Mobile Wallets in India
Mobile wallet is a digital wallet that allows users to make payments through smartphones and other smart devices. In India’s context this wallet market can be classified into two separate streams, one belonging to the regular wallets (viz Paytm, Mobikwik) and the other with bank offerings (viz Payzapp, Pockets). Its market in India is surging on account of growing online transactions, rising trend towards mobile banking, and ease of usage of mobile wallet applications. Let’s take a look at what has led to the adoption of mobile wallets and dig deep into the consumer personas.
When it comes to adapting the mobile technology, the Indian user has leapfrogged from landline based phones with an extremely low penetration rate among the masses to mobiles which are ubiquitous. A similar pattern has repeated with users adopting the mobile wallet making it easier to avail cashless transactions. Today an estimated 20 crore wallet users routinely transact across the different Wallet platforms. Considering the total population of India as 130 crores this is definitely looking as the innovators and early adopters as far as whole of India is concerned. If we zoom-in based on Tier 1/2/3 cities, the perception may shift to early majority with increase in internet bandwidth and availability.
The product itself has morphed from websites for mobile recharge and other bill desk payments to that of an app based business model with market place and other money transfer services available.
Let us now consider certain basic factors for a guesstimate analysis which will shed light on the business model and the current state of the industry. We will also need to make assumptions on what factors to compare the growth with and an absolute measure
- For a comparative analysis let’s compare wallets to that of plastic cards
- Total sales business through Wallets as Rs. 20,500 crore for 2016, this includes POS sales and peer-to-peer transfer is not considered, total wallet account as 20 crore and actual users at 50% of wallet accounts, as 10 crore
- We will need to focus on the age group 20–50 across Tier 1/2/3 cities, rural areas can be ignored for this purpose — Total Available Market (TAM) as 42 crore of population base, mobile ownership as 95% with an 50/50 split between Tier 1 & 2 cities
- And a few basic statistics for plastic cards for Oct’16
- Consider three distinct categories of business needs for wallets as Prepaid recharge (50% of users/50% of users), bill payments and marketplace (30% of users/10% of users) and cab payments (10% of users/5% of users) for Tier 1/2, we get the following numbers
- Total sales number as a result are Rs 24,000 crore which is of the same order of magnitude of Rs 20,500 crore for wallets
This now lets us deduce interesting facts on where the Wallet industry lies
- A single month of sales from plastic cards (Oct’16) dwarfs the annual business for Wallets, which means Wallets has a long way to go as far as getting business online is considered
- Number of plastic card users which stands at 77 crore also is significantly higher than the number of wallet users at 10 crore
- Number of transactions at 10 crore is at a lower end compared to that of plastic cards
- Customer awareness — Today there are a total of 20 crore wallets in usage. With more than one wallet with a user the total number of users comes out as 10 crore. This is about 25% of TAM (as 42 crore). This means that the consumer awareness about wallets is still on the lower end and it needs to catch-up in Tier 1/2 cities.
- End-reach — Urban areas with good availability of internet it is fairly easy for both the users and merchants to install a free app than install a costly swipe machine. In this regard, wallets again trump credit/debit card for small value transactions and are fulfilling an essential need of the customer and merchants alike
- Transactional volumes — Today wallets combined are reporting up to 70 lacs transactions on a busy Saturday. This is again an indicator of the rapid growth of the ecosystem and acceptance with the customer in availing these services
With this we can deduce the industry to be entering its growth phase with another large set of rural customers (50 crore) that are yet to be brought on the platform.
The number of wallet users (25% of TAM in Tier 1 & 2) also means that this industry is past the Chasm and the Early Majority has embraced the product for bill payments, cab payments, and as a marketplace for their needs.
Let us now analyze the various customer profiles in detail.
Innovators & Early Adopters (the first 16%) — The typical definition of this group has been a rapid adopters of new products in the market and this holds true for the mobile wallets as well. The early wallets in 2010 started as mobile recharge service for prepaid accounts gaining immense traction among the urban youth with their deep discounts.
Their main users were on Android based phones which was a free OS released by Google. The users were college going kids (age group 18–22), working professionals who were looking for ways to save on the call cost or with people looking to pay for the various utility bills without having to visit a government office with their busy life-styles (age group 22–25). The discretionary spends of this group was minimal and they were always on the look-out to save costs. They typically belonged to Tier-1/2 cities and had access to internet. The various wallets, notably Paytm, saw this as an opportunity for introducing its services and expanding its base while keeping its advertisement spends to a minimum. The wallets did it while discounting/adding to the prepaid recharge and introducing cash-back facilities on bill payments. This got them the loyal following of innovators & early adopters who had little to lose and much to gain from the deep discounts handed out to them. The transactional value per deal was small in the range of few hundred rupees and was immediately transferred as their recharge amount, thus carrying very little risk of losing the money in the digital trail. The app ecosystem also grew from providing mobile recharge to that of bill payments help desk and now constitutes of a fully functional eCommerce store fronts for some of the Wallets, like Paytm.
