india rising no.3 e-commerce ecosystem april 7 2017 - df challenges and ... indians’ total annual...

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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

ThisisthethirdreportinourIndiaRisingseriesfocusingontheIndianstartupecosystem.Inthisreport,welookatvariouse-commerceenablers—firmssuchaslogisticsprovidersandsoftwaresolutionprovidersthatprovidesupportfunctionsintheonlineretailprocess.

1) Enablingfunctionstakeupsome19%ofthetotalrevenueofstable-growthIndiane-commercefirms.

2) In2015,Indiaspentabout$302billion,or14.4%ofitsGDP,onlogisticsandtransportation.

3) WeestimatethatonlineretailersinIndiaspentsome$1.8billionontechnologyforrunningtheirwebsitesandappsin2015.

4) TheIndiandigitalpaymentsmarketwasworthsome$50billionin2016andisexpectedtogrowtenfoldto$500billionin2020.

5) Webelievethate-commerceenablershaveenormousgrowthpotentialinthestill-youngonlineretailsectorinIndia,asdomestice-tailersarenotyetlargeenoughtojustifybringingenablingfunctionscompletelyin-house.

Deep Dive: India Rising

Part 3— E-Commerce

Enablers in India

Deborah Weinswig

Managing Director,

Fung Global Retail & Technology

[email protected]

US: 917.655.6790

HK: 852.6119.1779

CN: 86.186.1420.3016

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TableofContentsExecutiveSummary.........................................................................................................................................3

AnIntroductiontoE-CommerceanditsSupportingBusinessesinIndia...........................................................5

E-CommerceinIndiaandtheAncillaryBusinessesthatSupportIt...................................................................6

HowE-CommerceCostsAreSplit....................................................................................................................7

EnablersbySector:Logistics,Technology,Fintech...........................................................................................8

1.Logistics.......................................................................................................................................................8DeliveryService:Delhivery.............................................................................................................................10LogisticsSolutionPlatform:Locus..................................................................................................................10CollectionService:Smartbox..........................................................................................................................11

2.Technology.................................................................................................................................................12VisualSearch,AugmentedReality(AR)andVirtualReality(VR):PrekshInnovations..................................12E-CommerceManagement:Unicommerce....................................................................................................14Chat-BasedArtificialIntelligence(AI)Assistant:Niki.ai.................................................................................14

3.Fintech.......................................................................................................................................................15DigitalPayments:Paytm................................................................................................................................15

Outlook:ChallengesandOpportunitiesforE-CommerceEnablersinIndia.....................................................17

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ExecutiveSummaryThisisthethirdreportinourIndiaRisingseriesfocusingonthestartupecosysteminIndia.Here,weexaminevariouse-commerceenablers—firmsthatprovidesupportfunctionsintheonlineretailprocess,suchaslogisticsprovidersandsoftwareproviders.Weanalyzehowtheseancillarybusinesseshavetakenshapeasaresultofonlineretailing’sgrowthinIndia.

Weidentifythreekeytypesofenablers:logisticsfirms;technology,orITinfrastructure,firms;andfintech,orfinancialtechnology/paymentgatewayfirms.India’se-commercesectorisbig,anditisgrowingquickly.Onlinesalesinthecountrytotaledsome$30billionin2015,accordingtotheIndiaBrandEquityFoundation(IBEF),andtheyareexpectedtotouch$120billionby2020.

Source:Shutterstock

Enablingfirmstakeslicesofthismarket.AccordingtoanalysisfrommanagementconsultancyTechnopakAdvisors,thebulkofrevenueatatypicalstable-growthe-commercefirmisallocatedtothevendor(i.e.,theselleroftheproduct)ortotheproductcostitself.Some11%isaccountedforbythewarehousingandlogisticsfunctions.Technology,whichencompassestheinfrastructureandstaffneededtomaintainandrune-commercewebsitesandapps,utilizes6%ofrevenue,andpaymentgatewaysaccountfor2%.Together,thesethreeenablingfunctionstakeup19%oftotalrevenueatatypicale-commercefirm.

