Tata Group is reportedly venturing into India's digital payments industry to compete with the likes of PhonePe, Google Pay, Amazon Pay, and Paytm.
It is seeking clearance from the National Payments Corporation of India (NPCI) to start operating on the Unified Payments Interface (UPI) as a third-party payments service provider, according to a report by The Economic Times.
Tata Digital, its digital commerce unit, is in talks with ICICI Bank and another private sector lender to power its UPI infrastructure, the report said, citing sources.
Tata is looking to have a UPI gateway ready in time for the launch of its super app Tata Neu in April, the report suggests. The group is looking to expand its presence in ecommerce quite late into the game; it has to contend with established players and regulatory turbulence.
What's Neu With Tata?
Tata is planning to launch its much-delayed super app 'Tata Neu' next month with an aggressive marketing push built around the Indian Premier League (IPL), another ET report suggests.
The super app model, pioneered by China’s WeChat and Alibaba, brings all the consumer-facing businesses, services, and products of a conglomerate under one umbrella like Reliance's JioMart and Paytm Mall.
Tata group has several assets it could bring to Neu:
Online grocer BigBasket
Online pharmacy 1mg
Electronics retailer Croma
Flight booking for Air Asia and Vistara
Tata Cliq, which sells products like Titan and Tanishq
The super app will reportedly help create a loyalty programme for its over 45 million customers, bringing them back to Tata's services and goods regularly.
A UPI app will let Tata enhance the payments experience on its super app. Amazon India, for example, encourages customers to use its own UPI service with cashback and other incentives.
UPI saw 4.52 billion transactions in total, amounting to Rs 8.26 lakh crore as of February, as per NPCI data.
Tata's Financial Dreams
In 1917, Tata established the Tata Industrial Bank, which was then merged with the Central Bank of India, which Tata owned a stake in, before all private banks were nationalised in 1969.
It had applied for a banking licence in 2013, but withdrew after realising that it would have to re-organise its existing financial services structure in compliance with RBI rules, according to Businessline.
As it stands, Tata Capital and its subsidiaries (one of which is an NBFC) offer an array of financial services like Commercial Finance, Consumer Loans, Wealth Services, and Tata Cards.
The group has hinted that it is looking to operate a universal bank, a bank that is allowed to participate in a variety of banking activities including wholesale, retail, and investment banking.
In 2020, the RBI contemplated giving banking licences to large non-bank lenders and Tata was one of the leading contenders.
In January 2022, Tata reportedly set up Tata Fintech, to offer financial products and a new retail payments gateway under a single platform.
“There are a lot of integrations being planned in terms of offering buy-now-pay-later solutions and other finance options. These are being worked out through the fintech unit," a source told ET.
Given its history and its outlook, operating a third party UPI service is a natural next step for Tata Group, since it lies at the intersection between its financial and ecommerce ambitions.
Turbulent Waters for Payments Apps
The digital payments space that Tata plans to enter is replete with competitors and under RBI's scrutiny.
In its Financial Stability Report for December 2021, the Reserve Bank said that the retail-led growth model for non-bank lenders in India is beginning to face headwinds due to debt defaults in consumer finance.
BNPL (buy now pay later) services, like LazyPay and Amazon Pay Later, let you buy things and pay for them later. To make this happen, e-commerce players take a loan in your name from a non-bank lender.
BNPL services recently invited controversy since many users didn't realise that they had consented to have loans taken on their behalf. The central bank is in the process of scrutinising these lenders' arrangements with e-commerce apps and sites.
Apart from this, Tata will have to contend with regulations about UPI market share. In a bid to ensure parity, the NPCI has mandated that payments apps cannot process more than 30 percent of the total UPI transaction volume.
Homegrown digital payments companies like BharatPe and Paytm are also plagued with problems.
RBI on Friday, 18 March, directed Paytm Payments Bank Ltd to stop onboarding new customers with immediate effect, due to certain “material supervisory concerns".
The payments bank was considering applying for a small finance bank (SFB) licence by June 2022, however, the recent developments could hurt its chances of upgrading.
(With inputs from The Economic Times and Businessline)