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What you need to know about the mobile wallet war in India

By Nashuman Ghandi

“Buy this through XYZ digital wallet and get Rs. 50 (US$0.75) cashback on every ticket booked,” read a recent email you received from PVR Cinema. You usually receive this a few times a week and it keeps you informed about the latest movies.

I usually receive this a few times a week and it keeps me informed about the latest movies. The bottom of the emails, as seen, are peppered with advertisements for mobile wallets. All of them vying for your attention and begging to pay part of the ticket price on your behalf. All I have to do is make the transaction through them.

Just like this email I received, the mobile wallet space has seen the density of brands in the market soar. We now have a never ending list of applications offering consumers discounts, cash-backs, vouchers and coupon codes.

Digital wallets or mobile wallets started with mobile recharges, but have now moved up the value chain to provide a whole host of other services like shopping, paying for food and cabs and even booking a new home.

Currently, the RBI regulation stipulates a fund transfer limit of Rs. 10,000 (US$149) for a non-verified user and Rs. 100,000 (US$1,494) for a verified user. Payments Bank licenses are only granted if the companies meet certain conditions stipulated by RBI such as a minimum paid up capital of Rs. 100 Crores (US$14,948,800).

In all, 11 mobile payment licenses were granted in August 2015. We now have unlimited options when it comes to who to choose and why. Let’s talk about a few of them.

Photo credit: TheBusyBrain

Photo credit: TheBusyBrain

Overview of mobile wallets in India

Telecom-operated mobile wallets

Basically every major telecom service provider in India has a mobile wallet as part of its product portfolio. This comes as no surprise since one of the initial services offered by mobile wallets were mobile recharges.

Airtel was one of the first movers in the market and had a joint venture with State Bank of India back in 2011. They got the Payments Bank license from RBI in August 2015 and started Airtel Money in a joint venture with Kotak Mahindra Bank. Right along with them was Reliance Jio which was also granted a Payments Bank license with State Bank of India. Idea also got their license for Idea Money with their partner, Axis Bank. Vodafone has m-Pesa, another major player in the market along with TATA Docomo with mRupee.

It makes sense for Telecom companies to be involved in mobile wallet and payment solutions. This value adds to their services, and can differentiate them from their competitors. This would definitely help in improving customer loyalty, potentially increase the average revenue per user, and move toward creating a self sufficient ecosystem.

Mobile wallets offered by banks

It is a natural transition for banks and financial institutions to adapt their services to the changing needs of their customers. Most major banks in the Indian market are already either buying into or developing mobile wallets for their customers. We have ICICI Bank launching ICICI Pockets in February 2015, HDFC with Chillr, LIME and PingPay by Axis Bank and one of the later entrants, the State Bank of India, launching its State Bank Buddy on August 18, 2015.

Banks have had various cycles where they had to completely overhaul their business model and investment plans based on the changing needs of their users.

The first cycle saw an increase in the number of bank branches in the country. It was a time where there was direct contact between the customer and the bank. The 2nd cycle saw the proliferation of ATMs to reduce capital investments and increase reach in a cost effective manner. The 3rd cycle saw internet banking infrastructures developed alongside mobile apps which complimented the changing user behaviour, leading to a massive reduction in capital investments.

We are now in the 4th cycle, where the whole banking infrastructure has now moved to mobile with direct interaction between the the seller, the buyer and the bank. There is an additional option of recharging your mobile wallets by depositing cash at the local kirana stores and have the money transferred to mobile wallets.

This has major advantages for banks. Through this enhanced data availability, up-selling and cross-selling based on improved targeting can be turned into a major contributor to increasing revenue. Add a few 3rd party members and you have alternate revenue streams. A more comprehensive user personality can now also be created with new data points available on the user’s spending habits.

Independent Wallets

This is where things get really interesting. We have bootstrapped mobile wallets like Ruplee which is in the bootstrapping process right now, to Paytm which has raised massive investments. Others like Freecharge have been bought over. On top of these, there are plenty of up and coming players in the market.

Recently, Paytm and Oxigen wallet spent millions of dollars in marketing campaigns along with Mobikwik, which ceased their marketing activities sometime before Diwali. We should not forget one of the very early players, Nokia, which started Nokia money and laid the groundwork for the currently thriving mobile payments market.

Partnerships are plenty with these independent market players.

Paytm is the exclusive wallet service for RoomsTonite, exclusive payment platform for Uber, and even pays for Metro rides. It already claims to have crossed the 100 million user base. Meanwhile, Mobikwik is the wallet of choice for IRCTC ticketsBig Bazaar and even loans.

The distribution of the mobile wallet ecosystem in India

Even though the mobile wallet market in India is growing at an incredible rate, the players and the industry as a whole are facing some major issues that include:

  • User verification is a huge headache for every player in the market.
  • Infrastructure issues such as lack of connectivity which cause payments to be frozen and lost due to bad mobile network.
  • Merchant education and integration of payments systems is a huge challenge due to lack of consistency in the software used.
  • User behaviour is and will remain to be a major barrier, with dependence on cash rather than a digital wallet.
  • Government policy is a major issue in India is almost every industry and its the same with mobile wallets as well.
  • Last but not least, users may not even have a bank account.

But as they all say, “when the going gets tough, the tough get going.”

For example, Paytm has created Know Your Customers (KYC) centers and are investing in a network of agents who do the KYC verification for them. m-Pesa has 95,000 agents across the country to educate and enroll users. Mobikwik sends agents for verification right to your doorstep. Some players are also working on integrating Aadhar data in their structure.

To help modify user behavior, increase ease of use and deal with those who do not have bank accounts, mobile wallet companies such as m-Pesa and Paytm not only collect cash from your doorstep, but provide cash collection services at the local kirana stores. To deal with infrastructural issues, the mobile wallet players have optimised their apps such that they manage to run even on EDGE networks (remember those blue Reliance phones?) State Bank of India is making their app operable with feature phones.

“We wish to tie-up with organised retail partners, your local kirana shops and create app-cash points,” said Paytm, “so these merchants will accept Paytm payments, but also give you top-ups and in some cases do the eKYC as well. The idea is to drive up our offline merchant payment points as well. We plan to have 50,000 of these by the end of the year,”

It will be interesting to see who will survive this consolidation phase. The problem will arise when the funding runs out and all these mobile wallets will have to depend on their own profits to finance further expansion and to scale. The players are currently subsidising the user while burning VC cash, with the whole industry hoping that they reach the critical mass before running out of funds, and move on to the next stage of improving revenue per user.

We have fingers crossed but for now, let’s order food at half the price, enjoy free movie tickets, hail cheap cabs and get cashbacks on utility bills.

The article first appeared in TechinAsia.com

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