Mobile wallet adoption in India
What is mobile wallet?
Mobile wallet is a virtual wallet service provided by certain service providers, wherein people can load a certain amount of money that can be spent at online and offline merchants listed with the mobile wallet service provider. This digital payment service works as a cashless payment service, wherein people do not have to pay cash or swipe their debit or credit card at offline merchants.
Types of mobile wallet
There are four types of mobile wallets in India:
Open Wallet — It is the one that allows a user to buy goods and services, withdraw cash at ATMs or banks, and transfer funds. These services can only be jointly launched with a bank. Additionally, it allows its users to send money to any mobile number bank account.
Semi-open Wallet — It is the one that allows its users to transact with merchants that have a contract with the semi wallet company. A user cannot withdraw cash or get it back; he will have to spend the amount he had loaded.
Closed Wallet — It is quite popular with e-commerce companies. Here, a certain amount of money is locked with the merchant in case of a cancellation or return of the order, or gift cards.
Semi-Closed Wallet — It does not permit cash withdrawal or redemption, but allows users to buy goods and services at the listed merchants.
Current statistics/Trends
Between FY 2013 and FY 2017 mobile banking and prepaid instruments have gained traction with demonetization providing the much needed impetus. Transactions recorded by prepaid payment instruments (PPI) — mobile wallets, prepaid cards, and paper vouchers — rose around 4% from Rs14,959 crore in February to Rs15,521 crore ($2.26 billion) in May, Reserve Bank of India (RBI) data show. This was a result of merchants pushing aggressively with better offers and keeping the process simple.
Mobile banking has gained ground with introduction of UPI. According to the National Payments Corporation of India (NPCI), the value of the BHIM Unified Payments Interface (UPI) transactions skyrocketed to INR 1 Tn while the volume of transactions reached 913 Mn, up from a meagre 7 Mn in April 2017.
In spite of all this, the cash in circulation as of June 22, 2018, was 9.8% more than it was on June 23 in 2017. This indicates that even though there is a greater appetite for digital payments systems, the Indian economy continues to be heavily reliant on cash.
Future trend
In a recent report, Credit Suisse estimated that digital payments in India would reach $1 trillion in FY23 with mobile payments accounting for $190 billion, the estimate for 2018 is $10 billion (Credit Suisse Equity Research, “The WhatsApp Moment in Payments”, February 5, 2018). The report states that “digital payments in India are soaring on the back of global tech giants entering the market as aggregators for retail transactions”. In the same vein, another report estimates that e-commerce transactions will grow to $64 billion in 2020 from $38.5 billion in 2017.
Factors driving the entry and early adoption of mobile wallet
Growth in Mobile & Smartphone and Internet Users — Smartphone and Internet are the catalyst for growth of payment industry. With entrance of new players like Reliance Jio. We will see further growth and adoption. The telecom operators have reduced their internet charges due to extensive competition and advancement of new technologies.
Regulatory Changes making conducive environment for growth — KYC relaxation for small value transactions leading to widespread adoption of mobile wallets; Launch of Unified Payment Interface making fund transfer easy and immediate; Jan Dhan initiative bringing millions under financial inclusion; Licenses for payment banking leading to increase adoption of digital payments.
Cross Industry Focus on Digital Payments — Entry of non-banking institutions accelerating the growth of digital payments like — Telecom (Airtel Money), Banks (Pockets), Wallets (PayTM), etc.
Growth of E-commerce Industry — Mobile Payments are the backbone of an e-commerce industry. The e-commerce market in India is growing at a rapid pace, as a result of growing smartphone and internet penetration.
Huge Benefits at Online and Offline Stores — The major growth driver of m-wallet market is the availability of huge cashbacks and discount, which is attracting customers rapidly. As Indians have tendency to save, they are easily attracted by the coupons, discounts or cashbacks that allow them to spend less.
Ease & variety of usage — Convenience and ease of doing the transaction are the key growth drivers of the Indian m-wallet market. Mobile wallets obliterate the need to carry physical wallets while on the go; they ensure more security than cards or carrying cash, especially when traveling. Mobile wallet users enjoy greater flexibility in making secure.
