The Fight for your ‘m’ — Wallet

Here is an example of something that did not catch on in the developed world but has recently seen stunning growth in the developing countries. Google Wallet and Pay Pal have been around for some time now, but have not seen the kind of growth that some of the players in the Indian market are seeing. Even with the launch of Apple Pay, adoption is still a challenge in the west as this Gallup report shows.

The factors that are in favor for adoption of payment systems or mobile wallets (mWallets) in India are

  1. Large number of smart phone users
  2. Relatively low penetration of financial services (there are more people with a smart phone than with a bank account and even lesser have a credit card)
  3. Growth in eCommerce
  4. The thrust of the government for financial inclusion and recent RBI activity relating to payment banks

Thanks to the larger eCommerce players, Indians are increasing getting comfortable with shopping online. The underlying cost to these eCommerce players for getting the users comfortable with buying online was the cost of providing Cash on Delivery (CoD). CoD based on various reports is a loss making proposition for the eCommerce companies. Enter the mWallet. Now they have a credible alternative to CoD and hence their support for and a rush of start-ups who provide mWallets

As with all businesses that are driven by network effects, the faster you seed both sides of the market, the better positioned you are to grab a large market share and make it difficult for a new comer to displace you. Today there are a dozen or so payment platform providers in India (Paytm, MobiKwik, Oxigen, Citrus, PayUMoney, Vodafone m-pesa and Airtel money are a few that come to mind immediately.) Each has tie-ups with different kinds of merchants. It is unlikely that the user will use services of multiple providers. Hence the additional discounts when you pay via your mWallet. Before the larger global players sense profits and come calling, it is essential to establish dominance. So while additional discounts are one way to entice first use, it is the long term value proposition will determine user retention.

Why should someone use a mobile wallet instead of a credit card, net banking, mobile banking or such other means?

  1. Helps avoid exposing your credit / debit / bank details on a 3rd party website
  2. Ease of doing a transaction
  3. Don’t have any other means of doing a transaction

If we leave item 3 aside, the factors that in my opinion carries the most weight is security. I don’t want my credit card number to be exposed to an unknown site. I want to limit my loss in case of an untoward incident. Implies, if as a payment platform provider, you are storing my details, you had better have strong security. The last thing I want is you getting hacked. The next thing that matters is how many of the merchants or providers support your wallet, how easy is it to reload, whether I can withdraw cash, etc.

While the RBI guidelines and thrust for financial inclusions will play a big role in determining the rules by which the players have to abide. A license from RBI will give comfort to the end users.

These parameters provide for very little differentiation. PayUMoney is using escrow kind of services with dispute resolution as a differentiator, and Paytm has added a chat based bargaining platform. Whether this differentiation or value added services help retain users once the discounts die down is something to be seen.

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