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Google challenges Apple in India with credit card alternative

With China's technology wall getting higher, the two most valuable U.S. companies—Apple and Alphabet—are counting on speedier growth in the world's second-most populated country.

Apple said last week that iPhone sales in India surged 56 percent from a year earlier, even as those in Greater China dropped and global revenue fell for the first time in 13 years. Now Google, whose core business is blocked in China, has signed its first carrier billing deal in India, allowing smartphone users to buy apps, digital books and games and have the items charged to their phone bill.

Android users who are customers of India's Idea Cellular can purchase apps without a credit card or bank account. It's a big deal for Google, because India's smartphone population is expanding by 20 percent a year, while only about 2 percent of residents have payment cards, according to MasterCard.

"Despite the fact that they are downloading lots of apps and using smartphones, many don't have readily available methods of payment like credit cards," said Kunal Soni, Google Play's head of business development in India. Also, this "opens up new possibilities for Indian developers to create great content that can be used both locally and globally."

Soni said messaging apps, social platforms, digital shopping, games, entertainment and utility apps are all popular in India.

Idea is working with Bango, a U.K.-based provider of carrier billing software, to handle the integration, according to sources familiar with the matter, who asked not to be named because the relationship hasn't been disclosed. A Bango spokesperson didn't immediately respond to a request for comment.

India is fertile ground for Apple and Google. The number of smartphone users climbed 36 percent in 2015 to 167.9 million, according to eMarketer, and the figure is expected to top 200 million this year and 300 million by 2019. Other companies to offer carrier billing in India include Facebook, music streaming service Saavn and Microsoft's Windows store.

India smartphone growth

Year Smartphone users (mlns) % of mobile phone users
2014 123.3 21.2
2015 167.9 26.3
2016 204.1 29.8
2017 243.8 33.4
2018 279.2 36
2019 317.1 39
Source: eMarketer

In terms of mobile, Android is the dominant operating system in India, as in much of the world, with Apple limited to 2 percent of the market, according to Counterpoint Technology Market Research. But Apple is making a concerted effort to build its user base and is even reportedly getting closer to opening stores there.

The two companies are utilizing very different tactics to make money. For Apple, it's still about selling devices, while Google is focused on the apps.

Google, whose CEO Sundar Pichai was born in India, now has carrier deals with over 100 carriers in 41 markets. Apple has been much slower to adopt carrier billing, having only introduced the service in Germany and Russia, both in the past seven months.

Their differing strategies reflect the demographics they serve. IPhones cost $500 or more in India while Android has phones from manufacturers like Alcatel and Huawei that are priced below $150.

"Apple is targeting a wealthier audience than Google, which is going after a more mid-range group of consumers," said Patrick Moorhead, founder and principal analyst at Moor Insights & Strategy.

With carrier billing, the phone company replaces the credit card provider and charges a fee per transaction. Historically, those fees have been much higher than cards, sometimes as high as 40 or 50 percent. But in recent years, the carriers have started taking advantage of the revenue opportunities, bringing fees into the single digits to lure sellers of digital content.

Idea Cellular is India's third-biggest carrier, and Google is hoping to forge relationships with additional partners, said Jamie Rosenberg, the head of Google Play. He declined to provide financial terms of the deal.

Rosenberg traveled to India last year and said he met with a group of five developers at one of Google's offices. The unanimous request among the developers was for Google to help with payments, making it easier for consumers to buy digital goods and to lower the minimum price of transactions.

In July, Google started allowing purchases of as little as 15 cents, down from 99 cents, and a month earlier introduced gift cards for Google Play to let consumers convert cash to digital currency.

"If a developer builds an app, they need to achieve a return on that investment," said Rosenberg. "As you improve opportunities for commerce, that fuels further innovation for the developer community on Android."

Google has seen this work in other markets. In Indonesia, for example, Rosenberg said Google has signed up with several carriers in the past 18 months, and over that time has seen the number of buyers on the Play Store quadruple. Results are also encouraging in Turkey and Saudi Arabia, he said.

"This is another step in a very deliberate and focused progression on our part to build a large global payments network," Rosenberg said. "We recognize that in many parts of the world, consumers' preferred way to pay might be different than a credit card."

Clarifies to remove reference to music, which isn't available through Google Play in India.