With one of the fastest-growing economies, India is one of the most sought-after emerging markets in the world, but United States-based companies have some substantial cross-cultural hurdles to overcome before they can tap into the country's millions of potential customers.
In this clip, Sean O'Reilly and Dylan Lewis go over one major roadblock -- credit card ownership -- and how it's changing the ways companies such as Netflix (NASDAQ:NFLX) approach the market.
Listen to the full podcast by clicking here. A full transcript follows the video.
This podcast was recorded on Jan. 22, 2016.
Sean O'Reilly: So India, specifically, is one of the world's fastest-growing economies, pushing 7% GDP growth, obviously second only to -- and probably actually slightly beating a little bit right now -- China, in terms of GDP growth and population size. What else can you tell us?
Dylan Lewis: I think one of the first major things that a lot of companies are going to struggle with in this market, particularly with the online market, is paying for goods. Here in the U.S., we're used to using credit cards as part --
O'Reilly: Machines are everywhere.
Lewis: Yeah. Or our smartphones, even. You go to Starbucks --
O'Reilly: We've been using PayPal for 20 years. Everything.
Lewis: Yeah. So you have a lot of bankable people, people that have bank accounts and credit cards.
O'Reilly: [laughs] Americans are bankable, yo!
Lewis: Put that on a bumper sticker [laughs]. I thought, one of the great stats to look at, just to start out this conversation, is some research from the World Bank. They put out this report, "The Global Findex Database 2014," measuring financial inclusion around the world, and one of the quotes I just want to pull from that is: "In high-income OECD economies, 53% of adults reported owning a credit card."
O'Reilly: That seems low, but OK.
Lewis: Yeah, it's lower that I expected. But in developing economies, despite recent growth in credit card ownership, only 10% on average reported owning one.
Lewis: Yeah. And India is among the leaders in unbanked adults, people that do not have checking accounts, credit card accounts, anything like that.
O'Reilly: Sorry to interrupt, we were just talking about this the other day at the office. I don't know how we got on the subject of 7-Eleven, but in Southeast Asia and stuff, you use 7-Eleven-like convenience stores for literally everything. You just go there, pay your bills, everything, with cash. You pay all your utilities, everything.
Lewis: Yeah, it's totally different than what we're used to.
O'Reilly: Foreign concept entirely, yeah.
Lewis: Yeah. So, that's obviously a major hurdle when you look at some of the companies like Netflix and [Amazon.com] (NASDAQ: AMZN) that rely on credit card processing, or some sort of plastic, to facilitate transactions.
O'Reilly: Amazon has, like, a list of 10 different credit cards I've used in the last 12 years.
Lewis: Yeah, it's basically like a credit history.
O'Reilly: Looking at your Amazon account, "Oh my gosh, I forgot I had that one. That's one's gone, that one, that expired," yeah.
Lewis: So, one of the questions from Netflix's most recent quarterly call, someone was asking about some of their plans for India, and some of these developed markets, and how they were going to handle some of the payment processing issues that are just going to happen. I mean, you need a credit card to have a Netflix account.
So, this is Netflix's CFO David Wells saying, "We've invested it internally in building that out, getting smart in terms of the payment systems across the world, we're pressing on gift cards and prepaid cards that might open up the market to those people who don't have access to credit and debit cards."
O'Reilly: Did they mention just getting people to pay annually? Even though that'd be $100, and that'd be a significant outlay ...
Lewis: You'd still run into the processing issue, though. A lot of these people are relying almost exclusively on cash.
O'Reilly: The reason I brought it up is I pictured somebody using a gift card once a month for $8, and I was like ... [groans, laughs].
Lewis: Yeah. The more elegant solution there might be doing something like where you can buy whatever it is, like a $96 or $120, something like that, gift card, and covering a whole year's subscription at once. I think that is probably the best way to crack something like that for the time being. So the idea is, here, that they're giving people that are relying on cash an option to participate in the digital economy.