Early majority (the first 34%, crossing the Chasm)
The maturing of the ecosystem from just a prepaid recharge site to either a loyalty rewards program, an eCommerce storefront or both have led to the second wave of users adopting the wallets. As with the definition, these users were expecting a whole range of features and a mature platform to deliver additional services. This has led to a peer-to-peer money transfer services being rolled out from the wallets and is being rapidly consumed by the users.
- People with better internet connectivity are coming online to these sites and are participating in the deals they have to offer. Paytm, for one, reported Gross Merchandise Value of Rs. 2000 crore for Jul’16 from its market place services.
- The merchandising community has also enthusiastically accepted the cashless payment system and are utilising it for their daily requirements. Some of the wallets have kept zero transaction/transfer fee for merchants irrespective of any transaction limits thus promoting rapid adoption among the merchant class.
Comparison with other digital payment methods
Credit/Debit cards, internet banking and mobile wallets form the trio of the new lines of payments available to the consumer class. Of these, we can focus on Credit/Debit cards as the other convenient way to pay for routine, small merchandise transactions. Following is a graphical representation of the number and value of transactions between the two options:
The growth of credit and debit cards has been insignificant: in November 2016, Indians had 2.70 crore credit cards and 7.6 crore debit cards, with a month-on-month growth rate of only 1.7% and 2.2% respectively. On the other hand, during the same period, mobile wallets numbered 20 crore, with a 9.5% month-on-month growth rate, and poised to grow to 65 crore by 2020.
Paytm is the most popular mobile payment app among Android smartphone owners in urban India, research from Nielsen reveals, with 39% of users with an internet connection making use of the service for an average duration of 70 minutes a month. Freecharge is the second most popular service with 26% reach and 40 minutes of usage per month. Mobikwik (17% reach and 29 minutes) is the next most popular service followed by My Airtel (10% and 18 minutes), Oxigen Wallet (7% and 17 minutes), My Vodafone (6% and 17 minutes), Paytm Wallet (5% and 14 minutes) and Pockets by ICICI (4% and 23 minutes).
We can now look through some of the factors that contribute to the wallets growth in comparison to credit/debit cards
Transaction charges & Maintenance fee — Paytm has decided not to charge any transaction charges for merchandise transactions made on its wallet app. There will be charges on transferring the money to a bank account for a merchant though. This has already made it one of the most popular wallets with consumer and merchants alike and today boasts of having 2,000,000 merchants on-boarded to its platform. Other wallets, like Mobikwik (3%), have transaction charges that are in line with various credit cards fee but higher than a debit card fee (0.75%-1%). There is also no annual maintenance fee associated with a wallet which makes it very attractive for consumers who just want to complete the financial transaction without any further obligations.
Bureaucracy of Banks — Time is often lost in applying for a credit card, and worse a debit card requires an active account with the bank. Further, there is no guarantee of approval for a credit card application. In absence of a credit score from CRISIL or other similar agencies an application may even be rejected without looking through other factors. Wallets offer a convenient way out as a means of prepaid accounts which can be charged and used on the go.
Technology shifts — Merchants have to install pricey swipe machines for routing transactions and this adds to the over-all cost for an average salesman. These machines have evolved from swiping a card, to PIN based card transactions and now contact-less cards. With each technology shift the merchant ends up bearing the cost of the new machines. A wallet on the other hand offers convenience with no added capital or operating cost for hardware.
App discounts and Cashback program — In-app promotion is a killer way to promote any flash sale which is not available to a credit/debit card. The wallets have been offering heavy cashback for the first time users and routine offers for the regular users for keeping them engaged. They have, in a way, built a loyalty program for the users and some are as good as any offered by a credit card. The cashback can range anywhere from the usual 2% to more than 100% for certain deals and is a way to keep the customer engaged on the wallet platform.
Consumer behaviour — All wallets offer convenience of storing the QR code or the mobile number for repeat payments. This is currently not a feature with plastic cards where each transaction has to be approved from the issuer bank and adds to the wait time.
Factors and challenges affecting product adoption
Most of the popular wallets were launched in 2010 as a means for prepaid mobile recharge for the users. Below is the result of a survey conducted by Nielsen on retention of mobile wallets post installation and first purchase.
