India's openness takes fintech attention away from China

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India's regulatory approach shows it's serious about supporting myriad international payment technology plays, in contrast to China's doing the bare minimum to satisfy international pressure for openness.

The difference matters for U.S., European and Asian fintechs, card brands and payment gateways that are anxious to gain a share of these gigantic markets, with hundreds of millions of consumers in both countries.

China has attracted more buzz given its reputation of having a huge middle class whose frequent travels have fueled international expansion for Chinese companies such as Alipay and WeChat, which have made a series of deals to support payments in foreign countries.

But even with that buzz, India is the easier country for foreign firms to establish a presence. For example, India last week proposed easing rules that require companies to store data locally, a move that would be a gift for U.S. card brands, which had lobbied for the change. China, on the other hand, earlier this year promised to be more open to foreign payment companies, but it has not wavered on requirements that outside companies establish a significant presence on the ground, including data storage.

It's unclear how much establishing a local presence for data storage would cost, but estimates from 2015, the last time China promised to be more open to outside payment companies, pegged investment expense of about $160 million to set up a payments operation in China.

Meanwhile, India appears to have the perfect mix of a huge market and a high percentage of cash payments to migrate to digital.

Elina Mattila, executive director at Mobey Forum, estimates that until recently, cash accounted for 95% of transactions, with 85% of workers paid in cash and 70% of online shoppers choosing to pay cash on delivery. Still, the mobile wallet market is expected to grow by 150% over the next five years, with transactions totaling $4.4 billion, Mattila said.

Even with Paytm's success in India, that opportunity suggests a large market for payment innovators from all over the world, according to Eric Grover, a principal at Intrepid Ventures.

"While the Indian payments market is challenging and has a nationalist undercurrent, it's open," Grover said. "In contrast, notwithstanding its 2001 WTO commitment to open up its enormous domestic payments market and a slew of subsequent assurances that it would do so, China's domestic payments market remains closed."

While the South China Morning Post report on India's loosening of data rules did not cite specific sources, it did quote a lawyer with knowledge of the talks saying offshore data processing and analytics will likely be allowed. This system could be considered safer and less expensive than a centralized site inside India. The story quoted several sources that hoped India's move would be an example for other countries.

"A local presence requirement that includes a local office, incorporation and/or processing switch raises entry costs," Grover said. "China can get away with requiring a local presence because it's China, but imagine if every country were to do so."

India has historically been a card-accepting market with an ecosystem that supports traditional Visa and Mastercard issuers and processors, which is in contrast to China's traditionally closed environment, which has only recently started opening up, according to Thad Peterson, a senior analyst at Aite Group. Visa and Mastercard have both sold mobile payment technology inside India to further their branding.

"WeChat Pay has recently opened their payment platform to allow payment cards from the traditional networks to be used in their wallet, but that only reinforces the value of those wallets to Chinese consumers without adding any significant brand reinforcement to the networks," Peterson said.

India's Reserve Bank also supports United Payments Interface (UPI), an open platform that instantly transfers funds between two accounts via mobile, a move that came around the same time as the Indian government's demonization efforts that saw large amounts of cash taking out of circulation. Those efforts improved conditions for digital payment companies.

The UPI allows any mobile device to intermediately facilitate payments, and is considered a catalyst for fintech startups. While that could work against the large networks expanding in India, it's still a signal of openness to new development form the outside that's largely missing in China.

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