Madhuwanti Saha

Where is the ‘digital gold’ rush headed?

What will it take for gold to become as common as groceries in the world of e-commerce?

In India, buying gold has traditionally been an elaborate family affair, with all kinds of meanings and emotions attached to the process. Of late, though, gold has become the latest addition to the e-commerce universe. When it comes to buying gold, can India really pivot from offline to online to a degree that will make the category viable in the long-term?

According to a MoneyControl report, titled 'Digital gold becomes new war zone for PhonePe, Google, Paytm, and Amazon in India', customers from over 18,500 pin codes, mainly small towns and cities, have bought gold on PhonePe. This has helped the Walmart-backed app to gain 35 per cent market share in the category, making it the largest platform last November.

Other digital payment platforms offering digital gold, besides PhonePe, Paytm, Amazon Pay and Google Pay, include MobiKwik and Axis Bank-owned Freecharge.

Terence Lucien
Terence Lucien

Terence Lucien, head of mutual funds and gold, PhonePe, tells afaqs!, "Over the last 3.5 years, millions of customers from almost 99 per cent of India's pin codes have already paid for their gold purchases through PhonePe. With the (COVID) pandemic and lockdowns, more customers prefer to buy gold digitally, and have the physical coins and bars delivered to their homes.”

This has made the timing of the brand’s recent high-decibel advertising campaign (with Bollywood star Aamir Khan), across TV, print and digital, just right.

What role does advertising play?

What does the 'gold e-commerce' segment need to highlight as the selling point in its ads? Safety and security? What about the theft angle? As of now, the convenience and cashback carrot seems to be firmly in place. Perhaps, fintech apps that sell gold, can highlight freedom from the offline purchase cycle, in the COVID era.

Lending his views on the communication gaps this segment needs to plug, Bobby Pawar, chief creative officer, Havas Group, says, “Generally, people tend not to buy high-ticket items online, except for outliers. There is authenticity involved, even when you are buying one 'tola' gold coin for investment. I think they (UPI transaction apps) need far more than advertising.”

Bobby Pawar
Bobby Pawar

He goes on to explain, “It's about building credibility, telling your story about buying gold, and explaining the certification process when you aren't a jeweller. That needs to be put out there. You have to go beyond humour and look at the mindset of those who are investing. In my opinion, a certain amount of gravitas would help. So, you have to work a bit harder, especially when your equity is on the back of your payment platform, where your core competence lies.”

Nivedita Agashe, creative director, BBH India, says, “The big communication points have to be purity, trust and competent pricing. Maybe, highlighting cashback helps. The nature of the category makes everything else, like the comfort (of getting it delivered to the doorstep) and ease of online payment, secondary. People see it as a valuable asset and an investment.”

Nivedita Agashe
Nivedita Agashe

In her view, brands should emphasise on the authentication process - who gives the certification, what's the process for gold to be declared pure? “Human touch helps,” says Agashe, adding, “With more exposure, buying gold online could become commonplace. Fundamentally, the idea of investing in gold is not new. It's just about shifting the mindset to a more digital world, contrary to buying it offline (from a local jeweller).”

Category perspective

Where is this segment headed? In 12-24 months, will buying gold online become as common as buying groceries online? And, what does this segment need to do to become a viable sub-category within e-commerce? What product-level investments should brands in the space focus on?

Shishir Mankad
Shishir Mankad

Shishir Mankad, managing partner, Praxis Global Alliance, a consulting and advisory services firm, opines, “Given our well-documented penchant for buying gold and the sheer convenience of online gold, this segment is very likely to see growth in the coming years. Further, the markup charged by the e-commerce players (and their partners at the backend) is transparent and finer than that at a local jewellery shop. The only dent in demand, if at all, could come if gold prices fall sharply and then remain low for a sustained period.”

For an e-commerce player to deliver a digital gold product, incremental costs are not very significant, Mankad points out, adding, “Therefore, it is a good way to cross-sell to the existing customer base. At this point, e-commerce players can be segmented into two types of platforms offering digital gold: the online brokers/digital investment distribution platforms and the large digital/UPI payment players.”

The first segment, argues Mankad, positions digital gold as an investment avenue, in addition to mutual funds or stocks. The second one may want to think of this as an additional monetisation opportunity, to start with. “And, as they try and make their journey towards becoming super apps, they will start to position it as a financial product.”

There is probably room for both, given the sheer scale of opportunity and the large user base these platforms boast, Mankad feels.

“Cashbacks, or discounts may work as a customer acquisition strategy. But ultimately, there must be a clear value proposition, whether it's convenience, safety/security or investment strategy. The good thing about this product is that the revenues are built into the margins charged. The customer does not pay any additional transaction charges, significantly reducing users' resistance to try out the product.”

Nitin Misra
Nitin Misra

Giving his perspective about the segment (digital gold) and its prospects, Nitin Misra, co-founder, indiagold, a gold loan and locker service company founded last January, says, “One of the biggest downsides of digital gold, as an investment instrument, is the three per cent GST levied on it. Then, there is the (somewhere between) 2.9 and three per cent margin split between UPI apps, like PhonePe, and digital gold providers at the backend, like SafeGold,. When you are buying digital gold worth Rs 100, you are already down six per cent.”

Misra, formerly a Paytm and Samsung hand, however, adds, “But it's an excellent instrument for the gig economy or blue-collar workers. It's as easy to buy as a mobile recharge, and as easy to sell as sending a WhatsApp message. It's the only digital gold, or what we called a ‘paper gold’ product, that gives you the credibility to convert it into physical form, should you want it.”

“From an investment perspective, you get the flexibility and freedom to accumulate gold over time, contrary to physical gold. But as income increases and people's knowledge about financial products improves over time, they will move from digital gold to more mature investments. But someone (else) will take their place. Hence, digital gold will continue to find its niche.”

This means, people running low on funds can invest small amounts in digital gold – as low as Rs 100, or even Rs 10 – every month and convert it to physical gold after it reaches a certain threshold. This gold is then home delivered via e-commerce channels, of course.

Cover image: Google Pay

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