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Rupesh Rupak
Domain Consultant (Digital Payments) at Wipro Ltd
Mobile Wallets and its Scope in India
The speed of change in the way we behave, interact with and respond to things around us is directly proportional to the speed of change in technology. The simple purpose of technology is to provide us better comfort, better convenience and better options to carry out our daily affairs. And when it comes to internet and mobile phones, we know how significant role they play in our day to day activities. Similarly, this is true for the way we transact, purchase and carry out our other financial transactions.
There was a time when employees/people used to get salaries/money in cash. They used to collect it from the cashier in their offices/marketplace and they had to transact using cash only for anything that they needed. Then came the concept of bank accounts (although banking was there in India, but not a necessity to get salary). Employers started crediting the salaries in the bank accounts of employees. But it had only one advantage that the deposited money was safe in the custody of banks and employees used to withdraw required amount of cash (daily/weekly/fortnightly/monthly) at the banks’ cash counter by filling up and presenting a pay-in-slip. But there was not much improvement in the way people used to transact. Cash! Then came ATMs and ATMs/Debit Cards. People used to reach out to the nearest ATM and withdraw cash as per their requirements. This brought some convenience in the way people used to withdraw money. No need to reach a bank on time, no need to be in long queue anymore and even you could withdraw money on holidays. Then came so many other facilities/instruments like Internet Banking, Credit Cards, Prepaid Cards, and Point of Sale (POS) Terminals and you needed cash only to buy few basic things where you were not able to use your cards. We have seen bank accounts, debit cards, credit cards, POSs terminals, prepaid cards and many more. The purpose of introducing all these was to minimize the usage of cash and provide customers higher level of convenience. Recently on 7th January 2015, ICICI Bank announced the launch of India’s first contactless debit and credit cards, enabling its customers to make electronic payments by just waving the cards near the merchant terminal in lieu of dipping or swiping them. These cards are based on Near Field Communication (NFC) technology, which provides customers the improved convenience of speed as these cards require significantly less time than the traditional ones to complete the transactions along with enhanced level of security as they remain in control of the customers.
The total numbers of debit cards and credit cards in India stands at 570 million and 21 million respectively (approx.) at the end of May 2015. The number of POS terminal is approximately 1.2 million in India. The population of India being 1286 million today, on a very simple logic, approximately 716 million people (56% of total population) in India do not have any instrument (debit cards/credit cards) to carry out the cash-less transactions. In India not only bank account penetration is comparatively low at 53% (according to a World Bank Report), but so is the use of accounts for payments – mere 15% of adults reported using an account to make or receive payments. This is the result after we saw government promoting inclusive banking since 2007 and PMJDY by current Central Government.
But did it make a change? Yes, it did, but not to the extent we had expected it to be. This change was not widespread. This was limited and was not accessible to majority of population because of many reasonable/unreasonable reasons. Cash is still the strongest & easiest instrument to transact. India has a long history of financial inclusion efforts, many of which fizzled out.
The number of mobile phone subscribers in India is approximately 940 million i.e. 77% of total population. The mobile companies have been adding close to 5.9 million new customers every month. A study by networking solutions giant Cisco states that In India, the number of smartphones grew 54 per cent during 2014, reaching 140 million in number and the number of smartphones will grow 4.7-fold between 2014 and 2019, reaching 651 million in number. Hence, it suggests that we need to capitalize on the huge numbers of mobile subscribers in India for enabling them transact using mobile phones as the bank account density is too small as compared to mobile phone density in India. This presents a huge opportunity in the field of payments through the use of mobile phones.
Now the latest Buzz around payments is “Mobile Wallets”. With the introduction of Mobile Wallets, it seems extremely convenient for a person to do cashless transactions. And although, a number of companies have cropped up in India, offering consumers ‘mobile wallet’, there is still a lack of awareness among people about the concept and its utility. But, what can be better than exploiting the opportunity around mobile phones as the mobile phone density is much larger than the bank account density in India!!! Use the thing that every Indian has!!!
What is a Mobile Wallet
Mobile wallets are the digital replacement of your leather/physical wallets in which you carry your debit/credit/prepaid cards, cash and other cards/coupons. It is an online service which allows you to store money in it, just like you store money in your bank account. You can also store your all payment cards inside your mobile wallet. A user needs to make an account with a mobile wallet provider. After which money is added to the ‘mobile wallet’ account using a debit, credit, online transaction from bank account or via cash (agent assisted).
The main difference between a mobile wallet and online transactions via bank account is that, unlike banks mobile wallet does not charge any amount of money on every transaction and saves the customer from the hassle of entering card details and pin number for each and every transaction. Some of the mobile wallet providers in India are Paytm, Citrus, Oxigen, Freecharge, Mobikwik, Zaakpay, ItzCash etc.
Why Mobile Wallets
In India, over 940 million mobile subscribers (390 million come from rural areas) substantially outnumber those with bank accounts, even after accounting for individuals having more than one mobile connections. India is rapidly advancing in the technological space. With the growing population and increasing smartphone penetration, India is going mobile and digital. Smartphone and internet is not just for the rich and wealthy but more users are becoming informed by getting access of mobile internet. A report by IAMAI and KPMG projected that India will reach 236 million mobile internet users by 2016, and 314 million by 2017. So, using the mobile as a platform for new age services makes great sense. While mobile apps from banks have become popular, there is a large number of people who think using mobile for financial transactions is risky.
