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Can FreeCharge be the trump card for Amazon’s India play?

24 July, 2017

Global e-commerce major Amazon.com Inc. has reportedly thrown its hat into the ring to snap up FreeCharge not only to ramp up its presence in the Indian payments space dominated by players such as Alibaba-backed Paytm, but also to steer ahead of homegrown rival Flipkart.

With several players in the Indian digital space, including Paytm and Flipkart, jostling with each other to bag the Snapdeal-owned mobile wallet firm, reports of the Seattle-based company setting aside $70-80 million (Rs 450-515 crore) to acquire FreeCharge, only adds to the excitement.

But what is it with FreeCharge that is attracting both peers and e-commerce majors by the hordes? Industry insiders feel, besides its modest valuation, the brand recall of FreeCharge and its existing customer base could well be a differentiator that most companies are looking for from this deal.

According to Anup Jain, managing partner at consumer and retail consulting firm Redback Advisory, the move by Amazon provides it with another avenue to acquire new customers in the high-frequency-cum-low-ticket segment, who were not part of the first wave of digital payment adoption.

“E-commerce and retailing is at the heart of Amazon’s business model. While it could certainly offer a seamless payments platform for its consumers, it can also be seen as a protective strategy by Amazon to create a moat and retain its customer data within its own platform,” added Jain.

In fact, the proposed move is in line with Amazon’s overall strategy to strengthen its payments interface. As part of its global partner programme, the company has been trying to set up a third-party payments solutions service, where e-commerce marketplaces, as well as other online businesses, could integrate with Amazon Pay as a mode of consumer payment option across partner websites.

The e-commerce giant has been investing heavily on its payment wing, Amazon Pay, ever since the company received the prepaid payment instrument licence from the Reserve Bank of India to launch its own digital wallet in March.

“With a strong e-commerce engine to its credit, Amazon has to first build a critical mass of vendors and partners, which will then make it easier for consumers to move onto the Amazon Pay platform,” Sanchit Vir Gogia, founder and CEO of Greyhound Research, had said during an earlier conversation with VCCircle.

The American online retail behemoth had recently infused $20 million into Amazon Pay, with the much talked about wallet services for third-party payments finally rolling out in India.

A move to add FreeCharge into its payment offering is clearly a natural extension of Amazon’s ambitions in the payment space, considering the depth of network that Amazon enjoys. More importantly, it makes perfect sense for the retail behemoth to invest on FreeCharge given the fact that the company has just received an approval from the department of industrial policy and promotion to open brick-and-mortar food outlets, where it plans to invest about $515 million over the next five years.

Notably, the development also comes close on the heels of Amazon introducing a new feature named Amazon Pay Places, which allows consumers to pay for in-store purchases instead of using cash, check, and credit or debit cards. The feature is currently rolled out in partnership with select businesses in the US, but it surely is the beginning of Amazon Pay’s entry into the real world.

In India, FreeCharge could be Amazon’s first major step to offer an underlying payment option to consumers. It can bring more partners to its network in addition to strengthening Amazon Pay’s product offering in the Indian market that is largely dominated by Alibaba-backed Paytm.

“Making FreeCharge part of Amazon Pay to boost up the payment arm would surely give them more visibility in the payments sector. FreeCharge is a known brand and Amazon can give it further push to accelerate the process of increasing presence in offline and online payments,” said Satish Meena, analyst at Forrester Research.

In fact, the company has already tied up with the likes of Housejoy, Abhibus, Faasos, Behrouz, Jus Tickets, mydala.com, Box8, Innerchef, Byju’s, Amar Chitra Katha and jewelry brands Orra, Candere and Kothari, which have also started accepting payments through Amazon Pay. It is in talks with several other merchants to bring them on board.

With a rise in the digital economy following the recent macroeconomic changes, including the Digital India push, UPI and demonetisation, experts feel there is enough opportunity for Amazon to capture the next base of consumers – the middle and bottom of the consumer pyramid – who got digitally-empowered only recently. Mass penetration of Reliance Jio’s services also adds to its advantage.

Amazon’s rising focus on digital payments can also be gauged from recent developments at the firm. The authorised share capital of Amazon Pay India Pvt. Ltd was recently hiked from Rs 69 crore to Rs 400 crore, according to filings with the Registrar of Companies. Besides, in February, it had bought Noida-based payment gateway firm Emvantage to mark its first acquisition in India.

Though it is still not clear whether the company has immediate plans to extend the Amazon Pay services to offline commerce or integrate with the Unified Payments Interface platform, a report by The Economic Times, earlier this month, had suggested that the company is all set to adopt UPI.

Around the same time, VCCircle had reported that Amazon’s homegrown rival Flipkart had soft-launched its UPI-based payments platform, Phone Pe, as a consumer payment option at offline stores.

Last month, Amazon’s India head Amit Aggarwal had said that it was gearing up to launch the new digital payments service, which would be broader in scope than its Pay Balance service, and will not be limited to Amazon-only transactions.
As the race to acquire FreeCharge gathers pace, the American retail giant could look to charge ahead of the others to seal the deal. However, only time will tell whether it would be another strategic coup to outclass its Indian rival Flipkart.

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Can FreeCharge be the trump card for Amazon’s India play?

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