Mobile Wallet adoption in India

Introduction:

Mobile wallets in India are a means to conveniently pay online. They allow users to open an account, associate that wallet account with a phone number and email address, load money into the wallet and most importantly store credit card/debit card numbers safely. According to Indian regulations, all online payments need to have a two factor authentication or a two step authentication. For example, if you were to book a ticket or reserve a table in a restaurant and are being asked to pay online — you’d have to enter the debit card number which is a whopping 16 digits followed by the CVV number — step 1, followed by another password — step 2. However wallets are a convenient way to store this card number (excluding the CVV ). Hence the one time effort of storing such card details has to be made but for all subsequent transactions, just select the saved card, enter the CVV, followed by the password. That too only in case your wallet is not loaded already. Examples of such wallets are Paytm, Freecharge, Mobikwik, Ola Money and the upcoming Amazon Pay wallet. Apart from this, wallets typically also tie up with electricity boards, water boards, etc. in order to make payments for such recurring expenses convenient and add more value to its users.This is an attempt at looking the adoption rate of such wallets.

  • Where does it lie in product adoption curve?

The product adoption curve is a model that describes the acceptance of a new product or an innovation according to the demographics and psychological characteristics of the adopters [1]. The adoption curve conventionally has the following groups of adopters:

Source: realcomm.com
  1. Innovators: ~2.5%
  2. Early adopters: ~13.5% [Cumulatively 16%]
  3. Early majority: ~34% [Cumulatively 50%]
  4. Late majority: ~34%
  5. Laggards: ~16%

To estimate the stage of adoption of mobile wallets, we first look at the no. of smartphones in India since they’re needed to set-up accounts in wallets and transact. While Paytm did release a feature recently that enabled feature phone users to transact, for opening account and loading the wallet, users would still have to login to their Paytm account. Similarly SBI buddy has started a java app that can be used by feature phone users. This also is a very recent initiative and the product adoption via feature phone is likely just beginning. Hence, we are primarily looking only at the smartphone users as the target segment. The no. of users with a feature phone and a PC with internet access who may also use wallets is going to be insignificant compared to the wallet users with a smart phone. The smartphone userbase in India as of April 2017 is about 300 million [2]. The top 3 wallets in terms of no. of downloads are Paytm, Freecharge and Mobikwik. The no. of installs Paytm app for Android is in the rage of 50 to 100 million. For Freecharge and Mobikwik, it’s in the range of 10–50 million. [3,4,5.]So on an average, the total no. of installs is around 125 million for Android. Given that IOS penetration in India is at 5% [6], the no. of installs of such wallets in IOS are around 6.25 million. A major chunk of this is from the urban population and the tendency of this segment is to own multiple devices over their lifetime. Hence one user may have installed multiple times over multiple devices. Assuming that on an average one user owns 1.5 devices (averages can be fractional), we are looking at (125+6.25)/1.5=87.5 million. So the overall penetration of mobile wallets is 100*(87.5/300) = 29.1%. Looking at the classification above, this means the adoption is past early adopters stage but hasn’t quite reached the early majority yet since it’s below the 50% mark.

  • Profiles of adopters:

Innovators and Early Adoptors: In the wallet space, this group consists of the urban population, specifically users in tier 1 cities who are repeat online shoppers. At a very early stage, these users must have found value in using wallets which could store their debit card/credit card numbers and making it easier to transact.

