India’s drive to become a less-cash economy will help the mobile wallet
industry grow to $4.4 billion by 2022, says Capgemini’s World Payment Report 2017.
The projection of a compound annual growth rate (CAGR) of 148 per cent over five years comes despite several industry watchers writing off the digital wallet
model. They have said e-wallets would be overshadowed by the government-backed Unified Payments Interface (UPI) that allows for easy inter-bank transactions.
Since April, there have been more than 127.9 million UPI transactions, according to the National Payments Corporation of India. Further, players in the digital wallet
space such as Paytm are looking to soon get on UPI, while Flipkart and Google already have services that leverage the inter-bank transaction standard. Even other global giants such as Facebook and WhatsApp are betting on UPI to disrupt India’s mobile payments space, rather than building their own closed digital wallets.
An increasing number of India’s most widely used digital services are beginning to accept payments through UPI. Despite this, the report says growth of digital wallets in India will be much higher than the overall growth of the digital payment ecosystem. Growth of non-cash transactions, which include UPI and other inter-bank digital transactions, will only be a CAGR of 26.6 per cent between 2016 and 2020. This buoyant growth expectation is what has driven Chinese fintech giant Alibaba to back the country’s largest digital wallet, Paytm. The company also recently raised a massive $1.4 billion from Japanese investor Softbank, which jointly invests along with Alibaba, as well.
Tencent, another major in China's digital payment space is also vying entry into India's online payment space.
Last week, the Reserve Bank of India (RBI) said it would begin allowing interoperability between pre-paid payment instruments or digital wallets. The move would be similar to the introduction of UPI for banks, but several people have questioned as to why consumers would choose to park their money in digital wallets over their bank accounts.
Due to this, a hybrid model has emerged in the form of payment banks. Paytm, Airtel and even India Post have received licenses for payment banks from the RBI and while these entities won't be able to perform all the functions of a large bank, they will function similarly at least on the payments front.
Overall, the World Payments Report 2017 says that digital payments in Asia would grow largely due to efforts of digital inclusion by China and India. While China is poised for a much faster growth than India in the next few years due to better connectivity and a higher number of smartphone users, India is not far behind.