In2015,Indiaspentabout$302billion,or14.4%ofitsGDP,onlogisticsandtransportation,accordingtoTheAssociatedChambersofCommerce&IndustryofIndia(ASSOCHAM).TheaveragecostoflogisticsasapercentageofGDPfordevelopedcountriesisabout8%.EuromonitorInternationalestimatesthatlogisticsaloneaccountedforasubstantial16%oftotalretailcostsinIndiain2015.

BasedondatafromTechnopakAdvisorsandIBEFregardingtheapproximateportionoftotalrevenuesthatIndiane-commercefirmsallocatedtotechnologyin2015,weestimatethattheseretailersspent

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some$1.8billionontechnologyforrunningtheirwebsitesandappsthatyear.AccordingtoareportbyGoogleandtheBostonConsultingGroup,theIndiandigitalpaymentsmarketwasworthsome$50billionin2016andisexpectedtogrowtenfold,to$500billion,in2020.

Someretailersmayfeelthattheycanexercisegreatercontrolovertheiroperationsandcostsiftheyusein-houseresourcesratherthanthird-partyproviders.However,e-commerceisstillinanascentstageinIndiacomparedwithglobalmarkets,anduntildomesticplayersgrowlargeenoughtojustifybringinglogistics,technologyanddigitalpaymentoperationscompletelyin-house,e-commerceenablershaveenormouspotentialtocapitalizeonthestill-youngonlineretailsectorinIndia.Currently,eventhelargestdomesticonlineretailersdonotpossessthesamescaleasinternationalgiantsAmazonandAlibaba.

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AnIntroductiontoE-CommerceanditsSupportingBusinessesinIndiaInIndia,theretailande-commercesectorsmaynotbeasmatureastheyareinWesterncountries,butseveraltech-drivendisruptorsaremakingstridestoprovidebetterchoice,lowerpricesandgreaterconveniencetoIndianonlineshoppers.

InourfirstreportintheIndiaRisingseries,welookedatthefactorsthatmakeIndiaaboomingstartupdestinationandatthemajorplayersinthecountry’sstartupecosystem.Inoursecondreportintheseries,weexaminedfourmajore-commercedisruptors:Flipkart,Snapdeal,QuikrandBigBasket.WelookedatfivefactorsthathaveshapedonlineretailinIndia,thereasonsforthedisruptors’successandtheimminentthreatthatdomestice-commerceoperatorsfacefrominternationale-commercegiantsAmazonandAlibaba.Wesummarizethosefivefactorsinthefirstsectionofthisreport.

Inthis,ourthirdreportintheseries,weexaminevariouse-commerceenablers,andidentifythreekeytypesofbusinessesthatsupporttheonlineretailprocess:logisticsfirms;technology,orITinfrastructure,firms;andfintech,orfinancialtechnology/paymentgatewayfirms.

Source:Shutterstock

Throughthespecialistservicestheyoffer,businessesinthesecategoriesenablethee-commerceprocessfromthepointthatcustomersbegintheonlineshoppingjourneytothepointthattheyreceivetheproductstheyhaveordered.Outsourcingcertainfunctionstootherfirmshelpse-commerceretailersfocustheircapitalexpenditureoncoreactivitiesuntiltheybuildscaleandcanbringthesefunctionscompletelyin-house.

Inthisreport,weidentifythreekeytypesofenablers,orbusinessesthatsupporttheonlineretailprocess:logistics,technologyandfintechfirms.

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E-CommerceinIndiaandtheAncillaryBusinessesthatSupportitIndia’se-commercesectorisbig,anditisgrowingquickly:onlinesalestotaledsome$30billionin2015,accordingtotheIBEF,andareexpectedtotouch$120billionby2020.

Webeginwitharecapofsomeofourheadlinefindingsone-commercefromoursecondreportinthisseries:

1. Thereisalackofmoderninfrastructure:India’sretailindustryisoverwhelminglyunorganized(i.e.,traditional)andhighlyfragmented.Variousestimatessuggestthatorganizedretail(i.e.,moderntrade)constitutesonly6%–8%oftotalretailinIndia.Thismeansthataverylargeportionofthecountry’sretailsectorremainstobecapturedbymodernretailers.

