Mobile Wallets Adoption in India — — A tech solution against illegal money

“Innovation is the change that unlocks new value” — Jamie Notter

August 15, 1947, India receives it’s freedom from the chains of the British rule. Shri Jawahar Lal Nehru, the Prime Minister of free India raises the Indian Flag at the Red Fort and marks the day as the day of free will, free thinking and strong spirit in the arena of knowledge, life and peace.

India celebrated it’s Independence for the 70th time on August 15, 2016 and rejoiced about how far we have come from the days of shackles. India now goes toe to toe with the world in the field of innovation, knowledge and technology.

Over the years we did face several challenges, like every great civilization faces, one of them being the challenge of becoming a cashless economy. Misuse of hard cash resulted in several exchanges of black money which led to the fueling of terrorism, trafficking of drugs, dueling of economy, etc.

Black Money rise Y-O-Y

The new generation of India now needed to make a quantum leap in technology, so as to solve a grave threat.

With an exponential increase in the usage of mobile phones, real world problems also saw some solutions coming in.

Over the years, the world has seen a significant rise in the usage of Mobile Phones, with Android, ios and windows leading the market of powering the intricately built mini computing devices makes sky the only limit.

Global Shipment of mobile phones over the years

Mobile phones are not only present in almost all the hands of the urban world, but also the rural areas of India where people are now advancing towards the road of technology.

This allowed for the advent of Mobile Wallets.

Now, what is a Mobile wallet and how does it help India become a cashless economy and solve the plague of illegal economy?

A mobile wallet is a way to carry your credit card or debit card information in a digital form on your mobile device. Instead of using your physical plastic card or cash to make purchases, you can pay with your smartphone, tablet, or smartwatch.

How do mobile wallets work ?

1. Download the mobile wallet app (or it may be already built into your mobile device).

2. Add your credit card or debit card information to the mobile wallet.

3. When you check out at participating merchants, access the mobile wallet and choose your card. If you’re making an in-store purchase, just hold your mobile device at the terminal.

4. There can be several modes of payment using the mobile wallet.

Types of wallets:
 There are four types of mobile wallets available in India — open, semi-open, semi-closed and closed.

Open wallets are the ones that allow you to buy goods and services, withdraw cash at ATMs or banks and transfer funds. These services can only be jointly launched with a bank. M-Pesa by Vodafone and ICICI is one such example. Apart from the usual merchant payments, it also allows you to send money to any mobile number bank account.

Airtel Money is a semi-open wallet, which allows you to transact with merchants that have a contract with Airtel. You can’t withdraw cash or get it back. You’ll have to spend what you load.

Then, there are closed accounts, which are quite popular with e-commerce companies, where a certain amount of money is locked with the merchant in case of a cancellation or return of the order or gift cards.

Lastly, there are semi-closed wallets like PayTM, which do not permit cash withdrawal or redemption but allow you to buy goods and services at listed merchants and perform financial services at listed locations.

So, what’s the adoption like? Are Mobile wallets adopted by the masses?

To understand this, let’s understand the dynamics of product adoption life-cycle and the various stakeholders involved in sending the product right up the charts.

The product adoption life-cycle is a sociological model that describes the adoption or acceptance of a new product or innovation, per the demographic and psychological characteristics of defined adopter groups. The process of adoption over time is typically illustrated as a classical normal distribution or “bell curve”. 
 — Wikipedia

Product Adoption Life-cycle

Innovators attributes to 2.5 % of the total market. They are the first users for Mobile wallets in India. For Mobile wallets, the innovator’s segment consists of the tech-savvy segment of internet users between the age group of 17–35 years and are ready to spend their money through digital payments. Most of the users in innovator segment live in Metro cities.

Early Adopters attributes to 13.5 % of the total users. This segment act as the product evangelist for other segments and therefore are considered most important to determine the usability and sustainability of product in the market. For mobile wallets, this segment consists of mostly the internet friendly users such as students, engineers, business men etc. residing in the metro and tier 1 cities.

Early Majority category attributes to 34 % of the market share. This category of users are those who usually take some inspiration from the early adopters and are somewhat late (but still in time before the product becomes outdated) to adopt a product. Although post -demonetization and amidst internet revolution the mobile wallet seems to have already crossed the Chasm, the Product adoption by the early majority is still in its early stages in India. This can be attributed to the fact that majority of Indian population lives in rural areas where internet connectivity, as well as awareness of such products, is still low.

Late Majority is a set of users who adopt the product once it is has become a proven success. This segment consists of people who seek early adopters and the early majority for feedback and are skeptical about the product. With respect to mobile wallets, the Metro cities may have few users who can be contributed to this segment, but considering pan India, the mobile wallets have not reached this stage.

Laggards consist of people who are usually averse to adopting new products. These people adopt new products when products have been matured enough in the market or have become a must have product. These users typically wait for discount deals and offer to buy the product. The mobile wallets industry in India is very far from this stage in product adoption life-cycle.

So, where do mobile wallets lie on the curve?

More than 70 % of the Indian population resides in the rural area.

Issues such as unavailability of smartphones, and low internet connectivity have hampered the growth of digital payments in the country. Within the population of 1.3 billion, India has an estimated 500 million mobile internet users but many are still reluctant to transact online.

However, after the demonetization move by the Indian Government that forced many people to opt for the cashless transactions, the Mobile wallets have shown tremendous growth in the country. As per Economic Times report, PayTM one of the first Indian Mobile Wallets company have reached 200 million users in February 2017. The Indian Government has also introduced mobile wallet called BHIM to encourage the population to use digital payments tool.

