Alphabet's (GOOG 0.56%) (GOOGL 0.69%) Google recently launched Tez, a mobile wallet app for the Indian market. The app links to a user's bank account and enables peer-to-peer transfers with Audio QR (AQR), which uses ultrasonic sounds to "talk" to other phones without the need for NFC (near-field communications) chips.
Tez supports India's Unified Payments Interface (UPI), a government-backed standard aimed at unifying the fragmented banking market on a single platform. The app is now available on iOS and Android, and new devices from Micromax, Lava, Nokia, and Panasonic will ship with Tez pre-installed.
It's certainly logical for Google to launch a mobile wallet for India's 300 million smartphone users. But it also might seem odd to introduce Tez instead of Android Pay, which already has footholds in Asia in Hong Kong, Taiwan, and Japan.
Image source: Google Play.
It's all about the available technologies
During a Q&A session following Tez's introduction, Google senior executive Caesar Sengupta said there weren't immediate plans to launch Android Pay in India. Sengupta cited the low availability of NFC-equipped smartphones and compatible point-of-sales terminals across India as the key deciding factor.
India also has a very low credit card penetration rate, with fewer than 25 million credit cards circulating amid a population of 1.3 billion. This makes it very tough for credit card-linked payment apps like Android Pay and Apple Pay to gain traction among mainstream consumers.
Mobile debit, not mobile credit
Many more consumers (reportedly nearly half the Indian population) use debit cards, since they double as ATM cards, while many businesses still only accept cash. That's why Google linked Tez to bank accounts and introduced the AQR tech for P2P payments.
Tez can be linked to major banks that support UPI and the app limits users to 20 transfers or 100,000 rupees ($1,560) across all UPI-linked apps every day.
Tez has already attracted a growing list of online payment partners, including Domino's, RedBus, and Jet Airways. Google lets these businesses communicate with customers via business-to-consumer chat channels, which enable streamlined payments. In addition to English and Hindi, Tez also supports six other regional languages.
A $500 billion market opportunity
Google and BCG estimate that over half of India's internet users will use digital payments by 2020, boosting the size of the country's entire digital payments industry to $500 billion -- or 15% of total GDP. But Google isn't the only company making big moves into the market.
Amazon (AMZN -1.11%) and PayPal (PYPL -0.27%) both applied for mobile wallet licenses in India. Amazon was granted a license in March, and it's leveraging the strength of its e-commerce ecosystem to promote its payments platform. In July, Amazon offered Indian shoppers a 10% cashback promotional offer to convince shoppers to use its mobile wallet. PayPal hasn't received a license yet, and it could struggle if it arrives too late.
The Indian market is also filled with other mobile wallet players like Alibaba's Paytm and Flipkart's PhonePe. Apple might even bring Apple Pay to India by the end of the year, but it doesn't plan to abandon or modify its NFC tech. Instead, it plans to work with merchants and banks to install NFC terminals, which could limit its overall appeal.
It's all about ecosystem growth... for now
It's unclear how Tez generates revenue, since transfers through the UPI system are free. But like many other projects, Google is likely trying to build an ecosystem first before fretting over revenue growth.
If Tez establishes a foothold in the Indian market, Google could potentially charge retail partners for additional features -- like promoted offers through its main app or tiered rates based on the number of channel-connected customers. But to reach that stage, Google needs to stand out in an increasingly saturated market with other tech giants breathing down its neck.
