The author Anshuman Gandhi, Brand Manager, UCWeb India (part of Alibaba Group), comes from an advertising/communications background. Currently, he is responsible for brand and communications at Alibaba Group.
‘Buy through this XYZ digital wallet and get Rs. 50 cashback on every ticket booked!’
I recently got this email from PVR Cinemas which most of us do. I usually receive it a few times a week and it keeps me informed about the latest movies. Near the bottom are the various offers which now are dominated by mobile wallets. All of them are vying for your attention and begging to pay part of the ticket price, on your behalf. And all I have to do is make the transaction through them.
The mobile wallet space in India, just like this email has seen a density of brands in the market, offering mobile wallet services, soar. Now we have a never-ending list of apps that offer me discounts, cashback, vouchers and coupon codes. Digital wallets or mobile wallets started with mobile recharges but have now moved up the value chain and provide a whole host of other services like, shopping, paying for food and cabs and even booking a new home.
Currently, the RBI (Reserve Bank of India) regulation stipulates a fund transfer limit of INR 10,000 (US$149.1) for a non-verified user and INR 100,000 (US$1,491) for a verified user.
Payments bank licenses are only granted if the companies meet certain conditions stipulated by the RBI, such as a minimum paid up capital of INR 100 crores (US$14,917,040). There can be a partnership between the vendor and a commercial bank. All in all, 11 licenses were granted by August 2015.
So, now we have unlimited options when it comes to who to choose and why. Let’s talk about a few of them. We have seen mobile wallets segregated by revenue or funding, but there are other ways to categorise the players in the market.
There are three types of mobile wallets. There are some which are either owned or backed by banks, since mobile wallets as a financial service have a pretty direct plug-in to their existing infrastructure. Then, there are the telecom companies who want a piece of this pie as well, with every player in the market having their own product to offer. And then, there are the independent players with whom the industry started, but might not be there till the end.
Telecom-operated mobile wallets
Basically, every major telecom service provider in India has a mobile wallet as part of its product portfolio. Since one of the initial services offered by mobile wallets was mobile recharges, it was an expected development.
Airtel, which was one of the first movers in the market, had tried a joint venture with the State Bank of India (SBI), way back in 2011. It got the payments bank license from the RBI in August 2015 and started Airtel Money in a joint venture with Kotak Mahindra Bank. Reliance Jio was also granted a license with SBI. Idea Cellular also got its license for Idea Money with partner Axis Bank. Vodafone has M-Pesa which is a major player in the market, along with TATA Docomo that has mRupee.
It makes sense for telecom players to be involved in mobile wallet and payment solutions. This is yet another value-add and can be a differentiator for the offerings presented by each player. This is a rather successful move towards creating a self-sufficient ecosystem. It would definitely help in improving customer loyalty as well as ARPU (average revenue per user).
Wallets by banks
For financial institutions and banks, it is a natural transition to adapt their services to the changing needs of their customers. Most major banks in the Indian market are either buying into or developing mobile wallets for their customers. We have ICICI Bank launching ICICI Pockets in February 2015, HDFC with Chillr, LIME and PingPay by Axis Bank and one of the late entrants, SBI launched State Bank Buddy on August 18.
Banks have seen various cycles in which they had to completely overhaul their business model and investment plans based on the changing needs of their users.
The first cycle saw the increase in the number of bank branches in the country. It was a time where there was direct contact between the customer and the bank. The second cycle saw the growth of ATMs to reduce capital investments and increase reach in a cost-effective manner. The third saw the Internet banking infrastructure being developed along with mobile apps, which complimented the changing user behaviour, leading to a massive reduction in capital investments.
And now, we are in the fourth cycle where the whole banking infrastructure has now moved to mobile with direct interaction between the seller, the buyer and the bank. Also, there is an additional option of recharging your mobile wallets by depositing cash at local kirana (grocery in Hindi) stores and have the money transferred to the wallet.
Through this enhanced data availability, upselling and cross-selling based on improved targetting can be turned into a major contributor to increasing revenue. Add a few third-party members and you have alternate revenue streams. This has a major additional advantage for the banks — a more comprehensive user personality will now be created with new data points available on the users’ spending habits.
This is where things get really interesting. We have mobile wallets like Ruplee which is bootstrapping right now and Paytm which has raised massive investments. Others, like FreeCharge, have been acquired.
However, there are plenty of up-comers in the market. Recently Paytm and Oxigen wallet spent millions of dollars in marketing campaigns along with MobiKwik, which ceased its marketing activities somewhere before Diwali. We should not forget one of the very early players was Nokia, which started Nokia Money and laid the groundwork and led the fight to improve the state of mobile wallets.
Fintech startups have seen the most activity in recent months. Most of the obvious business models like e-commerce, cabs, food delivery etc. were the first ones to see numerous players. These industries are in the consolidation phase now with many players like Groupon, a daily deals site exiting and TinyOwl laying off staff and shrinking operations, leaving the field open for mobile wallets to start levelling up.
Paytm is the exclusive wallet service for RoomsTonite, the exclusive payment platform for Uber and even pay for Metro rides and already claims to have crossed the 100 million user base, whereas MobiKwik is the wallet of choice for IRCTC tickets, Big Bazaar and even loans.
Mobile wallets in India
The mobile wallet market in India has huge potential and is growing at an incredible rate with great strides made in changing user behaviour and habits while improving trust and faith in the product. However, the players and the industry as a whole are facing major issues.
- User verification or KYC (Know Your Customer) which is a huge headache for every player in the market.
- Infrastructure issues such as lack of connectivity which causes payments being stuck and lost due to a crappy mobile network.
- Merchant education and integration of payments systems which is a huge challenge due to lack of consistency in the software used.
- User behaviour is, and will remain, a major barrier with dependence on cash rather than a wallet.
- Government policy is a major issue in India in almost every industry and it’s the same with mobile wallets as well.
- And last, but not the least, is when the user does not have a bank account.
The saying “When the going get’s tough, the tough get going” applies in this case too.
We have Paytm creating KYC centres along with investing in a network of agents who can do the KYC verification for them. M-Pesa has 95,000 agents across the country to educate and enroll users. MobiKwik sends agents for verification to your doorstep as well. Some players are also working on integrating Aadhar data in their structure.
For modifying user behaviour, ease of use and also to deal with those who do not have bank accounts, there are players who collect cash from your doorstep but also provide cash collection services at the local kirana stores such as M-Pesa and Paytm. To deal with infrastructure issues, the mobile wallet players have optimised their apps to such an extent, that the apps manage to run even on EDGE networks (remember those blue Reliance phones?). SBI is even making its app operable with feature phones.
Paytm said, “We wish to tie up with organised retail partners, your local kirana shops and create app-cash points. So these merchants will accept Paytm payments, but also give you top-ups and in some cases do the eKYC as well. The idea is to drive up our offline merchant payment points as well. We plan to have 50,000 of these by the end of the year,”
It will be rather interesting to see who will survive this consolidation phase. The problem will arise when funding runs out and all these mobile wallets will have to depend on their own profits to finance further expansion and achieve scale. Currently, the players are subsidising the user while burning VC cash with the whole industry hoping that they reach critical mass before running out of funds and then move to the next stage of improving revenue per user.
We have our fingers crossed for the future but for now, let’s order food at half the price, enjoy free movie tickets, hail cheap cabs and get cashback on utility bills.
This article first appeared on the author’s blog.
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