Early majority: A major chunk of this user base would have adopted post demonetisation which turned out to be a opportunity for wallet companies to drive adoption past the chasm. Such users, both urban and rural were the ones who had to adopt the wallet as there was no other alternative to pay during the cash crunch. Paytm was the the largest beneficiary during this time. Before demonetisation, the last part of early adopters and a small portion of the early majority would have come in to avail the discounts and cashback offers — by Paytm, Freecharge & Mobikwik

  • Factors and challenges which affected the rate of mobile wallet adoption

a.) The internet penetration in India ranges from 3–28% only [7]. This is the biggest impediment that’s limiting wallet adoption. While it’s expected that this will be somewhat mitigated by Jio 4G, it’s yet to be seen if it will significantly increase internet penetration and adoption in the rural areas. Further, rural areas in which 70% of our population reside have extremely low smartphone adoption ( unlike mobile phone adoption). The mobile sites of wallets are very limiting and do not have a great experience

b.) Lack of awareness: Despite the deep discounting, marketing efforts and ads, there are security concerns that still prevail in the minds of users. [8,9 , 10]. Users may feel very concerned about storing their credit card numbers in this regard. This is expected of Indian users-such concerns in the security of online payments partly compelled e-commerce players and cab aggregating apps to provide a pay by cash option for Indian users.

  • Growth and product adoption comparison with other payment methods

a.) In FY 2016, the total m-wallet transactions was 0.6 billion, and it’s expected to reach 260 Billion by FY 2022, growing at a CAGR of 163% [8]

b.) Online, shopping, payment of utility bills and buying movie tickets have emerged as the three top things that a user primarily interacts with.The no. of wallet users is 3x the no. of credit cards issued in the country [10].In terms of volumes the wallet transactions are expected to grow at a much higher rate as compared to credit and debit card transactions. This is especially keeping in mind the fact that Government has introduced biometric payments linked to Aadhar — this is obviously the most convenient form of payment. Thus debit card and credit card growth is anticipated to decrease due to this disruptive form of payment. However it is worth keeping in mind that there is a daily limit in the transaction of wallets and the average ticket size for wallets is about INR 620 while mobile banking transactions have an average value of INR 10,400 [10]

Growth hacks used:

Different wallets have used different growth hacks. The top 3 players have introduced ability to pay utility bills and this is one of the largest used use-case along with mobile recharges. To encourage adoption for utility bill payments, they have offered various cashback schemes

a.) Paytm has used various cashback offers that encourage user to come back to the app and transact again in collaboration with several online merchants, example: Foodpanda

b.) Freecharge had referral schemes that rewarded both the referrer and the person to whom it was referred. They were also one of the first few who tied up with brands for offline payments and offered discount incentives to use them.

c.) Mobikwik also had cashback offers. One unique point about such offers from Mobikwik was that the cashback would be a percentage of every third or second payment. The idea was that this would encourage repeat transactions even further.

Summary

Wallets are yet to completely reach the early majority adoption phase. They are however growing at a promising rate. They will continue to be preferred for micro payments — such as utility bill payments and movie ticket purchases, bookings, etc. To increase adoption even further wallets need to find a way of communicating how secure and safe they can be as this is one of the biggest factors that’s impending even the early majority to adopt it. Other ways include product innovation — for example, after the government has introduced bio-metric payments it’s possible to conceive payments via smartphone in which the only authentication required is a fingerprint scan — this drastically increases the convenience of using such wallets. Whether regulations will allow this is something that needs to be looked at.

References:

[1]: https://en.wikipedia.org/wiki/Technology_adoption_life_cycle

[2]: http://economictimes.indiatimes.com/tech/hardware/indias-smartphone-user-base-topped-300-million-in-2016/articleshow/56759056.cms

[3]: https://play.google.com/store/apps/details?id=net.one97.paytm&hl=en

[4]: https://play.google.com/store/apps/details?id=com.freecharge.android&hl=en

[5]: https://play.google.com/store/apps/details?id=com.mobikwik_new&hl=en

[6]: http://candytech.in/ios-vs-android-share-in-india-and-us/

[7]: http://www.thehindu.com/business/how-many-indians-have-internet/article17668272.ece

[8]: http://www.assocham.org/upload/docs/M-Wallet_Report_press.pdf

[9]: http://www.bvimsr.com/documents/publication/2016V8N1/10.pdf

[10]: http://image-src.bcg.com/BCG_COM/BCG-Google%20Digital%20Payments%202020-July%202016_tcm21-39245.pdf

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