2. Lessaffluentconsumerslookforlowprices:Evenwiththeeconomygrowing,manyIndianconsumersstillhavelimitedincomes,whichspursdemandforlow-pricemarketplaces.TheaverageIndianhaslittletospendondiscretionaryitemseachyear,asevidencedbyspendingonleisuregoodsandservices,whichcapturebarely1%ofIndians’totalannualconsumerspending.

3. Consumersliketopaycashondelivery(COD):Indiaisacash-centriceconomywheresome68%oftransactionsaremadewithcash,accordingtobrokeragefirmCLSA.WorldBankdataindicatethatbankaccountpenetrationinIndiawasonly53%in2014.CODpaymentallowsmoreshopperstobuyonlineandisafundamentalfeatureofe-commerceretailinIndia.Fully57%ofonlineshoppersinIndiacitedCODastheirpreferredpaymentoption,accordingtoa2015surveybyA.T.Kearney,GoogleandGfK.

4. ThescaleandyouthoftheInternetuserbaseboostse-commerce:ThesheersizeandyouthfulnatureoftheIndianInternetuserandshopperbasehavepoweredgrowthate-commercestartups.AccordingtobrandagencyWeAreSocial,some462.1millionIndiansaccessedtheInternetinJanuary2017.However,thatfigureconstitutesonlyabout25%ofIndia’s2016population.

ASSOCHAMreportsthatIndiahadoneoftheyoungestInternetuserbasesamongtheBRICnationsin2015:about52%ofIndianswhowereonlinethatyearwerebetweentheagesof26and35.

5. Foreigndirectinvestment(FDI)restrictionsandtherelativelylateentryofAmazoninIndiahavebenefiteddomesticplayers:DomesticcompanieshavebenefitedfromgovernmentpoliciesthatrestrictedFDIinIndianretail.Between2006and2012,thegovernmentimplementedseveralpoliciesthatallowedforeignretailerstooperateinIndiathroughphysicalstores,butrestrictedthemfromsellingonline.MarketplacesiteswereeffectivelyexemptedbecauseFDIwaspermittedinbusiness-to-businesse-commerce—andmarketplacesaretechnicallytechnologyplatformsthatfacilitatetradebetweenbuyersandsellers.ThishelpedexistingIndiane-commercemarketplacesraiselargeramountsofforeign

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funding,whilealsopavingthewayforAmazontooperateamarketplaceusingdomesticsellersinIndiabeginningin2013.

ThesefactorshaveindirectlysupportedthegrowthofauxiliarybusinessesthatenableonlineretailinIndia.

HowE-CommerceCostsareSplitBelow,wecharttheapproximatedivisionofcostsforIndiane-commerceretailersthatareseeingstablegrowth,accordingtoanalysisbyTechnopakAdvisors.Together,enablingfunctionsaccountfor19%ofthetotalinputcostsofstable-growthe-commerceretailersinthecountry.

Whilethebulkofrevenueisallocatedtovendorsorproductcosts,some11%istakenupbywarehousingandlogisticsfunctions.Technology,afunctionthatinvolvesinfrastructureandthestaffneededtomaintainandrune-commercewebsitesandappssecurelyandeffectively,utilizes6%ofrevenue.Paymentgatewaysaccountfor2%ofe-commercerevenue.

Figure1.ApproximateProportionofCostsIncurredbyOnlineRetailersinIndia,byFunction

Source:TechnopakAdvisors

2%

2%

3%

3%

6%

8%

11%

65%

PaymentGateways

Packaging

Others

Margin

Technology

Markelng

WarehousingandLogislcs

Vendors

Enablingfunctionsaccountfor19%ofthetotalinputcostsforstable-growthe-commerceretailersinIndia.

Warehousingandlogisticsaccountforapproximately11%ofthetotalinputcostsofonlineretailersinIndia,whiletechnologyaccountsfor6%andpaymentgatewaysaccountfor2%.

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EnablersbySector:Logistics,Technology,FintechInthefollowingsections,weanalyzeourthreefocusareas:logistics,technologyandfintech.

