21/07/2016 3:30 PM IST | Updated 21/07/2016 8:16 PM IST

Why Flipkart Is Building A ₹670 Crore Digital Payments Business

It's betting on a changing habit

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On the surface, Flipkart's ₹670 crore investment in the e-payments space appears a tad late in a market overcrowded with digital payment providers such as Paytm, Mobikwik and FreeCharge.

But India's leading e-commerce player, Flipkart, is placing a huge bet on a cashless future for the Indian economy -- at least the urban economy which is seeing a rise in mobile shopping as smartphones become more affordable and internet access cheaper.

The ET reported that Flipkart plans to invest about Rs 670 crores to build out a separate digital business over the next three years. The business will be led by PhonePe, a payments startup provider Flipkart bought earlier this year, which it plans to commercialize shortly. PhonePe will also use the the new "Unified Payments Interface," a platform launched by the Reserve Bank of India recently that will let users make instant bank transfers using their phones without the need of credit cards or netbanking accounts, which typically require lengthy beneficiary details.

Flipkart CEO Binny Bansal has called the move a "long-term strategic bet" and believes that PhonePe might even overtake Flipkart. Flipkart is hoping its e-payment platform will be lapped up its customers as well as those of its brands such as Myntra. The ET report said the service could even expand to Kirana stores.

The digital payments space holds a ton of promise for payment providers as customer habits evolve to using smartphones as digital wallets. Other e-commerce players that are leading in this space include Paytm, Amazon's India e-payments platform Emvantage, which also applied for an e-wallet licence, Snapdeal's Freeharge, as well as Mobikwik.

Research provider PwC predicts by 2019, about 800 million people in India will have access to e-payment platforms, and the adoption of e-payments is set to soar with the advent of Aadhaar. According to PwC estimates, mobile banking transactions tripled between 2012 and 2014, reaching 150 million in 2014.

However, the mobile payments space is not without its challenges. Convenience and customer loyalty is a challenge that makes customers uninstall these apps. A focus on security, simple interfaces can help app makers overcome those challenges, according to research by Nielsen Informate Mobile Insights.

The Nielsen research also showed that mobile payment apps are 1.2 times more popular among men than women. According to the report, men are also twice as engaged as women on these apps.

With the government's endless quest to tame black money in the economy, and Reserve Bank of India's drive to encourage payments banks and favorable fin-tech industry regulation, Flipkart's foray may end up with a decent payoff.