At present, Paytm, MobiKwik, Oxigen and Citrus are the leading mobile wallet service-providers in India, licensed by the Reserve Bank of India (RBI). As per the current norms, a user can load money on his/her mobile wallet and use it for making payments to merchants which have a tie-up with that wallet service-provider. For example, a user of Paytm can make payment only to a merchant which has a tie-up with Paytm and, thus, can accept mobile money. But things are changing rapidly; soon users may be allowed to withdraw money through mobile wallet. In addition, the user cannot deposit more than Rs 10, 000 on his mobile wallet without fulfilling RBI’s know your customer (KYC) norms.
What are the advantage of using a mobile wallet over conventional or online payment systems
There are two major factors that go in favour of using mobile wallets. First, your personal details, especially financial information like bank account number, are not exposed. And, second, it limits your exposure in terms of value transactions, because you can load just Rs 10, 000 without the KYC checks. So even if there is some compromise with the mobile wallet (not likely, though), you may end up losing a maximum Rs 10,000 as against losing every single penny in your bank account, in case your account is compromised.
The other benefits to customers can be summarized as below:
- The main benefits are convenience and speed while doing transactions.
- Making payments becomes very convenient and easy when you are on the go. It is not only secure but also extremely flexible.
- People who do not carry their debit or credit cards can go to their nearest recharge kiosks and load their wallets against cash.
- This new trend of payment has easy accessibility which makes the choice very reasonable and genuine.
- Mobile Wallets do not charge money on every transaction like banks.
- In this mode of payment the consumers remains hassle free as they do not have to enter card details and pin number for each and every transaction.
Mobile wallets can do everything that cash or cards can do and way better with greater flexibility, faster speed and enhanced level of security and limited possibility of loss.
How you can use a mobile wallet
Identify the services that you would be using for making small payments. Then, you should check which one is the common mobile wallet available for most of the services and then you should use it. But make sure, you load the sufficient amount of money to pay for services that you would be using.
Disadvantages with using Mobile Wallets
The advantage of using mobile wallet is that it requires minimum effort from the user to make a payment. However, the Reserve Bank of India has initiated one- step authentication process. This will definitely have an impact on the fast growing mobile wallet industry as the debit and credit cards will provide same facilities as the Mobile wallets. This will take away the benefits and dominance of the mobile wallets. But, as I said earlier, for small value transactions, mobile wallet are still the best bet, provided the service-providers make sure to bring every merchant on their platform.
While there are about a dozen mobile wallet service-providers in India, each has tie-ups with different kinds of merchants. This means, for each type of service, you will have to use different mobile wallet. This explains why, despite a rise in number of mobile wallet users, there is no huge jump in terms of transactions and revenues. Hopefully, soon, big players like Google Wallet or Apple Pay, which are now available in the US, will be allowed to make an entry in India and the rest will fall in place.
Types of Mobile Wallets in India
There are four types of mobile wallets 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 Bank is one such example. Apart from the usual merchant payments, it also allows you to send money to any mobile number linked 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 will have to spend what you load in. Then, there are closed wallets, which are quite popular with e-commerce companies, where a certain amount of money is blocked 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.
Role of Mobile Wallets in Financial Inclusion
Smartphones as a category is growing at a phenomenal pace. The Rs 5,000-15,000 category is exploding. In 2015, there could be more "intense action" in the entry-level smartphone market as more companies launch affordable handsets, aimed at upgrading feature phone users. There are many local companies who are able to sell smartphones at a price as low as Rs 3000. As per research firm eMarketer, India will exceed 200 million smartphone users, topping the US as the world's second largest smartphone market by 2016, largely on the back of growing penetration of affordable smart mobile devices. Reiterating, a study by networking solutions giant Cisco states that In India, the number of smartphones grew 54 per cent during 2014, reaching 140 million in number and the number of smartphones will grow 4.7-fold between 2014 and 2019, reaching 651 million in number. On the other side, there are wallets in the market that are accessible even on feature phones and undoubtedly feature phones, despite falling sales volume, continue to command a lion's share of the handset market in India. To put the number again, the mobile companies are adding close to 6 million new customers every month in India. Thanks to the prevalence of mobile phones - and the dropping prices of smartphones -that a mobile based system can become ubiquitous in India. Payments Banks would also exploit the technology around mobile payments and more specifically mobile wallets to cut the associated cost and increase the reach.
Future of Mobile Wallets in India
The mobile wallet business in India is not small and it is growing day by day. India has an estimated 150 million mobile wallet users, vastly outnumbering the cumulative number of credit cards in India (20 million) within such a short period of its acceptability. According to a study by research and consultancy firm RNCOS, the current Rs 350-crore mobile wallet market could rise to Rs 1,210 crore by 2019. For a customer a mobile wallet has a favourable thing to it as it does not store his or her card details. Also, one can keep a limited amount of money in the wallet. So it curbs the loss if anything goes wrong. That will surely attract the people from bottom of pyramid - BoP. Also, one does not need to bother about whether one has sufficient money in the physical wallet. The payment banks could trigger another wave of mobile wallet expansion in India for the sake of cutting the cost down to reach rural and unbanked/underbanked segment. Indian banks have also started launching their own mobile wallet to compete with the non-bank wallet providers. After the reasonable acceptance/success of Vodafone m-Pesa, Airtel Money, and PayTM, ICICI Bank came up with Pockets, HDFC Bank with PayZapp, State Bank of India (SBI) with Buddy and Axis Bank came up with LIME wallets. More banks are expected to foray into what will soon be a crowded market. Considering the mobile phone penetration in India and the increasing availability of affordable handsets for the vast portion of the population, the wallets are going to rule the low value-high volume transactions segment, if not for big ticket transactions. With the rapid and widespread adoption of technologies like Near Field Communication (NFC), the mobile wallets will become more convenient and faster way to make payments. It looks like the mobile wallets would become the most preferred way of making payments in future.
Published in LinkedIn - India in Business Channel
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