Several big tech companies are currently focusing on digital payments in India as online transactions soared during the pandemic.
India’s digital loan market is becoming a battleground for companies from Facebook Inc. to Xiaomi Corp. looking for a foothold in a $ 1 trillion industry.
Facebook said this month that India will be the first country to roll out its small business lending program, offering loans through a partner to firms that advertise on its platform. Loans will range from Rs 500,000 (US $ 6,720) to Rs 5 million with interest rates ranging from 17% to 20%, possibly without collateral.
The social media giant’s foray into India coincides with that of Xiaomi, a Chinese manufacturer of everything from rice cookers to gaming monitors, plans to provide loans, credit cards and insurance products in partnership with some of the nation’s largest banks and aspiring digital lenders, Press Trust reports a local head of India Manu Jain.
On Tuesday, Prosus NV said it had agreed to acquire Indian online payment service BillDesk for Rs 345 billion ($ 4.7 billion), the largest global acquisition in an Asian country to date.
The PayU division of the European Investment Center has closed the deal to buy the 11-year-old startup, creating a $ 147 billion digital payments giant and bringing Prosus’ investment in India to more than $ 10 billion to date.
Amazon.com also made its first investment in the country’s wealth management sector this month in a $ 40 million round hosted by fintech startup Smallcase Technologies Pvt.
Google, owned by Alphabet Inc., is also improving its position. After offering money management products like digital gold, mutual funds on its popular Google Pay platform, it is now connected with small Indian lenders to open time deposits for its clients.
India’s digital payments market is gaining the attention of some of the biggest tech companies after online transactions soared during the pandemic and traditional lenders were wary of the rise in bad debt. The Boston Consulting Group estimates digital lending will triple to $ 350 billion by 2023 and reach $ 1 trillion in five years from 2019.
“The payments business makes almost no money, but lending makes a lot of money,” said Saurab Tripathi, Managing Director and Senior Partner of BCG’s Financial Institutions Practice. “Indian consumers are waiting for more adequately developed digital technologies, and many players are seizing the opportunity.”
While the potential of India’s credit market is significant, the risks are also high. The country’s bad loans ratio is expected to rise to 11.3% by March, making it the worst performer among major countries for the second consecutive year.
In addition to tackling the problem of collecting loans by digital firms, the Reserve Bank of India also plans to regulate online lenders, which include more than 300 startups.