1.LogisticsLogisticsisacriticalfunctionfore-commercemarketplacesandretailers,asitinvolvesthesafeandpromptmovementofgoodsfromthevendororwarehousetothecustomer.InIndia,onlyafewmajorinternationallogisticsfirms—suchasBlueDart(asubsidiaryofDHL),TNTandFedEx—servethemarket,whichisdominatedbyalargenumberofsmallerintermediariesandthird-partylogisticsplayersthatworkwithshipperstomanageclients’logisticsoperations.

UrbanplanningofcitiesandtownsisalsolessorganizedinIndiathanitisinthedevelopedmarkets.Therearemorethan20,000postalcodesinthecountry,butonlyabout10,000areservicedbyexistinglogisticsproviders.Inadequateinfrastructureandthelackoforganizedurbanizationposeanenormouschallengetologisticsandtransportbusinessesoperatinginthecountry.

In2015,Indiaspentabout$302billion,or14.4%ofitsGDP,onlogisticsandtransportation,accordingtoASSOCHAM.Bycomparison,theaveragecostoflogisticsasapercentageofGDPindevelopedcountriesisabout8%.ASSOCHAMexpectsIndia’sspendingonlogisticstoincreaseto$307billionby2020.EuromonitorInternationalestimatesthatlogisticsaloneaccountedforasubstantial16%oftotalretailcostsinIndiain2015.InChina,logisticsaccountedfor10%oftotalretailcoststhatyear,andinWesternmarkets,theproportionwasmuchlower.

Figure2.LogisticsCostsasaPercentageofTotalRetailCostsintheLargestEconomiesandBRICNations,2015

Source:EuromonitorInternational

16%

11%10%

6% 6%

4%3% 3%

1%

India Russia China Brazil France UK Germany US Japan

Logisticsaloneaccountedforasubstantial,16%oftotalretailcostsinIndiain2015.

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Forfurthercontext,welookedatAmazon’sspendingonlogistics.WedonothavesimilarnumbersforprivatelyheldIndiane-commercefirms.

In2006,Amazon’snetspendingonshippingandlogisticswas$317million,whichequaledabout3%ofitsrevenuethatyear.Netspendingonlogisticsincludesthecompany’sspendingonshippingandlogisticsminusshippingchargesandPrimemembershipfeespaidbycustomers.

In2016,Amazon’snetshippingcostswereabout$7.19billion,whichwas5%ofitsrevenuethatyear.Asspendingonlogisticsrosesignificantlyoverthedecade,Amazoninvestedagreatdealinfulfillmentcentersandwarehousestobringalargeportionofitspost-orderoperationsin-house,thusallowingitgreatervisibilityintoandcontrolovertheprocessandcosts.Growingitsin-houselogisticsoperationstosupporttheriseinsalesalsohelpedAmazonachieveeconomiesofscaleandreduceitsper-unitcoststoship;third-partylogisticsfirmsmayprovidefewerconcessionsbasedonscale,thusmakingtheirservicesmoreexpensive.

Figure3.Amazon:NetShippingCosts(LeftAxis,USDMil.)andasaProportionofTotalRevenue(RightAxis,%)

Source:Statista/Amazon

Flipkart,India’slargeste-commercemarketplace,toldnewsreportersin2015thatthecompanywouldspendmorethan$500millionoverthenextfiveyearstoexpanditsnetworkofwarehousesandfulfillmentcentersinIndia.Aroundthesametime,Snapdealindicatedthatitwouldspendabout$200millionduringthatfiscalyeartoexpanditsdeliveryoperations.

Over2016,thesee-commerceplayersincurredenormouslossesthatledtothemimplementingmanycost-cuttingmeasures,includingdownsizingsomeoftheirdeliveryoperations.Withlogisticscoststakingupasubstantialportionofrevenues,manye-commerceplayers,includingFlipkart,Snapdeal,AmazonandBigBasket,alreadyuseoutsidespecialiststofulfillasignificantpartoftheirlogisticsoperations,whiletherestisfulfilledbytheirin-houseteams.

