A Promising Disruption — Mobile Wallets in India
Technological advancements are the harbingers of change in 21st century. It possesses the potential to bridge divides, stretch horizons and disrupt lives (arguably for better or for worse). One of my favourite examples of technological disruption was how telecommunication panned out in Africa. The fact that Africa went from sparse satellite phone coverage straight to mobile telecommunication, thereby completely skipping the era of fixed telephone connections (or landline telephone connections) is a remarkable event in the timeline of technological advancements made by mankind.
It is this same exciting promise of positive disruption that can be observed in mobile wallet payments technology, the impact of which is paving the way for a paradigm shift — where the largely cash-based Indian economy is beginning to embrace digital payments.
Factors affecting adoption of Mobile Wallets
There are several reasons why the Indian consumer is keen on transacting online and on m-wallets:
Increased mobile internet penetration in both rural and urban India: The number of mobile internet users was estimated to be 462 million in June 2016 according to the Internet and Mobile Association of India (IAMAI). Whereas urban India has a penetration rate of 51%, rural India has tremendous potential for growth with a mobile internet penetration rate of only 16%.
Improved mobile connectivity infrastructure and affordability: Mobile data consumption is no longer a luxury in India. Players like Reliance Jio have shaken the domination of telecom giants like Airtel, Vodafone and Idea with aggressive pricing and best-in-class infrastructure being deployed to connect homes all over India.
Proliferation of e-commerce and consequent increased trust in engaging in online transactions: E-commerce is on a linear growth trajectory in India as the skepticism associated with electronic transactions is steadily deprecating. Furthermore, mobile wallets and online payments providers are the palanquin bearers for the age of instant gratification. The young populace residing in metros, Tier I & II towns are expected to be the patrons of this ideology and will act as the drivers of e-commerce growth in india.
Greater financial inclusion of the illiterate masses — both consumers and small business owners: Technological innovations such as the QR Code coupled with mobile wallet payments providers have enabled the businesses of illiterate retailers and wholesalers and have also broken the language barrier when conducting transactions for illiterate consumers thus helping the cause of economic and financial inclusion of the masses.
Support from incumbent government through technological initiatives such as the ‘Digital India’ mission: Government initiatives such as ‘Digital India’ and sizeable foreign investments in Indian startups has contributed to the overall growth of tech companies in India which in turn has contributed to the success of digital wallets. Events such as demonetization of large currency notes in November 2016 were unprecedented growth hacks for the players in this industry.
With a strong case made for m-wallets, let us explore the type of offerings available to Indian transactors.
Types of Mobile Wallets in India
There are 3 main types of wallets available in India:
- Closed wallet: platforms like Ola Money and Amazon Pay where the credit amount can also be used to purchase goods and services that come under the ecosystem of Ola and Amazon respectively.
- Semi-closed wallet: Paytm is an example of a semi-closed wallet where users can buy goods and services from listed vendors, either on other online platforms or at listed brick-and-mortar stores.
- Open wallet: all wallets rolled out by banks are categorised as open wallets as an app like State Bank Buddy or HDFC’s PayZapp enables the user to transfer money to other bank accounts, transact online and purchase goods and services.
Owing to the wider application and ease of use across different e-commerce platforms, semi-closed wallets are most preferred. But it is critical to examine the evolution of this preference and where m-wallets stand in the technology adoption lifecycle.
The m-wallet adoption lifecycle
Mobile wallets in India started off with telecom operators such as Airtel (Airtel Money) and Vodafone (m-Pesa) providing their subscribers with a simple app to recharge their phone. Using credit card, debit card or netbanking options, mobile phone users could recharge their prepaid (pay-as-you-go) plans and buy talk time. This evolved into what we understand to be the current broad usage of mobile wallets, primarily to enable instant gratification.
Based on the above infographic depicting the Technology Adoption Lifecycle, Indian consumer of m-wallets can be categorised as follows:
Innovators: falling in the age demographic of 18–25, these users have been using digital wallets since their inception and are likely to be value-seeking individuals that regularly search for discounts/coupons and buy from e-commerce stores.
Early Adopters: these are technophiles between the ages of 18–35 and would hail from metros and tier I cities, completing a majority of their transactions online. This audience are highly influential in communicating the value proposition of using m-wallets. Typically these persons are willing to try out the app by themselves rather than rely on reviews or marketing campaigns.
Early Majority: these persons are keen on using technologies to make their lives easier but will not make hasty decisions. Usually fall in the age demographic of 25–40, the early majority tend to read reviews and ask for opinions from peer groups. In my view, the ‘chasm’ between the Early Adopters and the Early Majority is perceived to be lower as the time lag between the perceived benefit and realized benefit of a mobile wallet (before and after installing and using it) is quite low. In other words, a new user of the Paytm app is quick to understand and appreciate the benefits of using the mobile wallet owing to the large number of users that are using apps like Ola, Uber, Big Basket, etc.
