Credit penetration is 3-4%. But people who can be extended credit to, let’s say of 400-500 million people, our number is less than 50 million as an industry. The opportunity is similar with insurance and wealth management. And that’s how we feel like our competition is not really the other payment companies or credit companies, our competition is really cash.

Is Amazon Pay less aggressive when compared with other players in the market in terms of both payments and even on the credit side despite making an investment in a fintech lending NBFC Capital Float (now Axio) long back. Or, focussing too much on giving a differentiated experience makes you a bit slow as compared to your competition?

I think it’s a bit of both. We genuinely look at customer problems and look at a way how we can differentiate our offerings. We spend a lot of time in iterating what we have, we do a lot of work on design and customer research to understand what we put out there is something customers would like.

In terms of aggression, I don’t know, when you say aggression, I think we hear a lot about UPI. And you know how the numbers are on UPI. So, I think, yes, we are kind of behind. And when I say we are behind, while competition scale only on UPI, our strategy right from day one has always been an integrated strategy where we offer selection of payment methods and not only do UPI through P2P (peer-to-peer) and P2M (peer-to-merchant) so that’s how we’ve been on our journey.

And when we look at our credit solutions, I think we are doing well. When we look at a wallet offering which we continue to invest because we believe in the long-term potential. We’re fairly doing okay. But could we do more? I think we could. And it’s a matter of prioritisation that we focus on our large merchants, including Amazon, and then take those offerings outside. It’s always priority in that order.

Since Amazon is such a large e-commerce company, it always seems like Amazon Pay’s main focus is serving the platform. But is that enough to make Amazon Pay a sustainable business on a standalone basis?

Yes, that’s not the strategy. We have a large selection of bill payments. The biller and the use cases, we have the largest selection of flights, bus, and train ticketing. We do movie ticketing, insurance – none of this is relevant for Amazon shopping.

In the offline payments like UPI QR at merchants, I remember some 3-4 years ago Amazon setting up a whole team and going aggressive. Has that slowed down because then suddenly Amazon Pay UPI stickers were visible at many merchant outlets. What happened? Do you think that’s a tough market to compete or does that still remain one of your priorities? What is total number of offline merchants accepting Amazon QR?

It is one of the priorities. We did a lot of work on scaling UPI only or basic payments; and that’s where a customer has a lot of choice. Some of our payment products, for example, our wallet or BNPL were not even accepted because it was UPI-only experience. Our strategy is how do we find differentiation in our offering. And, that’s why you don’t see us pushing as hard as we should.

Could you talk a bit about the traction on your online, offline UPI and credit BNPL side?

The growth in e- commerce, a study says, is going to be $100 billion next year. And, the BNPL should be about 10% of that market. With the highest proportion of the young demographics in India, BNPL has a bright future. And that is what we also believe in. Then the beauty of BNPL is that it allows you to get like sachet credit. Where we went wrong as an industry was that we didn’t indicate that this is a loan that customers are taking with no transparent terms and conditions. But from day one, Amazon Pay always wanted to do it in the right way with proper KYC and credit checks and doing proper loan agreement. I think if done well, BNPL has a lot of room to grow.

And lastly, our journey has been phenomenal. We’ve actually doubled each year our customer base. The kind of adoption is pretty sticky and customers keep coming back. Then the other thing is customers are using our BNPL at a variety of things on shopping, paying bills, doing recharges, buying train tickets, flight tickets, insurance, and even on Swiggy and others. So, they continue to use it and offline is where we are missing. But we are working on that as a strategy.

To give you some sense, Maharashtra and Karnataka are leading the pack in terms of the usage of buy now pay later.

Payments is seen as a free business. But when it comes to credit, or BNPL for that matter, how Amazon Pay earns?

Bansal: Every BNPL, without disclosing the details, is transaction-based model that anytime a customer uses it, there is a kind of a fee that we earn from our lenders. And anytime the customer pays in instalments, there’s also some kind of fee, and usually some fee which is recurring. Plus, any time we upgrade that customer for other loans such as personal loans and other loans, then the earning is more.

And, who are your main partners for BNPL?

Today, we have three partners – Axio, KVB (Karur Vysya Bank) and IDFC First.

Since Axio is funded by Amazon, what percentage in terms of the books is on Axio?

We have the same philosophy as our marketplace model, where you have a lot of sellers and the best seller wins in terms of what’s the best offer. Here also, we look at the kind of rates they (lending partners) are offering, approval rates etc. And on that basis, we do it.