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7,190

3%

5%

0%

2%

4%

6%

0

2,000

4,000

6,000

8,000

2006 2016

NetShippingCosts %ofRevenue

Flipkarttoldnewsreportersin2015thatitwouldspendmorethan$500millionoverthenextfiveyearstoexpanditsnetworkofwarehousesandfulfillmentcentersinIndia.

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Below,weprofileselectedIndianlogisticsenablers.

DeliveryService:DelhiveryDelhiveryisIndia’sfirstlogisticsfirmtoconcentrateentirelyone-commercedeliveries.Unlikeothercourierdeliveryfirmsthatcatertobusinessesacrossvarioussectors,Delhivery’sfocushasallowedittocreatesolutionsspecificallytailoredtotheneedsofthee-commercesector,suchasITandback-officeinfrastructureforwebshops.

Source:Delhivery.com

Itsclientrosterspansabout950e-commercecompanies,includingmarketplacessuchasFlipkart,andthecompanyhasreceivedsome$127millioninfundingasofearly2017,withalargeportionofitcomingfromhedgefundmanagerTigerGlobalManagement.

Delhiveryexpectstoachieveabout$120millioninrevenuesfortheyearendingMarch31,2017,CEOSahilBaruatoldIndianfinancialnewspaperTheEconomicTimesinOctober2016.Thenewspaperclaimsthat65%oftheIndianonlinemarketplacedeliverysegmentiscontrolledbyAmazonTransportationServicesandFlipkart’slogisticsarm,Ekart.WhenBaruaspokewiththenewspaperin2016,hehintedatthepossibilityofDelhiverylaunchinganIPOsoon,butmorerecentreportssuggestthatthecompanyislookingfirsttoraiseabout$100millioninfunds,ledbyprivateequityfirmTheCarlyleGroupandChineseconglomerateFosun.

LogisticsSolutionPlatform:Locus.shLocusdevelopsalgorithmstoenableefficientdeliveryofe-commerceorders.WemetwithCEOandFounderNishithRastogitolearnmoreaboutLocusandhowitishelpingsomeofthelargestonlineretailersinIndiamovetheirgoodsfromwarehousetocustomer.

Thefirmwasestablishedin2015,afterRastogi’slocation-basedwomen’ssafetyapp,RideSafe,becameaninstantsuccessinIndia,andheidentifiedanopportunitytoadaptitfore-commercedeliveries.Rastogieventuallyfoundawaytoexpandtheappintoacomprehensivesuiteoflogistics

DelhiveryisIndia’sfirstlogisticsfirmtoconcentrateentirelyone-commercedeliveries.

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solutionsthatworkasanadd-ontodeliveryfleetmanagementsoftware,suchasthekindcreatedbyDelhiveryandothers.

Source:Locus.sh

Locushasreceived$3millioninfundingsofarandisbackedbyGrowXVentures,Beenext,BlumeVenturesandExfinityVenturePartners.

Locus’scoreapplicationhelpsdeliveryserviceprovidersidentifythebestroutesbasedonorderdeliveriesfortheday,takingintoaccounttraffic,terrain,neighborhoodandotherfactors.Asecondsolutionitrecentlyintroducedisa3Dpackingenginethatvisualizesandsuggeststhemostefficientwaytopackandplacemerchandiseinadeliveryvehiclebasedonthenatureanddimensionsoftheproductsandthetimeandvenueofdelivery.

RastoginotedthatdevelopingalgorithmsforefficientdeliveryinIndia,whereroadterrainandmappingarecomplexandunsophisticatedduetoalackofinfrastructure,isnotthebiggestchallenge.Hesaidthatabiggerdifficultyisthattheattitudetowarddeliveringontimeisgenerallycasualinthecountry,andthatchanginghumanbehaviortoensuremoretimelydeliverywillbechallenging.

LocushasbeeninspiredbyboththeworkcultureatAmazonanditsintensefocusonusingmetricstomakedata-backedbusinessdecisions,afocusthatmanyIndianstartupslack.RastogisaidthatthisisoneofthefactorsholdingbackprogressamongIndiane-commerceplayers.

