How Google Tez wants to jump start India’s digital payments market and how incumbents will fight back

Sunny Sen September 20, 2017

In January 2017, when Indians were still grappling with demonetisation, finance minister Arun Jaitley has two visitors. From San Francisco, both Indians by birth, they showed him a prototype of a mobile payments app.

The two people were Google Inc.’s CEO Sundar Pichai and Caesar Sengupta, a vice president at the search giant. The prototype was a bare structure of what was launched on Monday as Tez, Google’s mobile payments app that works on India’s Unified Payment Interface, or UPI, platform.

Jaitley was impressed. He asked Pichai and Sengupta to get the app as quickly as possible to the market. “It was at the time of re-monetisation… In the month of January, Sundar Pichai and Caesar met me and this is the idea they had shared at that time,” said Jaitley, after inaugurating Tez.

Re-monetisation was when the Reserve Bank of India and Indian banks were struggling to replenish ATMs and pump cash back into the economy, after the government’s November 8 demonetisation decision that sucked out 86% of India’s currency. People stood for hours in serpentine queues to withdraw cash even in rich pockets of India’s biggest cities – where you’d expect a high concentration of the country’s some 30 million credit card users.

The lesson for Google was simple: its app would have to be as simple as cash. The thinking behind the “cash mode” option on Tez is that exchange should be as simple and taking or receiving cash, without the need of keying in bank account numbers or mobile numbers. Or, even, Bluetooth, Wifi, NFC or data connections. Two phones detect each other using ultrasound technology – it is audio QR technology – through the speaker and microphone and the money gets transferred in a few seconds.

Tez was initially panned on Google Playstore on the first day but still had about half a million downloads by Tuesday.

Tez: Made in India

It is still early days for digital payments in India making it Day 1 for Tez. “It is a large market but payments as an experience is still broken, and everyone thinks that payments will be digitised. Banks haven’t been able to do that,” said Mohammed Imthiaz, an expert on online payments and coupons. UPI provides the perfect platform for the next wave of users since it directly debits or credits a bank account on a phone number, he added. Imthiaz was the founder of online coupon business Hoppr, acquired by Hike Messenger in 2015.

Demonetisation gave a huge boost to electronic payments in 2016-17

Google started work on an Indian digital payments platform sometime in 2015 – the company doesn’t disclose the exact month. Initially, the idea was to bring its popular Android Pay to India and localise it at its Bengaluru research and development centre.

But doing that would have its own problem. “We did a lot of foundational research and found out that characteristics that were important for Android Pay, weren’t particularly important here – tokenized credit and debit cards… only 3% Indians have credit cards. Android Pay is NFC based, and an even smaller proportion use NFC-enabled point of sale devices,” said Diana Layfield, vice-president, head of finance and commerce products of Google’s Next Billion Users initiative.

About a year ago, Sengupta, who has spent his childhood years in East Delhi, and his Next Billion Users team at Google realised that Tez would have to be built ground up. The market is not as crowded as it is made out to be, he said. “The market feels crowded. But it is very very early. 99% of our economy is still cash based. India is still largely an offline, non digital economy…digital payments has been concentrated around big cities.”

Google’s approach to products asks the usual questions: what are the core needs, how to tackle these needs, and how will the product be different from other offerings already in the market. And, finally, how to blend these three answers into one package. “Fundamentally, I believe that the only thing that helps you is to build a good product. If it’s good, resonates with users, they will use it more,” said Sengupta.

It was decided that Tez would be built on UPI. The interface links to a bank account and money is directly credited or debited from the account without the need of a separate mobile wallet or intermediate stage.

“We realised that users trust banks, so we partnered with banks. We (then) created an experience like in cash mode, where money can be transferred even without knowing the other person’s details,” said Sengupta.

Doubling down on distribution

To make it more personal, the Tez user interface mimics a chat-like service. “Chat is a way of interaction,” said Layfield. “Research showed users wanted to know whom they were paying, and when they wanted to find previous payments or repay, they thought about it like a string of interactions with the entity or person. And to us, when you look at it like a graphic form, it is a series of chats.”

Then, there is the bet on Indian languages – Tez is available in eight Indian languages.

