Three PayPal learnings for India ?

Author : Sanjay Bhargava

Source : From LinkedIn Archives

Date first published : February 16th , 2018

India is improving its ecosystem for innovation. WhatsApp was allowed to do instant payments even though this could disrupt providers such as Pay TM. RBI (Reserve Bank of India) had constituted a working group in July 2016 on Fin Tech and Digital Banking which published a report in November 2017 and has invited comments and suggestions by February 28, 2018. In 1991, India ended licensing Raj. In 2018, if disruptive innovators feel that India is encouraging disruptive innovation, then I have little doubt that India will be a 5 Trillion economy by 2022 and that Indians will be prosperous with no abject poverty. RBI wanted suggestions and I wrote this article to suggest that they and the rest of the Indian ecosystem, including government, bureaucracy and the judiciary, could see if any of the learnings from PayPal are useful.

“All four legs of the ecosystem in India regulators, government, bureaucracy and judiciary have to support disruptive innovators. I am very optimistic this will happen.”

What were the learnings from PayPal. Read on to find out …

X.com launched on December 7, 1999. X.com acquired Confinity in March of 2000 and the combined company was renamed PayPal. PayPal has become a $100 Billion market cap company and helped millions for many reasons. One of the key reasons is the ecosystem in USA which helps create many companies like PayPal.

In December 1999, Elon Musk got a call from the office of Roger Ferguson, Vice Chair of the Federal Reserve (In India this would be the #2 person in RBI — senior most Deputy Governor) wanting to meet him on his visit to San Francisco. We were all surprised that X.com was even on the radar of the Federal Reserve. Elon was not that well known in 1999 and X.com has just launched. By January 2000 X.com had 250000 accounts but this was well before that. Elon took me along for the meeting which lasted fifteen minutes and concluded with Roger saying “You cannot quote me but it is wonderful that you are trying to positively disrupt payments. You will face many hurdles but remember that you have a friend in Washington”. It is now over fifteen years so I hope Roger/Elon will forgive me for describing the meeting, but I am only doing this to give an example of a progressive ecosystem. The key learnings that India could use are

#1 — Find disruptive innovators and encourage them

Elon and I were surprised that Roger knew about X.com and had himself opened an account and moved money. A unit staffed by youngsters in the Fed had alerted Roger and he had not asked for a report but had taken action himself. India should set up these units and heads should be proactive and visit disruptive innovators. Roger made it easy for Elon to meet him and did not summon him to Washington. Roger did not help X.com in particular but the whole class of payment disruptors. In India there is a great worry that if a grey eminence visits a lowly startup the grey eminence may be getting kickbacks or trying to spotlight the startup they visited. Media may run stories like “India wants to know … “ . In USA I think grey eminences consider this part of the job and I hope that becomes the case in India. In 2006 I was Chairman of a company Eko ( it still exists) . I stepped down in 2007 as I found the ecosystem at that time very tough. The CEO from 2006 till now , Abhishek Sinha, was made of sterner stuff and Eko was visited by Bill Gates, Sheila Blair, Timothy Geithner. Thomas Friedman wrote about Eko. Wall Street Journal interviewed me. No minister, No RBI Governor, No UIDAI chief ( who was a classmate) visited or encouraged Eko and I do not blame any of them. It was not the culture to do that. This culture change may take time to achieve but I hope it will happen in 2018 as without that it is hard to achieve the 5 trillion GDP figure in 2022. ( I think the governments wants 5 trillion by 2025) .I see many positive signs and am hugely encouraged.

#2 — Let the baby grow

As PayPal grew banks,Visa , MasterCard and others put pressure on the regulators to force PayPal to get licensed. The regulators (maybe encouraged by Roger) told them that they knew their job and to go and compete. Just before its IPO, PayPal was licensed as a money transmitter in 48 states. If it had to do that at the beginning PayPal would have died.

#3 — Do not let incumbents block

Visa/MasterCard tried to block PayPal as it was innovating and using cards to fund PayPal accounts. If they were allowed to stop Paypal using cards, PayPal would have died. eBay had a competing payment service Bill Point . The initial beached for PayPal was power users on eBay. If eBay could block PayPal then PayPal would have probably died or would haven taken much longer to be successful.