CollectionService:SmartboxSmartboxisIndia’sfirstfirmtocreateautomatedlockersfromwhichshopperscancollecttheirordersafterkeyinginacode.TheseoperateinasimilarwaytoAmazonLockers,whichhavebeeninstalledatmanylocationsintheUSandEurope.Smartboxranapilottrialwith70terminalsinDelhiin2015,andthelockersprovedpopularamongshoppers.Thecompanynowhasplanstoinstallabout1,000terminalsacrosssomeofIndia’slargestcities,includingBangalore,Mumbai,Chennai,HyderabadandPune,byMarch2018.Theterminalsalsoallowshopperstopayfortheirorderswhentheycollectthem,insteadofrequiringthemtopayonlineinadvance.

LocushasbeeninspiredbyboththeworkcultureatAmazonanditsintensefocusonusingmetricstomakedata-backedbusinessdecisions,afocusthatmanyIndianstartupslack.

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Source:Smartbox.in

2.TechnologyThetechnologyfunctionbroadlyreferstotheinfrastructureandstaffneededtomaintainandrune-commercewebsitesandappssecurelyandeffectively.Asallfunctionsinabusinesstendtousetechnologyinsomeformorother,thereferencestotechnologyinthissectionspecificallyregardtheinfrastructureandapplicationsthataffecttherunningofwebsitesandapps;wearenotreferringtotechnologyusedforotherbusinessfunctionssuchashumanresourcemanagementorfinancialmanagement.

BasedontheapproximateportionoftotalcostsallocatedtotechnologyasoutlinedbyTechnopakAdvisorsandIBEF’sdataforaveragee-commercerevenuesinIndiain2015,weestimatethatonlineretailersspentsome$1.8billionontechnologyforrunningtheirwebsitesandappsin2015.

Below,weprofilesomeofthemanyfirmsinIndiathatareleveragingtraditionalandemergingtechnologytocreatesoftwareapplicationsthatenableorpromoteonlinesales.

VisualSearch,AugmentedReality(AR)andVirtualReality(VR):PrekshInnovationsPrekshInnovationscreatesARandVRsoftwaresolutionsforretailers’websites,Facebookpagesandmobileapps.Thesoftwarehelpsshoppersbrowseaphysicalretailstoreonlineandlookatproducts.ItisdevelopedontopofGoogleMaps’StreetViewfunction.

WemetwithoneofthefoundersofPreksh,M.A.Kodandarama,tounderstandhowIndiane-commerceretailersareusingemergingtechnologytoenablesales.ThecompanybeganasapartnerforGoogleStreetView,andmanagementrealizedthatthesametechnologycouldbeappliedinaretailcontext.

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Source:Preksh.com

Prekshwantedtobringalive,store-likeinteractiontoonlineconsumersandsocreatedasolutionthathelpsshoppersnavigatethroughaphysicalstore,online.Itallowsuserstoviewproductsthattheyareinterestedinandbuythemwiththeclickofabutton.Thecompanywasestablishedin2015andwaspartoftheTargetAcceleratorPrograminBangalore.Itstotalseedfundingisover$250,000,obtainedfromfounders,angelinvestorsandcompetitionprizemoneyfromtheAmritaTBIPitchfestinIndiaandK-StartupGrandChallengeinSouthKorea.

Preksh’suniquesellingpropositionisthatitssolutioneasilyintegrateswiththeclient’se-commerceorinventorymanagementsystemforaseamlessomnichannelcustomerexperience.The“StoreView”functionhelpskeepcustomersengagedbyallowingthemtobuyaproductthroughapop-upwindowonthesamepage,insteadofrequiringthemtonavigatetoadifferentpage.Competitors’solutionsthatprovideasimilarfunctiontendtoleadcustomerstoadifferentwebpageandfailtoprovidereal-timeprices,offersandavailability,Kodandaramasaid.Thismakesthepage“unfriendly”andcanresultinthecustomerabandoningtheshoppingjourney.WhatKodandaramadescribedisgenerallyreferredtoas“friction”intheshoppingjourney.InternetspeedsinIndiaarestillslowcomparedwiththeglobalaverage,andretainingthecustomer’sattentionischallengingwhenawebpageloadsslowly.Preksh’ssolutionkeepsthecustomerfocusedonthesamepage,negatingtheproblem.