That will also allow Google to personalise the payments experience in India, especially as it wants to bring on the platform millions of small and large merchants.

Every mobile payments company wants to bring a large number of merchants on to its platform. Paytm already has five million of them, MobiKwik has two million. WhatsApp, which launched for business recently, has BookMyShow and 1MG, and is in talks with Ola and Oyo, among others. Amazon has a large number of online companies and has plans to venture into the offline space.

Google is counting on the relationships that banks have with millions of merchants for Tez. It plans to push Tez on its free listings service Google My Business, which has eight million subscribers, to convince them to use the app. On the cards is also a drive to reach out to neighbourhood stores so that they can have online presence. With that, Google hopes that customers will interact more with shopkeepers before making payments on Tez.

Caesar Sengupta, who grew up in East Delhi’s Mayur Vihar area, knew Tez had to mimic cash if the app has a shot at success in India

Tez promises to give merchants and companies the ability to engage better with users. For example, if a customer makes a payment by purchasing a bus ticket on RedBus, it can give you an offer of 30% on the next ticket. The notification of the offer comes on Tez through a chat.

Think similarly for movie tickets, ecommerce brands, telecom operators and cab-hailing companies. “For every partner comes on, it builds a network effect… So today you can book movie and bus ticket. When Domino’s launches, people will be able to order pizzas; when Jet Airways comes on board, book flight tickets…,” said Sengupta.

A source from the digital payments industry told FactorDaily that Google is also in discussions with Paytm and MobiKwik to integrate their wallets with Tez. “Google doesn’t have the kind of market penetration like these guys have. Google is essentially an aggregator of UPI payments,” the source said, requesting anonymity.

For businesses, Google has integrated Tez with Chrome so that users can make the payments straight on the company website (and not necessarily go through the app). “Any merchant can have this done by adding 40 lines javascript (to its existing website coding),” added Sengupta.

Paytm, other competitors

Tez’s competition is not sitting on its hands. Paytm runs the biggest mobile wallet company in the country with a claim of over 200 million wallet users. MobiKwik is the second largest, about a third in size of Paytm. Apart from Paytm and MobiKwik, there are at least two dozen more mobile wallet companies, including Flipkart’s Phonepe. With UPI, the government hopes to level the playing field between different platforms, and international companies such as WhatsApp, Amazon Pay, Uber and, now Tez, are getting on it.

Paytm has said it will have similar services through a chat-based transaction service it plans to launch in this month. (The project might get delayed, insiders told FactorDaily). WhatsApp on the other hand has plans to send ticket confirmation, receipts and invoices, notifications, bills, and any kind of daily email communication between users and companies to its platform.

Tez will be up against Paytm that today is a conglomerate of online business, across travel, entertainment, shopping, and payments. Not just that, it has backers with deep pockets: China’s Alibaba and Japan’s internet and telecom conglomerate SoftBank. Paytm did not respond to a set of questions sent by FactorDaily.

MobiKwik said it is expanding its two million-strong merchant network and adding credit to its offerings. “Our latest partnership with Bajaj Finserve (which has 25 million users) allows us become a credit wallet. All wallets are pre-paid right now. So, if you want to go to a Croma and buy a LED television, you can get a credit from your MobiKwik account, depending on your transaction history,” a senior company executive said, asking not to be identified.

Google, which makes most of its money in India (and elsewhere) through advertising, see it important to have a payments business as it tries to connect the next billion users with the internet. Three of four of India’s 400 million internet users are on smartphones, said Rajan Anandan, vice president (South East Asia and India) at Google.

By 2020, he said, India will have 650 million internet users — 150 million of who will shop online, 100 million will buy flight tickets online, and 50 million will consume education online. Tez will build business cases for each of these users, for all kind of payments.

What next for Tez? Sengputa said it will add credit and debit card options to the platform as also integrate it into Google Play ecosystem. Two other developments will be key to differentiate Tez as a product: one, its ability to transact when a smartphone is offline. “…we are thinking about ways in which this can be done without connectivity,” said Sengupta. How? “I don’t know yet.” Two, Google has a powerful voice assistant in Google Voice. Will Tez work on voice commands? “That’s a great idea… we can’t confirm or deny if we are working on it,” he said, holding his cards close to his chest.


Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.