The growing incidence of e-commerce on the mobile phone has led to a boom in digital payment solutions. Pretty much everybody from banks (HDFC Bank and Federal Bank), telecom companies (Bharti Airtel, Vodafone and Idea) to more than a dozen standalone start-ups (Paytm, Mobikwik, Oxigen, PayUMoney et al) has launched its own mobile payment application in the last few years.
In April 2015, transactions worth Rs 18,869 crore were made through mobile phones, compared to Rs 3,260 crore in April 2014, according to the Reserve Bank of India. The pool of users could be huge, though nobody has a fix on their exact numbers. Paytm, which is the only one that discloses its user base, has close to 100 million users.
The future too looks full of promise, with India's smartphone market growing at the fastest pace in all of Asia. However, despite the quick adoption, mobile payment companies have to scramble for customers. With the increase in the number of players, competition has become intense, leaving service providers fighting with one another to get users.
While established players like Paytm, Mobikwik and PayUMoney have increased their advertising spend to reach customers, new entrants are taking the freebie route to woo them. As a result, discounts and cashback are rampant, especially for purchases made on popular sites such as Lenskart, pepperfry or bookmyshow.
Such offers, however, haven't helped the companies keep customers. This is because a majority of the users don't store any balance in their mobile wallet, which leaves them free to switch from one company to another if there is a better deal on offer.
This constant churn in consumers means these companies, which typically earn by way of commission on purchases made by their customers, will have a hard time to gain traction, say experts. Paytm, the largest player in the business, is still to break even. The company expects to reach there only by 2018.
While it may be premature to talk of profits as these are early days for most mobile wallet companies, experts do agree the current business model is difficult to sustain. "The current strategy of doling out cashback and discounts is not sustainable," says PayUMoney CEO Nitin Gupta.
Even though the business is in its infancy, many service providers have started to diversify to stay relevant. In addition to being a mobile wallet player, they are also becoming check-out service providers. The service allows users to link their credit and debit cards to their mobile wallet and does away with the need to store money digitally. Check out 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.
According to Soma Sundaram, founder & CEO of iKaaz, a mobile payment solution provider started in 2012, this will help mobile wallet companies breach the monthly ceiling of Rs 10,000 per customer.
With large players like banks launching their own wallets, some even feel it would be better for the startups to work along with them and in coordination with one another rather than in competition. "We need to look at ways to work with other players such as banks as the trust that they carry is more," says Sundaram.
The biggest opportunity that mobile wallet service providers see is in the country's unbanked population. Given that 41 per cent of India's population is unbanked, according to an RBI report, and three-fifths of them live in villages, some of them are looking to build a niche for themselves in rural areas.
Payworld, for instance, wants to help the unbanked population to make remittances using mobile wallets. It sees a bigger scope for growth here than in catering to the digitally-savvy customer looking to pay for, say, a taxi ride or a pizza. "We believe in the long run an assisted model of transaction which is meant to target people at the bottom of the pyramid will work better," says Payworld Chief Operating Officer Praveen Dhabhai.
Apart from Payworld, Oxigen too is looking at remittances via mobile wallets to boost its business case. To reach the unbanked who often also don't own smartphones, these service providers are looking at money transfer through mobile wallet at retail stores. "Out of the total phones, only 10 per cent are smartphones. Still, for the unbanked, going to a retailer and getting money transferred via a wallet will be a big positive," says Oxigen CMD Pramod Saxena.
However, here too keeping the process safe and simple will be crucial to attracting repeat customers, say experts. "Mobile wallets took off only because we have managed to create a good case for consumers to transact using mobiles. People are not very comfortable with using cards for small-ticket payments, and so transacting via wallets for recharge, taxi et cetera has worked well," explains Paytm Vice-president (payments) Amit Lakhotia.
Despite the broader focus, competition is only going to grow fierce. Nitin Chugh, head of digital banking at HDFC Bank, says as the acceptance of this payment method grows, customer acquisition will become more aggressive. HDFC Bank recently launched its own online payment solutions, PayZapp. Experts believe larger banks will be at an advantage as they already have a user base and a wide network of branches to acquire new customers.
Still, there is a long way to go before digital wallets can replace cash altogether. "So far, consumers are migrating to the digital medium because of the ease and convenience that it offers, but wallet players need to do more to stay relevant. Only when there is a strong case for digital wallets to be used for everyday usage that cash can be replaced successfully," says Accenture India Managing Director (financial services) Piyush Singh. Traditional wallets, it seems, are not going to go out anytime soon.