AnotherchallengeinIndia,Kodandaramasaid,isthatretailersinthecountryprefertousesolutionsthathavebeentestedandprovensuccessful,ratherthanexploringsomethingnewandoriginal.Heindicatedthatthismindsethasinhibitedthegrowthofmanysoftwareproduct-basedstartupsandthatfirmsneedtotakecalculatedrisksandencourageinnovation,liketheTargetAcceleratordidwithPreksh.Doingsowillhelpretailersunderstandtheimplicationsofusingnewtechnologybetterand,thus,theywillbeabletoprovidedomain-specificexpertiseandfeedbackthatwillhelpstartupssuchasPrekshimproveandtailorservicestoretailers’needs.

PrekshInnovationscreatesARandVRsoftwaresolutionsforretailers’websites,Facebookpagesandmobileapps.

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E-CommerceManagement:UnicommerceUnicommerceisasoftwareapplicationthathelpssellersmanagetheirinventoryacrossmultiplemarketplaces.TheIndiane-commercesectorisdominatedbymarketplaces,whichmeansthesekindsofserviceshavealargepotentialmarket.

Source:Unicommerce.com

Unicommerce’ssoftwarehelpscompaniesconnecttheirwarehousefunctionswiththeironlinestoresandfacilitateseffectiveorderfulfillment.Asof2014,thecompanyhadreceivedabout$10millioninfundingfromTigerGlobalManagement.In2015,thefirmwasboughtbyJasperInfotech,theparentcompanyofmarketplaceSnapdeal.UnicommerceworkswithSnapdealandmanyotherbignamesinIndiane-commerce,includingMyntra,JabongandUrbanLadder.

Chat-BasedArtificialIntelligence(AI)Assistant:Niki.aiNiki.aiisachat-basedassistant,orchatbot,thathelpsshopperspurchaseproducts,bookcabs,orderfoodandtakecareofbankingneeds.Nikiwasestablishedin2015andisfundedbyrenownedindustrialistRatanTataandentrepreneurRonnieScrewvala.

Source:Niki.ai

Asof2014,Unicommercehadreceivedabout$10millioninfundingfromTigerGlobalManagement.

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Thefirm’scurrentfocusistodeveloptheassistantpurelyforconversationalcommerceandnotincludeproductivityfunctions,suchastheabilitytoscheduleappointmentsortypemessages,thattheAIassistantsfromGoogleandAppleoffer.StartupdataandanalysisfirmCrunchbaseindicatesthatthefirmhadraised$440,000indisclosedfundingasofDecember2016.

3.FintechFintechinIndiahasreceivedmuchattentionfromglobalplayersinthelastseveralyears.IndiantechnologynewswebsiteInc42reportsthatsome$1.77billionwaspouredintotheIndianfintechsectorthrough158dealsbetween2014and2016.Italsoestimatesthatthefundingreceivedin2015alonebyIndia’slargestfintechplayer,Paytm,accountedforfully38.5%ofthetotalfundingreceivedinthesectorbetween2014and2016.

E-commercemarketplacesFlipkart,SnapdealandAmazonhavealsomadeforaysintothedigitalpaymentsspaceinIndia.Flipkarthasitsownwallet,FlipkartMoney,andSnapdealboughtmobilepaymentappFreeCharge.AmazonrunsaservicecalledPaywithAmazon.However,noneofthesematchPaytm’spositioninIndia.

DigitalPayments:PaytmDigitalwalletproviderPaytmisthebiggestdisruptorsofarintheIndianpaymenttechmarket,whichwasworthsome$50billionin2016.Theburgeoningmarketisexpectedtogrowtenfold,to$500billion,in2020,accordingtoareportbyGoogleandtheBostonConsultingGroup.