Late Majority: these are persons that are skeptical of adopting new technologies and wait for the technology to become established and entrenched before becoming open to adopt it. They will typically spend a significant amount of time assessing the current value, perceived benefits and return on investment on consuming the product. The age demographic for the late majority for m-wallets would fall between ages 35–50.
Laggards: These are technophobes who are extremely resistant to adopting a new piece of technology. They are most likely to adopt a piece of technology when it is nearing obsolescence.
M-Wallets users: Early Adopters or Early Majority
According to the RBI, the volume of m-wallet transactions increased by more than 230% from 2014–15 to 2015–16. The market value of m-wallet transactions in India is expected to grow at a CAGR of over 200% to reach INR 275 trillion by FY22 from INR 206 billion in FY16.
Although there has been a significant increase in users, transactions volume and sum value of transactions, it is evident from the study above that cards account for 71% of the online payments market in India and 85% of the transaction value. This statistic is makes it evident that m-wallet is at the Early Adopter stage of the product lifecycle. Additionally, the impact of the disruptive event of demonetization also contributed significantly to the growth of the industry. One must account for this impact as transaction volumes on m-wallets declined one month post-demonetization. This conveys that m-wallets are an alternative to cash but not a direct substitute.
Alternatives to m-wallets
Cash: In India, cash continues to be king and it is felt that cash will never truly be replaced. This stems largely from the incomplete smartphone, mobile data and retail banking penetration in rural India, which constitutes nearly 70% of a population of 1.3 billion. With the rise of banks such as Bandhan Bank and payments banks, it is expected that this section of the population will be financially included in the Indian economy and begin to use m-wallets.
Plastic Cards: As depicted in the last graphic, cards are accounting for more than 70% of the online transactions by volume and 85% by value. This indicates that cards are preferred to wallets currently.
Challenges & developments in m-wallets industry
The good news
Rise of Payments Banks: RBI has issued licenses to companies such as Airtel and Paytm to enable them to participate in the mission of Digital India and making the economy more financially inclusive. This bodes well for all wallet payment providers in the times to come.
Improved rural mobile penetration: with serious consolidation taking place in the telecom industry amidst fierce competition, it is expected that rural areas in India will benefit most from this, with improved infrastructure and service offerings at tiered but affordable rates.
Government Initiatives: Enabling UPI, rolling out BHIM and BHIM-Aadhar Payment App are some positive steps taken by the government to both facilitate online transactions and also be a technology leader in implementing its own wallet programmes.
Consumer Usage Patterns: Wallets like Paytm are primed to take advantage of the customer purchase insights gained through analyzing macro transactions data. This information will seemingly help the m-wallet operators provide contextually targeted coupons, deals and discounts to the users, as often the complaint received by using apps such as Groupon or NearBuy is that the offers provided are not relevant or are too painstaking to redeem/claim.
The bad news
Risk of Cyber Crime & Fraud: Cyber crime is a serious threat as hackers are able to extract details of personal accounts, assets held, transactions made and other personal data (just ask Yahoo!). Even with encryption technologies employed, the online payments providers cannot guarantee that the information provided to them is safe from cyber terrorists.
Stricter KYC Norms: Despite the previously friendly stance of regulatory bodies, the RBI has clamped down on PPI’s providing payments banking and wallet services by introducing stricter KYC verification norms. In particular, this affects the new wallet payment providers as the cost of acquiring new users has increased. (Link)
Blockchain Technologies & Cryptocurrency: Cryptocurrencies such as Bitcoin and Ethereum are a bit of a grey area in India as there are no existing regulations on these platforms. Extremely volatile but highly lucrative to trade, cryptocurrencies enable buyers to purchase specific very specific items (example: in-app purchases for certain mobile games, mobile talktime, DTH recharges etc) and make use of blockchain technology to ensure secure and swift transactions. Bitcoin wallets like Ahmedabad-based ZebPay have cropped up to enable Indian traders to trade in Bitcoin and other alt coins. Going by the increased acceptance and importance of Bitcoin all over the world (with India accounting for 4% of the Bitcoin trade in the world and ranked 7th overall in terms of volume on the list of countries trading in Bitcoin), this could potentially replace cash in the future and complement the existing m-wallet ecosystem.
The future of cash and currency is at an exciting cross roads and with the support of both institutional bodies and visionary leaders, m-wallets will be adopted by the early majority come 2020. Here’s hoping!