A world without cash: Venture capitalists invest heavily in e-payment space

A combination of positive regulatory intent and growing market

A combination of positive regulatory intent and growing market demand is leading to a burst of entrepreneurial activity in the countrys electronic payments sector.
A combination of positive regulatory intent and growing market demand is leading to a burst of entrepreneurial activity in the countrys electronic payments sector.

demand is leading to a burst of entrepreneurial activity in the country’s electronic payments sector. A number of new ventures offering innovative cashless payment methods are coming up as investors step up to fund and support them.

“The growth potential is huge as India is a cash-based economy. But what has really helped is the government’s rapid shift towards digital payments,” said Satyen Kothari, cofounder of Citrus Pay, who returned from Silicon Valley to set up the online payments solutions company in 2011. Earlier this month global venture firm Sequoia Capital disclosed its investment of $2 million (Rs 11 crore) in the Mumbai-based company.

In a document released last year the central bank spelt out its vision for an electronic payments system and clarified that it would actively monitor governance of payment solutions companies, previously the responsibility of commercial banks.

“RBI is taking a balanced approach to push electronic transactions and addressing key risks to avoid frauds,” said Mohit Bhatnagar a managing director at Sequoia Capital, which has also funded Chennai-based Prizm Payments and Zaakpay in Delhi. In the past year, nearly half a dozen payment technology ventures have raised risk capital funding as overall industry sentiment turns positive on a sector where demand is growing fast.

The government’s move towards direct transfers of subsidies to reach beneficiaries electronically as well as growing online retail is helping to stoke demand.

“There is resurgence in the space after about seven years,” said Vani Kola, managing director of early stage investor Kalaari Capital. Indian consumers have traditionally viewed electronic payments with a great deal of trepidation. Dogged by poor internet security and unreliable connectivity they have preferred to travel the cash route instead of taking a chance with electronic transactions. Cash continues to be the dominant payment mode in the country, with the value of banknotes and coins estimated at about 12% of India’s gross domestic product, one of the highest among emerging economies.

But that is slowly changing. According to a recent report by Atos Worldline India, debit card transactions are expected to touch 466 million in the current fiscal, with banks expected to raise their issuances by 17% over the previous financial year.

“India is seeing a 40% growth in actual debit card, credit card and netbanking spends. Electronic payments are becoming a part of our general DNA,” said Kothari. New ventures are building products that focus on both security and convenience for consumers, as in the case of Bangalorebased Ezetap Mobile Solutions, founded last year by Harvard Business School graduate and former Oracle employee Abhijit Bose and Intel veteran Bhaktha Kesavachar.

Ezetap’s service allows vendors to transform their mobile phones and tablets into point of sale terminals by simply attaching their Ezetap Reader, which has also been designed and manufactured in India. The technology allows anyone to accept cards–from merchants who deal in cash payments to cabdrivers, grocers, pizza delivery boys, and even hairdressers.

“The beauty of the device is that it transforms the previously anonymous world of the internet into a much more personalised face-toface experience, and retains the all-important trust factor between the vendor and the consumer,” said Sanjay Swamy, chairman of Ezetap which was incubated at AngelPrime, an early stage accelerator founded by Bala Parthasarathy, Shripati Acharya and Swamy.

The two-yearold venture has raised $3.5 million from investors, a list that includes Peter Thiel, an early investor in Facebook, and Silicon Valleybased venture capitalist Chamath Palihapitiya.

According to Swamy, Ezetap already counts “several thousand” vendors as users, largely from the ecommerce, insurance and transportation sectors. Other ventures are tweaking their products to accommodate infrastructure issues such as poor internet connectivity. Citrus Pay’s technology automatically identifies the best payment gateway, thereby reducing the possibilities of a transaction dropping off midway.

Citrus Pay currently has over 500 merchants using its online payments and email invoicing solutions, including large internet retail companies such as redBus and Yebhi.com.

In the next fiscal the company expects to have around 2,000 merchants on its platform. While Kothari refused to disclose exact revenue figures, current revenues is estimated to be about Rs 35 crore. However, most of these emerging ventures say their biggest threat comes from the use of cash-on-delivery by online retailers, driven largely by demand from consumers who are uncomfortable with swiping their cards on an online portal. “Even vendors don’t actually enjoy cash on delivery as there is a 5%-7% loss on every transaction,” said Kothari.

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