Considering the Indian demographic and physiological characteristics of Indian Population, we can assume the adoption of Mobile wallets in India is between the early adopters and early majority stages.

What have been the concrete challenges in the adoption of mobile wallets?

Here’s what the challenges look like.

Psychological Challenges

Most of the Indian people are in habit to pay in cash. The concept of mobile wallets is still very naive to the rural population of the country. Many merchants also like to do transactions in cash for everyday needs, since paying in cash seems to be more satisfying due to long running traditions and paper money culture. The daily wagers and poor merchants still need to paid in cash. The farmers and small town business owners are still averse to the concept of cashless economy.

Literacy related challenges

India’s literacy rate is still at 74.04%. With more than one fourth of the population being illiterate more than half of the population faces difficulty in using smartphone and internet devices. This also creates a major roadblock for mobile wallet use in the country.

Internet coverage

“Over 93% of people in rural India have not done any digital transactions. So, the real potential lies there.”
- Praveen Dhabhai, COO, Payworld

One of the primary reasons for this is the limited internet connectivity in the rural areas of the country. Non-availability and high prices of smartphones also contribute to the challenges in the path of mobile wallet usage in those areas.

Security

“We have that slight risk of data exported to China about consumer spending and behavior by Paytm if China exerts pressure or threatens to pull out.”
— Advocate Prashant Mali, Cyber Law & Security Expert

With the increasing demand of seamless transactions and making apps more user-friendly, the security has become a major challenge for Mobile wallets company. A number cases pertaining to mobile wallet account hacks and to the loss of money during electronic transfer has come to picture with the increased use of cashless transfers.

Customer Retention

Post demonetization as the paper currency has started to become easily people many people have switched back to their daily habits of using cash for daily transactions.

Initially, the mobile wallets company have spent large amounts of funding to lure customers by providing attractive discounts and offers. However, in the long spending funds to retain customers may create huge losses for Mobile wallets company.

How can we work upon the challenges?

Well, factors may be:

Affordable Smart Phones and the Internet

With the availability of low-cost internet and cheaper handsets, mobile internet is easily accessible to the middle class segment that contributes to major part of the Indian population. Thus, the usage of mobile wallets has started to become more popular among Indian people.

Security
Most of the people do not like to carry the huge sum of money with cash due to fear of theft. For such masses, the mobile wallets are a real boon. Mobile wallets provide a hassle-free and secure method to carry and transfer the huge amount of money from one person to another. It also reduces the fear of swiping credit cards for all transactions and hides the sensitive bank data from being exposed the merchant’s site or establishment; further leading to the reduced probability of unwanted financial happenings.

Government Policies
 The Indian government has also introduced multiple schemes to encourage the use of cashless payment in India. The introduction of cashless transactions from railways to Highway tolls and launching apps such as BHIM and UPI, the government is working aggressively towards the goal of cashless economy. The RBI has approved ‘payments bank’ license for many Mobile Wallets including Paytm and has also raised the usage limit to Rs 20,000 for accounts without KYC and Rs 1,00,000 for accounts with KYC

Attractive offers
Many attractive offers have also been introduced by both governments as well as mobile wallets company to lure more and more customers. From discounts at petrol pumps by the government to attractive cash back offers by mobile wallets companies, mobile wallets users are getting decent offers on most of the mobile payments.

Demonetization move by the Indian government

The sudden demonetization of 1000 and 500 currency notes by Indian Government has made a huge shortage of paper currency in the country for a while. Thus many people and merchants switched to mobile wallets and other cashless transaction methods for everyday transactions.

As per the live mint report on the after effects of demonetization on PayTM, India’s largest mobile wallet company, Paytm has touched a record five million transactions a day (on Friday and Saturday, each) and is on the way to process over Rs. 24,000 crore (by March 2017), more than any other payment network in the country.

Since November 9th, the company claims to have registered a 700% increase in overall traffic on the platform and 1000% growth in the value of money added to Paytm accounts. In addition, the average transaction value has increased by 200% and the number of mobile app downloads by 300%.”

Are there alternatives to mobile wallets?

Including Mobile wallets, the Indian government site http://cashlessindia.gov.in lists the following 10 modes of digital payments available in the country.

Cashless mode of payments

Modes of Digital Payments:

Banking cards also known as the plastic cash is the most popular mode of transaction in the country. The banking cards such as debit and credit cards are in existence for a long while now in urban areas and are acceptable at most of the purchase counters as well as for online transactions.
As per RBI, currently, more than 29 million debit cards and 570 million debit cards are in use in India. Thus, the adoption rate of Banking cards is much higher than the mobile wallets as of now.

Internet Banking has also become very common among the urban population. People readily use inter-banking banking to make online transfers. Since the internet banking services are provided directly by the Banks to their account holders, some people consider it more safe means of online transaction. However, due to the complex process and high-speed internet requirements, the adoption of Internet banking is less famous than the mobile wallets.

Okay, so how do mobile wallets fair against other cashless mode of payments?

With Mobiles becoming the biggest catalyst to drive the mobile wallets technology, it has seen significant rise over the span of few years. The day is not far away when mobile wallets shall be the major driver of economy.

Can we solve the problem of illegal or black money using mobile wallets?

Yes, ofcourse. When we look at the global adoption of mobile wallet technology, the numbers are on the rise. With the adoption if this technology, the government no longer needs to track the cash involved in illegal transactions. If all the payments are made using the mobile wallets one day, the government can track all the transactions which would eventually lead to a leaner taxation system and in turn lead to a more developed nation.

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