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There is no one among us who, having used and experienced a digital mobile wallet, doubts either its convenience or utility. For many urban Indians, the ease of ‘click-and-pay’ has become a daily reality -– whether we are taking a cab, ordering food or booking tickets to see our favourite film. In just a few years the mobile payment landscape has evolved significantly and is playing a significant role in making India a less-cash society.
Despite what seems to be a winning customer value proposition and near meteoric growth during the past few years, digital mobile wallets are for the first time facing headwinds and challenges that are existential in nature. These are coming from increased competition and more stringent KYC norms prescribed by the Reserve Bank of India. A combination of these two factors seems to have cried a halt to the march of the wallets.
The most immediate and telling issue impacting mobile wallets is the new KYC norms. The wallets had till the end of February to get KYC verification done for transacting customers. Come March 1, and a lot of customers found themselves unable to operate and transact with their wallets despite having money in them. This is likely to create a lot of consternation and churn in the market causing customers to look at alternative methods of transacting digitally.
Mobile wallets are also facing another challenge with the rise of the United Payments Interface (UPI), upon which new payment mechanisms are built. UPI allows customers to link their mobile payment mechanism directly with their bank account, avoiding the hassles of funding or topping up their wallets from time to time. Transactions on this platform are growing a healthy clip, contributing to 13.8 per cent of digital payments in December 2017, according to the RBI. Besides linking your digital payment mechanism with your bank account, the other feature that makes UPI transactions better is the interoperability they allow and the fact that the mobile target universe has suddenly expanded to 525-550 million bank accounts. The stakes are high as the battle for the customer’s mobile truly begins now.
As of now, things are not looking too bright for digital mobile wallets. As per RBI numbers, digital wallet payments are down nearly 40 per cent the past six months. The enforcement of the new KYC norms is likely to see further attrition in their numbers, as customers don’t have a compelling need to comply with these KYC guidelines anymore. The new guidelines are just too tiresome to justify low-value digital transactions. Hence low-value transactions are likely to revert to cash. On the other hand, UPI-based mobile payments are likely to continue to grow at a fast pace, especially with market making players such as Google, Facebook (through Whatsapp) and Amazon entering the fray. Paytm too is pivoting and seeks to dominate the UPI-based transaction market. Paytm is counting on its large existing customer base, large number of merchants and current transaction velocity to maintain its leadership momentum.
Google is following its time-tested product strategy for mobile payments too. This involves building an entire self-reliant ecosystem covering customers, wallets, banks and card companies. It will integrate other products like maps to increase the utility of the product. On maps you could look for merchants and also check if they accept mobile payments.
However UPI is facing a few glitches of its own. Fifteen per cent of transactions are falling between the cracks and money is lying between banks with no recourse. Also on e-commerce refunds, couponing and cashbacks, the UPI system still is not as smooth as digital wallets. Also after a bright start the BHIM App has stayed nearly stagnant in terms of both transaction growth and average transaction size. However, NPCI has started cracking the whip on non-compliant UPI-based Apps and has asked banks and payment service providers to reject transactions from Apps that do not comply with its standards.
Despite all the above issues, it looks as though the digital wallet story does not have too bright a future. The customer as always looks for end benefits rather than the means. UPI-based digital payment systems with direct linkages to bank accounts, interoperability, higher spend limits and convenience seem set to take the wind out of the sails of digital wallets.
The mobile payments space in India is just opening up and consumers can expect to be spoilt for choice when it comes to choosing between UPI-based payment mechanisms. As the share of wallets in digital payments declines, look for a UPI-based system that is secure and stresses on neutrality rather than a one-payment mechanism bias. In other words, put your money behind a UPI-based system that is creating a flexible payment ecosystem and one that can genuinely replace the wallet you carry today -– if not now then in the future. Imagine your phone having your debit cards, credit cards and photo identification all inside one App that allows you to pay as you please. That is the not too distant future and perhaps digital wallets do not have a place in it.
Yateesh is Managing Partner, The Grey Space Consultants LLP a Mumbai-based consultancy advising on strategy, digital, customer success and branding.