Top players in the market
Adoption curve
Innovators or Enthusiasts: These customers are the first and most eager to use a new product or service. They tend to be younger, have college educations, and regular salaries. They usually live in urban areas and are considered a medium or higher economic class. They are also innovative, willing to take risks, and interested in being “first”.
Early Adopters or Visionaries: This segment is over five times larger than innovators and shares many of the same characteristics. They are also young (though slightly older than Innovators), college-educated, and either salaried or manage their own businesses. Early Adopters are not as risk-taking as Innovators — they tend to think through decisions more than Innovators — but they do place a premium on innovations and are willing to move to a trial phase once some of the initial kinks are out. A distinct feature of Early Adopters is that they maintain strong social networks and have high opinion leadership among the group.
Early Majority or Pragmatists: Representing just over one-third of the total market, the Early Majority is considerably more cautious in making buying decisions, preferring to wait until enough people have used a product or service before doing so themselves. The rate of adoption is slower than the two segments above. Socio-demographically, this group tends to be slightly older and have an above-average education and income. They are either urban dwellers or they travel frequently to urban centers.
Late Majority or Conservatives: Equal in size to the Early Majority, the Late Majority tends to adopt an innovation only when the product has become mainstream and more of a commodity. They are price-sensitive and skeptical about benefits touted by innovations. They are middle-aged, less educated, more rural, and more likely self-employed. Many in this group would be considered poor and would have lower literacy levels.
Laggards or Skeptics: This segment is the most risk-averse, adopting a new product or service only if alternatives are clearly inferior — dramatically less convenient, much more expensive, etc. They are traditional in nature and prefer the status quo. They tend to be older, illiterate, poorer than the rest, and live in small, rural areas that do not put them contact with others who have different views.
So, where is Mobile Wallets on this curve?
Digital payment systems are heavily reliant on smartphones that are enabled with data connections, NFC, Bluetooth etc. The solutions available now are catering to individuals who are already well versed with cashless transactions through credit/debit cards and net banking.
This means that the “total addressable market” for the mobile wallet in India is approximately 700M internet equipped mobile phone users. The demonetization gave a boost to the growth trajectory of mobile wallets but with cash back in circulation the mobile wallet adoption has hit the chasm.
At the moment, growth is mainly coming from the more digitally experienced customers, according to Abhishek Sinha, co-chair of the PPI committee at Payments Council of India (PCI), an apex body of the payments and settlements industry. “Customers who were early adopters of digital transactions are willing to take the extra step as they have seen value in these. But those who came in later are dropping off, and that’s a worrying trend,” Sinha said.
Driving Adoption higher
Influencer marketing: Go beyond promotions and discounts to drive growth. Develop influencer marketing programs to cross that chasm because the early majority rely on “early adopters”.
Communications — Complementing promotional efforts are messaging, or communications, tactics. These include raising awareness of the service (what it is) as well as offering financial literacy (why it benefits the user and how to use it).
Introduction of M-wallets for Basic Phone Users — M-wallet was supposed to be used by smartphone users earlier, but now the m-wallet players in the market are launching an application exclusively for basic phone users. The m-wallet plays a crucial role in surging financial inclusion in India.
Technology Companies Entering in M-wallet Business — Companies from all sectors are entering in this lucrative business. After banks and telecom companies, software service companies are ready to compete in m-wallet market by introducing advance technology platform to create an environment wherein digital payments can be accepted, irrespective of form factors or service providers in an inter-operable and device-agnostic manner.
M-wallet Enables Short Term Credit — The mobile wallet has been serving the need for instant cash in an electronic form for sundry transactions, will soon offer instant loan facility for short term to its customers. This micro-credit program enables users to subscribe for small loans, and m-wallet companies get interest in return. An eligible user will get the loan instantly credited to the wallet.
M-wallet Enables Banking Services via Social Network — M-wallet companies are coming up with an idea of transferring funds via social media platforms like Facebook, Twitter, Google+, WhatsApp, etc. This new feature is rapidly adopted among the youngsters, who go out for meals with their friends’ and split bills.
Need for Increasing Awareness — M-wallet services across the country faces a major issue of lack of awareness regarding their benefits and usage. Majority of Indians are still reluctant to use m- wallet because of security and safety issues.
Increased Limit of Transaction Amount — Limited amount can be transacted or transferred through m-wallets in a month which hinders the Indian m-wallet market. M-wallet companies should increase the limit of number of transaction and transaction amount even in the case of basic account.