Amazon is a huge marketplace. I mean, only three lenders are sufficient for a platform like yours?

It’s a good question. We continue to look at expansion. Right now, it’s working right, at the end of the day, it is demand and supply. But when we look at our SMB side (merchant lending), we work with 8-9 lenders almost. We have a lot more integrated on those sides, but on the consumer side, we only have 3 right now.

What kind of BNPL are you doing within the Amazon ecosystem and outside Amazon ecosystem? Any percentage split?

I can tell you our shopping is less than 50%, so our other use cases are gaining more traction. But I don’t have the actual split with me.

With too much regulatory scrutiny on BNPL, we are seeing the industry avoiding this word in their discussions. Isn’t Amazon Pay working on rephrasing the word ‘BNPL’?

I think the industry will evolve because at the end of the day, you know it’s not so much about the word, it’s just how people structure it. It’s a credit or loan product which adds convenience to the customers.

I remember Amazon getting into this voice-enabled payments, the soundbox kind of system, in the offline side. Have you rolled out that product yet? And what kind of traction are there because the market is already crowded with PhonePe, Paytm, and BharatPe sound boxes?

In offline, there are two kinds of things that are going on – one was sound-based payments, where you could use sound signals to initiate and complete payment. That’s what we were doing with ToneTag. What you see in the market is just kind of a sound notifications of a payment done. Which is very different from sound technology. On sound-based technology, we’ve done some pilots, we had some learnings, but we are just iterating on those learnings, to make sure the experience is differentiated and is reliable at massive scale. When it comes to sound boxes, it’s overcrowded. We need some new innovation.

In the online space, voice-enabled payments is something we are investing behind. We have a really good asset with Amazon with Alexa. How do you use Alexa to be able to simplify payments and experiences, so we continue to work on it, on bills and other things we are already doing well, where customers can just say what they want to do and the bill payment is done if they have enough balance, or a UPI notification, and then they can complete it. But that’s something that we want to continue to iterate on as it’s still early days.

Which are the areas Amazon Pay is investing right now?

We invest a lot in using machine learning and AI to really know you as a customer, and then give you the best payment option so that you just do that seamlessly. I talked about voice-enabled payments, we continue to invest as a next frontier in offline space. And, then you will also see a lot more coming up as we adopt new technologies, including, the Central Bank Digital Currency (CBDC).

Are you seeing any kind of traction on the CBDC side yet?

No, not much as it’s very early days.

I really want to touch upon payment aggregator. Amazon Pay got the in-principle license. Have you received your final nod from the RBI?

Once you get an in-principle approval, then you will have to operationalize the license, which requires setting up of all your systems and processes. And as per the guidelines, then do an audit of and submit all of that back to the RBI. The RBI reviews all of it and then gives you final approval. We got our in-principle approval in the November-December last year. Now, we are in the process of operationalizing.

And, Amazon marketplace remains the biggest customer for your payment aggregator or do you plan to take it to other merchants also?

We have other merchants today like MakeMyTrip, BookMyShow, Swiggy, Uber, Ola, Airtel, Jio, and lots of them. Amazon Pay is accepted by 13,675 online merchants as on April 2023.

We can see a huge list of approved payment aggregators by the RBI. Do you think there is a room for so many players or is it going to be the same where top 5 players controlling 90% market?

As Amazon, we always encourage more and more competition. In terms of whether there is a market, I think the market is huge and it will atleast double or triple it to what it is today. Now, how many players will have a meaningful share or not will depend on how fast they’re innovating. But I think you’re right in a way that the market gets served by maybe the top 5 to 10 participants.

And, what’s your vision for this PA business? Do you aim to be in that top 5-10?

The market is so large, there will be multiple players. Our ambition has always been not only be in top 10 but our mission is to be out there right at the top.

Is Amazon Pay looking at any M&As?

I can’t comment on this at this point. But we’ll see if there’s anything, we’ll go after it.

On unit economics and profitability, Amazon continues to make losses. Your comment on this?

Today we are looking at a portfolio. As we make progress, our ambition is that I’d like to be independently profitable, which we will. We have a really highly confident plan because a large part of our investments today is going into people and in building technology, in marketing, in changing people’s habits and those take time…but when you do it, then you know, you start to get the benefits for the long run.

Updated: 13 Jul 2023, 04:06 PM IST