Cash is King (Substitute available) — It seems that the real challenge in Tier 2/3 cities may be the older habit of using cash for account receivables and payable. An estimated 12–13% of GDP of India deals in cash based transactions. A user simply cannot make a cashless transaction if she keeps getting paid in cash. The extra run to the bank to deposit money is currently not an option for many and they continue to pay in cash.
User discomfort and Smartphone reach (Technology) — Users in Tier 3 and rural areas are still not conversant with smartphones and for many operating a feature phone is quite a task. Add to that the promotion/discount coupons to be used for availing cash backs and suddenly this seems way out of the comfort zone for many users. The over-all penetration of smartphone is about 24 crore users in India. Though a big number the actual number of smartphones in Tier 3 and villages is far less and can be pegged currently at 5 crore.
Micro-credit schemes in rural areas (Socio-economic) — Credit can be availed from your preferred shopkeeper as long as regular payments are made in cash. This is a common scenario across the hinterland for purchase of regular groceries and other smaller items and will continue to bind significant portion of laggards until wallets have an alternative available.
Internet availability (Technology) — This is a prominent concern for a rapid adoption of wallets in Tier 3 cities and rural areas. Some of the wallets, like Mobikwik, are moving towards SMS as an option but this may defeat the purpose by making it even more cumbersome than paying through cash.
Customer loyalty (Buyer power) — This is still an area where the users tend to use the wallet on a hot deal and then disappear from the radar. The wallet ecosystem as a whole is growing but loyalty to individual wallets is still low.
According to a study, only 30% of users were actively using a wallet post the first deal after a period of 3 months. The most popular mobile payment apps in terms of time spent are those that provide services over and above pure payment like mobile recharging, ability to book movie tickets, shopping etc.
Investor funding (Economic) — Most of the wallets today have expanded their base by offering heavy discounts to the user. Paytm, for example, is yet to turn black and show real profits to its investors. This constant drain on the wallets can lead to some of these going out of business and adds to the general anxiety of the consumers when it comes to committing for a long-term relationship.
KYC adoption — Per RBI mandate, wallet transactions are limited to Rs. 20,000 for consumers and Rs. 50,000 for the merchants. In order to increase the transaction and recharge amount, wallets have introduced features for KYC for the consumers/merchants alike. This would mean that they could now transact at far higher limits than the RBI mandate. Purchases such as a large size LED TV, expensive smartphones, and other high end electronic/consumer gadgets could come within reach of mobile wallets business.
Plug-in APIs and other Wallet options — Paytm offers custom APIs which can be plugged-in to an eCommerce site for routing payments. This can be done at a workflow level which has the added benefit of fast check-out from a user perspective. They also have their unique Pay with Paytm button which can be integrated with a popular product offering on a site, increasing completion of the user check-out journey.
Payments Bank — Airtel is the first payments bank in India. Paytm applied soon after and is approved as well. With the UPI based authentication gaining traction, most of the wallets are feeling the heat of being just a prepaid instrument and some have already begun the journey of regularising the back-end business. Having a customer bank account associated with the wallet also means greater access to the funds, bigger transaction value and a lesser dependence on promoter cash.
Payment gateway — PayU money has become one of the leading players in the payments gateway business. This is another way for some of the wallets to expand their user base.
SMS processing for low/no internet — Mobikwik & Paytm have introduced recharge services over SMS. Other wallets may have just started experimenting with SMS in order to gain traction with villages where a reliable internet is still a dream.
Multi-lingual support — Both Mobikwik & Paytm have launched their app in regional languages to attract and win over Tier 2/3 city users. Currently Mobikwik support English, Hindi, Gujarati, Bengali, Oriya, Punjabi, Tamil and Telugu while Paytm had launched 10 regional languages such as Hindi, Tamil, Telugu, Gujarati, Marathi, Bengali, Kannada, Malayalam, Oriya and Punjabi, on its interface for Android smartphone users.
According to estimates the m-wallet business is expected to reach Rs. 275,000 crore from the current Rs. 20,600 crore by 2022. Following is a graphical representation of the wallet journey though these years and the addendum to the ecosystem on their growth path.
As far as challenges are concerned, cash still rules the Indian psyche and internet connectivity is a big hurdle to be crossed. UPI based payment methods have forced some of these wallets to start moving towards Payments Bank and the Bank based wallets are now competing with regular wallets, thus adding laggards to their user list. Consolidation in the industry cannot be ruled out as many players exist and a continued reliance on investors’ cash may not make for a sustainable model.
Nevertheless, the wallets are expected to maintain a loyalty program and incorporate more users in their flow by introducing low bandwidth services. At this point, micro-credit offerings may be on the anvil for Tier 3 and rural users. Over-all it remains an interesting space to watch with the battle set to intensify between the regular wallets, bank wallets and the plastic issuers in India.
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