Need for Transparency in Regulatory Policy — The regulatory policy of m-wallet industry is quite cumbersome and involves inflexible and complicated terms and conditions which make it difficult for companies to decide whether their product need RBI approval or not. Crystal clear policies and a common regulatory body for all m-wallets (closed, semi-closed, etc) are required.
Need for Relaxation of RBI’s Policy — The RBI licensing regime is discouraging mobile wallet growth in the country. The present system allows only e-transfer of money and approves semi-closed pre-paid instrument issuance while it does not allow “cash out” from the semi-closed wallet. The RBI should relax its current policies and allow cash withdrawals from the semi-closed wallets.
GROWTH HACKS
Promotions: These m-wallet companies expand their customer base by offering exciting discounts and offers; also they are increasing their number of merchant tie-ups to capture the market share. For instance: Flipkart, an e commerce leader, gives 10%- 20% discount on a transaction, if a payment is done through m-wallet. Also, cab companies provide free ride or maximum INR 500 off on registering with the m-wallet service. For instance, OLA cabs provide INR 500 free ride coupon, if the payment is made through Ola wallet.
New Service Development: Although this strategy is not as frequently used as the standard promotional and communication tactics above, companies are rolling out additional use cases such as buying movie tickets.
New Technology Integration: The incumbents have adopted UPI and other technologies on their platform.
Increasing Merchant Tie-Ups: Indian m-wallet market is extremely competitive and highly fragmented. Ties between m-wallet companies and several entities like restaurants, grocery stores, and ticket booking websites are on the rise in the Indian m-wallet industry. Tie-ups support companies
Outlook and Challenges
Privacy: Privacy is another issue related to the growth of m-wallet industry. For all kind of monetary transactions or other services one need to disclose his identity, which at times creates a huge problem for the customer. Maintaining privacy of the consumers is also an important challenge, as an increased amount of data is collected and stored,” says the Deloitte study.
Regulation: In October 2017, when India’s central bank issued a fresh set of regulations for the industry, business was expected to plummet by about 80%. The fear was that customers would be put off by the unnecessary and irrelevant extra layer of documentation — users were asked to complete the know-your-customer (KYC) process by Feb. 28 this year, failing which they wouldn’t be able to upload money into their e-wallets.
Lack of profitability: Consumer payment is a low-margin game and the business is completely defined by the scale of operations. Most e-wallet firms are still not profitable in India. With 60 non-banking e-wallet players already in the fray and more expected, the competition will only intensify.
Inertia in adoption: Cash transactions have been the dominant payment mode for Indians for a very long time. Even though the penetration of digital payments has been rapidly increasing, concerns regarding security, privacy and transparency of charges are still prevalent among consumers. Industry players will need to invest significant effort to overcome this barrier, not only through marketing campaigns, but also through actual continuous product improvement.
Risk of security breaches and fraud: The risks of a breach leading to financial loss is a very important decision factor for adoption of digital payment technologies. “Ensuring the security of the technological system is key, since singular events of breaches can lead to large reputational and financial losses for companies.
Competition from Credit & Debit Cards: Cards form one of the biggest challenges to further adoption of mobile wallets. Given the current limits on transactions through this channel, limits which are wider in the case of cards does provide a significant roadblock to adoption.
Issues with compatibility: Not all applications are made for all operating systems on mobiles. Many products currently on the market are only compatible with one or two operating systems (most commonly iOS and Android). Consumers are looking for options that make transactions the most convenient, and issues with compatibility can hamper that experience. Ensuring compatibility across all the major operating systems will play a key role for these companies
Impact of UPI: Introduction of UPI has created greater competition for mobile wallets, but in the short term, mobile wallets are not expected to face a great impact. UPI-powered apps will need to deliver on a number of fronts including transaction costs and ease of use that rivals that of mobile wallets. UPI transaction volume is growing more than 10% each month in India, and it’s the backbone of several of the newest available mobile wallets.
Mobile wallet in India continues to grow at brisk pace. But the industry has to go beyond promotions to change the mindset of “early majority” and “late majority”.
References
https://productcoalition.com/mobile-wallets-adoption-in-india-576e836f5327
http://cashlessindia.gov.in/mobile_wallets.html
