Amazon is aligning itself with Indian retail operator Future Retail (AMZN)

This is an excerpt from a story delivered exclusively to Business Insider Intelligence Payments & Commerce subscribers. To receive the full story plus other insights each morning, click here.
The Seattle-based e-tailer has acquired a 49% share of Future Coupons, which handles digital payments for Indian retail operator Future Retail, per The Wall Street Journal.

Future Coupons is "developing innovative value-added payment products and solutions such as corporate gift cards, loyalty cards, and reward cards primarily for corporate and institutional customers," an Amazon spokesperson told TechCrunch, but the acquisition may serve as a stepping stone to a greater investment in Future Retail.

The deal gives Amazon around half of Future Coupons’ 7.3% stake in Future Retail and, after three years, the opportunity to acquire part or all of the share currently owned by Future Retail’s founding family, which is worth over 40% of the company. Future Retail is likely an appealing investment for Amazon as it operates over 2,000 stores, including hypermarkets and supermarkets, in more than 400 cities in India.

Here’s what it means: Investing in Future Retail enables Amazon to work with its brick-and-mortar network, which could help it boost its performance in India.

The deal will reportedly see Amazon sell Future Retail’s brands on its marketplace and use its stores for grocery deliveries. Adding brands familiar to Indian consumers to its marketplace could convince some shoppers to come to Amazon for the first time. And utilizing Future Retail’s sprawling brick-and-mortar network for grocery delivery could speed up the delivery times of Amazon’s offerings, potentially attracting new users.
Building a stronger brick-and-mortar connection could help Amazon build Indian consumers’ trust in e-commerce, allowing the e-tailer to capitalize on the market’s potential. Just 25% of Indian internet users had purchased a product online in the previous three months according to a 2018 report from Bain & Company, Google, and Omidyar Network. Even if e-commerce has grown more popular in the past year in India, internet users’ top reasons for not shopping online — a lack of trust and no opportunity to touch and feel products — likely remain. To alleviate some of these concerns, Amazon could offer buy online, pickup in-store (BOPIS) services at Future Retail locations. This could encourage customer loyalty and enable Amazon to capture more of the Indian e-commerce market, which is projected to surge from $38.5 billion in 2017 to $200 billion in 2026.

The bigger picture: The Indian government’s rules regarding companies with foreign investment complicate the future of this investment.

India’s federal direct investment regulations restrict the actions foreign companies can take in the country, likely limiting what actions Amazon can take with Future Retail. The regulations impact firms’ abilities to sell products through other companies they own, which could be a problem for Amazon as it adds a stake in Future Retail.

Once the initial three years have passed, Amazon has a seven-year window to acquire a significant share of Future Retail, and it may be hoping to wait out these regulations before pushing forward with Future Retail.

Interested in getting the full story? Here are three ways to get access:

Sign up for Payments & Commerce Pro, Business Insider Intelligence’s expert product suite keeping you up-to-date on the people, technologies, trends, and companies shaping the future of consumerism, delivered to your inbox 6x a week. >> Get Started
Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to the Payments & Commerce Briefing, plus more than 250 other expertly researched reports. As an added bonus, you’ll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >>Learn More Now
Current subscribers can read the full briefing here.