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Amazon Strengthens Presence in India, Gets Wallet License

Zacks Equity Research

Amazon.com Inc. AMZN has reportedly obtained a pre-paid instrument (PPI) or wallet license in India that allows it to offer the one-click payment option, which is otherwise not permitted by the country’s law.

Amazon now is one of the 84 companies that the Reserve Bank of India permits to operate payment licenses.  The license has been given particularly to Amazon Online Distribution Services Private Limited.

Notably, the license was granted on Mar 22 but it came to light yesterday just after local player Flipkart received a whopping $1.4 billion funding from eBay EBAY, Microsoft Corp. MSFT and China's Tencent Holdings Ltd.

We note that Amazon’s shares appreciated 45.7% in the last one year compared with the Zacks Internet Commerce industry’s gain of 39.4%. International expansion is expected to back the momentum going ahead.

Frictionless One-click Payment Option

In online payment, the Indian law permits the two-factor authentication system (card details and CVV plus one-time password are sent to registered mobile phones or password on a bank payment gateway). The process is a bit complex and causes payment errors and delay.

The wallet system however offers a smooth payment experience. Money can be added to the wallet following the two-factor authentication system and used for future purchases without repeating the authentication process.

The wallet system allows Amazon not only ensure that money is spent only on it but also to streamline cash back, refunds and incentives payment processes that are used to attract users to Amazon Pay.

In India, Amazon, to date, has powered its gift card wallet business through Qwikcilver’s wallet license, a start-up in which it invested $10 million in 2014. The wallet license along with Amazon Pay may reduce its dependency in Qwikcilver.

Amazon.com, Inc. Revenue (TTM)

Amazon.com, Inc. Revenue (TTM) | Amazon.com, Inc. Quote

India Expansion Plans in Focus

Amazon’s e-commerce marketplace is currently operational in India and faces tough competition from local players such as Flipkart and Snapdeal. The company looks geared up to take advantage of the ongoing e-commerce boom in India along with growing adoption of smartphones. It has pumped $5 billion in to its Indian operations.

The focus has shifted to India given intensifying competition from Alibaba BABA and slowing e-commerce growth in China. Recently, Alibaba made an attempt to strengthen its footprint in India by investing $177 million in Paytm E-Commerce. The increasing involvement reflects Amazon’s intent to expand its brand visibility in India.

We believe that if Amazon could repeat its domestic success in India, it will give it an edge over locals as well as global players such as Alibaba and eBay who are increasingly vying for a significant share of this booming market place.

Currently, Amazon has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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