Product adoption lifecycle for Mobile wallets in India-Analysis
In the digital age, your very own personalized leather (fancy!) wallet has moved from the pocket to your mobile phones. Lets dig deep into this modern product.
What exactly is a mobile wallet?
· Virtual wallets which act as a container that stores your credit card or debit card information on your mobile device.
· Instead of using cash or debit card for any payment, you can just pay through your Smartphone, smartwatch or tablet.
· Using m-wallets, you can do the online and offline transaction to merchant registered with the mobile wallet service provider.
· Millions of users in India are doing their daily transaction from small to big amount through virtual wallets — as they are getting discounts on purchase provided by the mobile wallet service provider.
· The size of The Indian mobile wallet market has grown so significantly that research says that it stands at about Rs 350 crore currently and is estimated to rise to Rs 1,210 crore by 2019.
Type of M-Wallets in India
According to RBI, there are three kinds of mobile wallets — closed wallets, semi-closed & open wallets.
Closed wallets are accounts issued by a company to a consumer for buying goods and services exclusively from that company. Here a certain amount of money is locked with the company in case of a cancellation or return of the order, or gift cards.
Semi-closed wallets have a specific contract with the issuer to accept the payment instruments. They will allow you to buy goods and services or perform financial services at clearly identified merchant locations.
Open wallets can only be issued by the banks. They allow you to purchase goods and services, cash withdrawal at ATMs and to transfer funds.
Mobile Wallets User Profiles
Innovators: These are the users who started using Mobile wallets from its inception. They would generally be 16–30 year old tech savvy users generally residing in metro cities with medium to high levels of disposable income. Apart from the utility of mobile wallets, these users are also incentivized in exploring new things & being ahead of the general public. These users do not have a high level of stickiness to a particular wallet and would easily move on to a better offering.
Early adopters: Once mobile wallets gained respectable amount of word-of-mouth, the early adopters start using the product. They comprise of 13.5% of the user base and again fall into the 16–30 years of age, technology savvy group who have caught on to product's intended use. But, the incentive for them in using mobile wallets is the utility in making transactions for daily needs- Cabs, shopping, ticket booking etc. They are also low on loyalty as they keep switching between different wallets based on the discounts offered.
Early Majority : These are the users who’ve been reading and hearing about the benefits of mobile wallets from the Innovators and Early adopters either online or through friends and colleagues. Once, they are satisfied with the feedback, they jump onto the bandwagon and start using the product for daily tansactions. They comprise a hefty 34% of the total user base & fall under the 25–40 age group.
Late majority: This category of users have been skeptical about the usage of mobile wallets & have only starter using the product after the average public has used it.They again comprise 34% of the user base and are the difference between the product being a ‘success’ and a ‘grand success’.
Laggards: These users (16%) are the slowest to change and will not use the product unless its absolutely essential. They would be people over the age of 45 who’ve not used/ been exposed to technology in their lives and are still learning to adapt.
Mobile Wallets: Where are they on the adoption curve?
Since FY13, the volume of digital payments transactions has grown at 19% annually while the value has increased at an annual rate of 12% in the same time period. Although, mobile wallets account for only 10% of the total digital payments currently, the mobile wallet industry has been on a strong growth trajectory in the past five years.
Between FY13 & FY17, transaction volume and value saw a phenomenal CAGR 120%, both having more than doubled between FY16 and FY17 itself.
Post demonetization, the share of PPIs(mobile wallets) in all digital payments has more than doubled to reach 22%. This can be credited to the greater convenience that these provide over modes such as credit and debit cards.
With these stats, I would place mobile wallet industry in the initial stage of Early majority.
Factors that have affected Mobile Wallet Adoption
1. Demonetization: The no. 1 factors has to be demonetization. The immediate impact of the announcement was a search among consumers for alternative payment modes such as cards, mobile wallets etc. The industry saw an immediate surge as a result of the policy change and in the months following, digital payments increased and mobile wallets (PPIs) gained significant share of those transactions, as shown in the chart below:
2. Increased technology adoption: Mobile phone subscriptions in India have crossed the 1 billion mark in 2016. Of these, an estimated 371 million users subscribe to mobile internet. As the number of affordable smartphones entering the market increased and tariffs on data plans continued to decrease, the user base for mobile wallets also expanded drastically in the last five years
3. E-Commerce growth: The Indian e-Commerce industry has seen remarkable growth to have reached c. USD 38 billion by 2016. With the preference to shop online, adoption of mobile wallets, which provide an alternative for cash, and card transactions has also increased. A number of online merchants have also been providing incentives to consumers for using mobile wallets as their payment mode. For example, Flipkart gives a 10–20% discount on orders paid through mobile wallets.
4. Consumer need for convenience: Consumer need for convenience can be seen across a number of industries, including food, and the mobile wallet industry is benefiting from that trend. Ease of usage, especially with money transfer and bill payment services are a big draw for the younger user base.
Key Challenges for Mobile Wallets
1. 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
2. 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.
3. Issues with compatibility: 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
Growth and product adoption comparison with other payment methods
The digital payments market is dominated by card transactions (debit and credit) both in terms of value and volume. As seen in the chart below, in FY17, card transactions accounted for c. 60% of the total digital transactions volume. While this proportion has declined since FY13, due to the increase in share of other payment modes, the overall number of cards (debit and credit) in circulation has actually increased.
→The number of debit cards in circulation has increased from 553 million in FY15 to 867 million in April 2017.
→The number of credit cards also increased from 21 to 31 million in that same time period. The volume of card transactions has grown at an annual CAGR of 14% between FY13 and FY17.
→The fastest growing segment of digital payments however, is Prepaid Payment Instruments (PPIs), which has grown at a CAGR of 97% in the same time period to now account for 10% of the total digital payments volume.
→Mobile-wallet is the largest category within PPIs, but the segment also includes prepaid cards (including gift cards) as well as other paper vouchers.
Growth hacks Used by Mobile Wallet Industry:
Cashback on payments: This is the most widely used growth hack by almost every major mobile wallet company led by Paytm. While a new user is given maximum caschback, there are periodic/flash cashbacks provided by the companies incentivizing the usage of mobile wallets for customer over other modes of payment.
Discount QR Scan on FMCG products: Paytm has been using a unique growth hack to acquire new customers by providing cashback codes on FMCG products like Nivea cream bought through a retail store where users can scan the codes on their apps and get instant cash in their wallets.
Online Bill Payments with discounts: Mobile wallets have tied up with many regional & country wide electricity, water, Landline, Internet service Providers. The online bill payment is not only convenient for the users but is also further incentivized with cashback offers.
The mobile wallet industry is on a rapid growth trajectory and will be moving to the late majority category in the next 5 years on the product adoption curve. I feel the factors that will fuel the mobile wallets growth furthermore, outweigh the challenges/roadblocks that lie ahead. Demonetization in 2016 has been a major push in the growth however we are still not at the tipping point. India being a young, developing country- the pace of technology adoption is going to be unparalleled compared to any other time in history- in the coming few years & that I believe is going to be the tipping point for Mobile Wallet Industry.