Facebook Jio Deal – The Birth of Digital Payments 2.0?

Blog: NASSCOM Official Blog

With more than half a billion internet subscribers, India is one of the largest and fastest-growing markets for online consumers, but adoption of online payments is uneven among businesses, regions, and sectors.

India as a digital economy has certainly seen an upswing in the recent few years as a result of demonetization, launch of UPI based online payments, Aadhaar enabled digital payment system, etc., but it has still a long way to go.

The recent Facebook-Jio deal can be a huge catalyst in India’s story of digitization with its’ key focus on hyperlocal digital commerce, expanding to tier 2 & 3 cities and even rural areas.

Can this be the stepping stone to the birth of Digital Economy 2.0 in India? Let us explore this out:

Facebook’s huge investment in Jio Platforms:

On April 22, 2020, Facebook entered into an exclusive deal with Jio Platforms wherein it bought a 9.9% stake in Reliance Jio for $5.7 billion, in an all-cash deal (pending CCI approval) that gives the social media giant a firm foothold in a fast-growing Indian telecom market and helps the Indian oil-to-telecom conglomerate to significantly cut debt.

Facebook’s key take-homes:

The deal will provide Facebook, the social media giant with a whopping 300 million Indian users, it’s largest subscriber base globally, direct access to Jio’s 370 million subscribers and a strong foothold into India’s booming mobile market.

Jio’s key take-homes:

The major push behind Jio’s new partnership with Facebook is the company’s planned launch of a nationwide JioMart e-commerce platform and integrating it with the Facebook owned Whatsapp Pay platform for digital payments, channelizing hyperlocal digital e-commerce in India.

Demystifying the Facebook + Jio: A Well Thought Out Philosophy:

The Facebook + Jio Deal is much deeper than it appears on the surface. It is the epicenter of a well thought out philosophy by both the business giants which can ultimately churn out huge returns for them and at the same time unveil the birth of the hyperlocal digital India – digital economy 2.0

Implications for e-commerce players in Indian Economy:

Industry insiders say the Facebook–Jio partnership is expected to help JioMart compete with Amazon and Flipkart in India, with the e-commerce sector expected to grow to $200 billion by 2028 from $30 billion in 2018. Let us look how:

Currently, Amazon and the Walmart-owned e-commerce firm Flipkart control over 60% of India’s e-commerce market, according to market intelligence firm S&P Global. Yet these firms have been hit by recent FDI regulations that favor domestic players like JioMart over foreign competitors.

In Dec 2019, Jio Platforms has already conducted a successful soft launch of JioMart in three neighborhoods near Mumbai, offering more than 50,000 grocery products.

Further, Facebook-owned WhatsApp Pay, granted payments platform license by NPCI to target 10 million users in the first phase of rollout, will digitally enable consumers to transact on JioMart.

It has already rolled out WhatsApp-based online portal amid lockdown, just 4 days into the deal, testing the portal in Navi Mumbai, Thane and Kalyan.

If this pilot becomes successful, JioMart-Whatsapp portal can build a strong hold in hyperlocal deliveries and commerce and can even spur it with deep anti-competition tactics like deep discounting, which cash-rich Reliance is known for. Jio Mart and WhatsApp will eventually empower nearly 30 million small Indian Kirana shops to transact digitally.

How are Amazon, Flipkart responding?

Other top e-commerce players in India like Amazon, Flipkart, Paytm Mall are also making rapid moves to take on the Jio-Facebook challenge:

Our View:

Jio-Facebook have an edge on data. The deal that marries local commerce with the social part, also creates one of India’s biggest data platform that can be tough for other e-commerce players to match quickly.

Yet, data localization and data sharing have been strong concerns, especially with Facebook’s India-generated data, and it remains an open area to watch out for in the coming days, with focus on CCI’s deal approval conditions, if any.

Implications for the Indian Digital Payment Fintechs:

The deal is also expected to help Jio and Facebook to give competition to the Digital Payment Fintech players such as Walmart-owned PhonePe, Alibaba-backed Paytm, Google Pay and Amazon Pay in the Indian digital payments space which is expected to rise five-fold to reach $1 trillion by 2023.

The deal intends to make WhatsApp Pay the go-to payment solution for consumers and businesses.
Facebook will also be exploring ways to launch its Facebook Pay offered through Messenger, WhatsApp, and Instagram, or integrate it with WhatsApp Pay and offer more features.
Further, the giants together could be creating a super app in the country (something similar to China’s WeChat super app) where users can complete the entire business process from marketing to accepting the payment!
The deal is expected to turn over the digital payments sector, crowd out small players and drive consolidation.

Some of the leading payment fintechs are also making appropriate moves in the industry.

How are Paytm, PhonePe responding?

Google Pay and PhonePe together accounted for nearly 80% of 1.31 billion transactions in January 2020. Paytm was at the third place with about 10% share. For these existing players, the deal is a big move and a huge competitive threat.

Only time will tell how some of the other leading players will respond.

Our View:

A telecom firm like Reliance’s Jio in partnership with Facebook owned Whatsapp can give good competition to existing players like PhonePe, Paytm, Amazon Pay as it has lot more insight into consumer data habits and a greater number of stores to reach potential customers.

All of this is backed by Jio’s ability to provide a phone-to-supplies-to-payment solution. This deal is a marriage of the two biggest data conglomerates of India.

Looking Ahead – shape of the new digital ecosystem in India – Digital Economy 2.0:

In a nutshell, the country’s digital ecosystem will get a massive boost through the Facebook- Jio deal at a time when contactless and cashless payments are being promoted to maintain social distancing to curb the spread of the COVID-19. It will strengthen India’s drive to improve the availability, access, and quality of infrastructure that will support the emerging digital economy 2.0.

The economy will witness stiff competition and the deal could also lead to consolidations in the e-commerce and digital payments arena.

The breadth and the depth of digitization will magnify like never before, with hyperlocal commerce and digital payments taking the center stage.

A whole new world of e-commerce and ease of payments through user friendly apps like Whatsapp will be opened to Indian consumers, accelerating digitization in India.

New digital service provider startups like delivery-as-a-service, and cloud-stores can also come up marking the birth of a new era – Digital Economy 2.0!

References:

https://analyticsindiamag.com/

https://economictimes.indiatimes.com/tech

https://theprint.in/india/rss-affiliate-slams-facebook-jio-deal-

https://www.spglobal.com/marketintelligence/

https://www.businesstoday.in/current/corporate/ril-jiomart-rolls-out-whatapp-based-online-portal-

https://yourstory.com/2020/04/paytm-mall-kirana-stores

https://techcrunch.com/2020/04/23/amazon-begins-selling-items

https://retail.economictimes.indiatimes.com/news/e-commerce/e-tailing/flipkart-to-offer-customers

https://www.livemint.com/companies/news/the-mega-jio-facebook-deal-

https://ibsintelligence.com/ibs-journal

https://www.dealstreetasia.com/stories