E-wallets face a big challenger in Unified Payments

As UPI gears up for its launch in June, e-wallet players are worried they won't be able to keep up with its sweeping reach and the ease of use of its technology

Mobile wallets have been cashing in on the rise of smartphones in India and ringing in some serious money.

However, now that digital money transfer is at the cusp of another innovation with the coming in of the Unified Payments Interface (UPI) that is set to make transferring money as simple as sending text messages, some fear that mobile wallets may become obsolete.

This fear stems from the fact that only banks are allowed to be a part of UPI that has been launched by the National Payments Corporation of India. The wallet players have been left out of its ambit.

National Payments Corporation currently operates the Immediate Payment Service (IMPS) that allows people to make online transactions and transfer funds from one bank to another. UPI, which will be available from June, will allow its customers to do the same on a smartphone.

It will also make it more convenient. Unlike IMPS or other similar payment systems where one needs to add a one-time password or the IFSC code of the bank to make payments, UPI transactions will be linked to a unique identity, generated by the user himself, which will act as his virtual address for all online transactions. The address could even be the user's mobile number or Aadhaar number. This means people can make online payments with far greater ease than they can today.

At the same time, using UPI could also make it easier to directly transact with a seller for a buyer. Wallet payment services allow people to make payments only to those who have also subscribed to the same service. For example, a consumer can pay for, say, a taxi ride using his e-wallet only if the driver is also using the system, but UPI does not have such barriers and one can send money to any account.

This is a big threat for wallet players who were targeting the digital-savvy urban customers. Industry players say these players will now need to tweak their business model to generate additional sources of revenue.

Facing a big threat

Soma Sundaram, founder & CEO of iKaaz, a mobile payment solution provider started in 2012, says, "The convenience factor, which was being taken care of by some wallet players, will get completely replaced by UPI and therefore some of these players might find themselves irrelevant."

The bank-promoted wallet systems, such as SBI's Buddy, ICICI Bank's Pockets, and HDFC Bank's Chillr, will be equally affected.

"These existing bank-led wallets offer their products to only those who have an account with them. UPI is open to account holders of all banks. This significantly increases the pool of customers UPI can tap into, compared to banks which have a limited universe of customers," says a research report by Centrum Wealth.

An added feature of UPI is that it allows users to send reminders to their creditors by raising a "debit request". While the payment is made only after the user has accepted the request, it is expected to come in handy for transactions between e-commerce players and merchants.

Clearly, UPI can reach far more people than all e-wallets put together today, given that its platform is open to users from all banks.

The only mobile wallets that could escape competition are those which are engaged in reaching the unbanked and helping them with remittances etc.

"In the short-term, there definitely will be challenges. However, the impact will be more on companies that are in the consumer-facing business. Ours is more concentrated on the unbanked population who are likely to continue using this medium for fund transfers," says Praveen Dhabhai, chief operating officer, Payworld.

Looking for growth

For others, diversification will be the key to survival. Thus, some players have started to work as check-out service providers by allowing users to link their credit and debit cards to their mobile wallets. Such service providers usually earn up to 1.5 per cent of the transaction value as revenue, which is higher than the commission earned if consumers transact from their digital wallet.

In addition, they are also looking at remittances and the offline retail space to grow their businesses.

"It might help to expand and add another line of business as just the payment part may be taken care of by UPI," says Naveen Surya, chairman, Payments Council of India, and managing director of ItzCash, a mobile wallet.

However, he adds that wallet players can help India move a step closer to becoming a cashless economy if they are also allowed to join the UPI platform. "We can tie up with offline retailers and merchants and get them to transact via this medium that will not only eliminate cash but also the need for point-of-sales terminals," he says. In other words, digital wallets could play an intermediary between a seller and a customer who wants to transact via UPI.

For now, new digital wallet players are thinking twice before entering the fray. After 41 new licences being granted over the past few years, this year no new prepaid payment instrument licence has been granted so far.

Experts believe that those who were waiting to enter this space will now prefer to take a wait-and-watch approach and see how the existing players are able to weather the storm.