Source:Paytm.com

Paytm’swalletserviceenablesconsumerstopayformobilephoneallowances,traveltickets,utilitybillsandgoodstheybuyonline.AttheIndiaDigitalSummitheldinFebruary2017,PaytmCEOVijayShekharSharmaannouncedthatPaytmwasonthepathtoachievingannualtransactionvolumeofnearly$10billionintheyearendingMarch31,2017.Attheconference,SharmaalsosaidthatPaytmrecorded8.5milliontransactions

Alibabacontrolsnearly60%ofPaytm’se-commercebusiness,PaytmMall,whichwasrecentlyspunoffintoaseparateentityfromtheparentfirmthatcreatedthedigitalwallet.

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everyday,whileIndia’sdailydebitandcreditcardtransactionscombinedtotalonlyabout10million.ThisindicatesthatPaytmcommandsasignificantproportionofthemarket.

Source:Antfin.com

AccordingtodatafromresearchandanalysisfirmsTracxnandCrunchbase,Paytmhadraisedalmost$935millioninfundingthrough2016.AlibabaGroup’sAntFinancial,thearmthatrunsmobilepaymentserviceAlipay,isoneofPaytm’slargestinvestors.In2015,Paytmexpandeditsofferingbylaunchingitsowne-commercemarketplace,whereuserscanbuyproductsacrossvariouscategoriesandbooktravelandentertainmentticketsonthesameplatformonwhichtheypaytheirbills.

Morerecently,Paytmspunoffitse-commercebusinessintoaseparateentitycalledPaytmMall,inwhichAlibabainvested$177millioninFebruary2017,inadditiontothe$200millionithadpreviouslyinvested.ThisinvestmentgaveAlibabaacontrollingstakeofnearly60%inPaytmMall.

TheIndiangovernment’scancellationofhigh-denominationnotes—whichconstitutednearly86%ofthecurrencyincirculation—inNovember2016provideddigitalwallets,particularlyPaytm,withasignificantboostintermsofusersandtransactions.Theremovaloflargebanknotesfromcirculationalsotriggeredamindsetfavorabletocashlessdigitaltransactions.Thetailwindsfromthedemonetization,combinedwithAlibaba’sstrongbacking,couldwellpushPaytm’sbrandtothetoppositionnotonlyinIndia’sdigitalpaymentssector,butalsoine-commerce,whichiscurrentlydominatedbyAmazonanddomesticfirmsFlipkartandSnapdeal.ContinuouslossesarepromptingFlipkartandSnapdealtodownsize,openingupopportunitiesforPaytm.

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Outlook:ChallengesandOpportunitiesforE-CommerceEnablersinIndiaThereareseveralchallengesthathaveabearingonthesuccessofe-commerceenablersinIndia,andthatislargelybecausetheenablersaredependentonthesuccessofe-commerceitself.First,largerplayersine-commerce,suchasAmazon,FlipkartandSnapdeal,usein-houseaffiliatesorsubsidiariestocreateorprovideanumberoftheseservices.Forinstance,FlipkarthasitsowndigitalwalletandAmazonoperatesitsownlogisticsanddeliveryarm.However,duetolossesincurredinthefiscalyearendedMarch31,2016,FlipkartandSnapdealhavebeendownsizingsignificantlyinordertocutcosts.Thisopensupopportunitiesfornicheorspecialistplayerstostepinandfulfillthosefunctionsasthee-commerceplayerslookforeconomicalalternatives.

Second,apartfromthelargeplayers,thereisroomformanymidsizeandnewenablers,giventhepaceofgrowthofboththeeconomyandthemobileandInternetuserbase.Thiswillprovidefurtherroomfornewerenablerstoentertheecosystemandmayresultinlessverticalintegrationamongretailers.

Whilehavingspecialistenablersentailsshiftingparticularbusinessfunctionstooutsideparties,someretailersmayseektoexercisegreatercontrolovertheiroperationsandcostsbyusingin-houseresources.E-commerceisstillinanascentstageinIndiacomparedwithglobalmarketsandeventhelargestdomesticonlineretailersdonotpossessthescalethatinternationalgiantsAmazonandAlibabado.UntilIndianonlineretailplayersgrowlargeenoughtojustifybringinglogistics,technologyanddigitalpaymentscompletelyin-house,e-commerceenablershaveenormouspotentialtocapitalizeonthesectorasitgrows.

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April7,2017


DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comSwaroopraniMuralidharResearchAssistant

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