Is Google late to the Soundbox party? Or maybe not!

Hello Reader,

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Today we’ll talk about Google’s latest white-labelled sound box called ‘Soundpod by Google Pay’, which will be available soon in the Indian market, designed by Tone Tag. And all the other soundboxes available in the market, how it increases security and trust and helps to prevent fraud.

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Tech giant Google is reportedly piloting a white labeled sound box ‘Soundpod by Google Pay’ in the Indian market, which is designed by Tone Tag. Both Walmart-owned PhonePe and BharatPe launched their soundboxes last year.

Soundbox boosts security and trust by announcing payments received in the account, preventing fraud. First to this market Paytm claims to have distributed more than 5.8 million devices to date, with 1 million soundboxes each in its last two quarters only. Its soundbox devices processed 5 billion transactions in FY 2022 which accounts for the company’s 38% net payment revenue (according to CLSA report). Last November, PhonePe said it deployed 1 million payment speakers across the country.

Fintech companies charge low monthly rental from merchants, but incur a maintenance cost of Rs 25 per unit for the SIM card. In addition, there will be some back-end costs apart from the capex cost of physical devices. Paytm charges an average rental of Rs 75 per month, while PhonePe charges Rs 49 per month. Sometimes they also give the device for free to many sellers to get them onboard. All in all it is a loss making proposition.

Why is Google entering this space?

Fintech players have realised that the ultimate goal is B2B lending for profits. However, traditional underwriting methods make it expensive to enter the small ticket unsecured MSME/MSE loans market.

Underwriting on UPI transaction data/device data can provide cheaper credit, i.e., cash flow based lending in deeper parts of India. It also solves collections with EDI(equated daily instalments) via virtual account setups with merchant’s auto-debit consents for repayment adjustments.

If Google provides these ‘SoundPods’ (as they call it) for zero upfront fees and minimum rental, it can scale up merchants' onboarding really fast. Soundbox has already helped Paytm scale up its merchant lending. Paytm's disbursals of merchant loans grew 178% YoY to Rs 565 crore in Q1'22, with an average loan size of Rs 1.3-1.5 lakh and tenure of 12-14 months. However, being a listed company Paytm must show early profits and a recent report from Macquarie estimates a hit of Rs 400 crore in revenues and Rs 500 crore on EBITDA if rentals on all sound devices for merchants were made zero

On the other hand PhonePe and Google Pay can continue cash burn to distribute soundbox to new merchants (even for free) to be able to ultimately lend them. This could be a clash of the titans with both PhonePe and Google Pay willing to be the loss leaders as long as they can achieve flow based lending.

Google’s model of how it will differentiate the game to retain merchants is yet to be revealed.

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