Enter the Fruitful Indian Market Without a Local Entity

India is an upcoming wonderland for e-commerce and general future prospects. After China, it holds the world’s second largest population; 1.3 billion, and the second largest smartphone market. The smartphone market alone is currently witnessing a 16% growth and will ultimately lead to half a billion smartphones in the coming four years. There are 130 million online shoppers, which for a matter of perspective is half the population of the United States. In light of such unstoppable trends, the e-commerce market size is expected to reach a whopping $188 billion by 2025.

Demonetisation and the uptake in digitised payment methods

On the 8th of November 2016, Prime Minister Narendra Modi delegalized the 500 and 1000-rupee notes overnight with the primary aim to eliminate shadow economies and to curb counterfeit cash circulating the economy. Initially, an action of such radical nature reaped havoc in this cash-dependant country, with masses flocking to deposit their money before it lost value over night.

Although a large part of the population views this as life-changing, nevertheless, it has had a fruitful impact on the growth of digital transactions which saw a ground-breaking 300% year-on-year growth in 2017. The government has supplemented its action with several innovative solutions such as:

  • ‘Pradhan Mantri Jan Dhan Yojana’ scheme which runs on the basis to empower the largely underbanked population of India with access to a zero-balance bank account. Such an account provides accidental insurance of up to Rs. 1 lakh, life cover, as well as a RuPay card by default.
  • RuPay is the local competitor of Visa and Mastercard which is linked to all national banks.
  • Unified Payment Interface (UPI), also known as the Bharat Interface for Money (BHIM), which is a single mobile application that works like an e-wallet while integrating multiple banks on the one platform. Transactions using this method have increased 770-fold since its launch in 2016. This is a greatly incentivising phenomenon for digitised payments, especially in Tier one and two cities, and is slowing but surely seeping into Tier 3 as well.
  • Aadhar is a banking service setup on biometrics, using fingerprints and pupil recognition as well as ID card numbers.
  • State-of-the-art simplified credit solutions are a largely upcoming phenomenon when shopping online, making it a highly smooth process. PayU offers such solutions for both low and high-ticket items. LazyPay is a fast and effective way to purchase day-to-day items by deferring payments till a later stage. On the other hand, PayU Monedo is a solution for higher ticket items that may simply be carried out without the possession of a credit card.

Further supplementation of the demonetisation

Based on government’s support of digitalisation, the number of bank accounts have risen by 220 million since demonetisation. RuPay itself adds 2 million users to its base on a monthly basis. Digitised payments have seen an overall increase of 20% and are expected to see a massive growth in the near future. A quarter of all bill payments are being carried out using digital means as well. The entire educational sector is collecting its fees through non-cash payment methods.

In order to support such growth tendencies and compliment the surge in smartphone usage, Bharat Net has initiated a widespread rollout of high speed broadband internet in Tier one and Tier two cities. Such rapidly expanding coverage provides both existing and potential online shoppers with a solid foundation for a friction-less e-commerce experience. Even Google and Facebook are striving for the entire Indian population to be on the internet by establishing a wider reach of internet provision. Facebook is engaged in tying up with ISPs in different cities while Google is providing its own services in locations like railway stations. Google’s shorter-term plan is to work towards having 650 million users by 2020.

Market challenges

The Indian market, although a gleaming gem in the e-commerce sphere, still poses several challenges for international merchants trying to enter the market. The most commonly faced hurdles are the following:

  • Digitised payments have risen immensely in the span of a year and a half, nevertheless, cash still remains king. For perspective, only 31 million people out of 1.3 billion own a credit card.
  • Of existing traditional and the above-mentioned payment methods, 85% of such are not enabled for cross-border transactions.
  • The new GST (Goods and Services Tax) regulations passed on the 1st of July 2017 have classified the income tax brackets between 5% and 28%. Therefore, assigning an appropriate tax bracket to the specified company may be a hurdle.
  • International merchants are required to establish a local entity to enter the Indian market and may encounter the following challenges:

 

  • Setting up a local entity can take an average of two months.
  • Large amounts of compliance and approval requirements are necessary between the company in consideration and the Ministry of Corporate Affairs.
  • Income tax department requires an application with a Permanent Account Number (PAN).

PayU’s solution

PayU’s solid leading position and local footprint grants international merchants with the ability to offer all locally preferred payment methods. With such a localized service, merchants have instant access to the entire Indian population without the need to setup a local entity. Read the Fact Sheet on India to find out about the requirements and benefits your business can gain through PayU’s expertise.

Get in touch with us to start operating in India without setting up a legal entity.