 "Cashing in on virtual wallets")
Astaggering 96 per cent of all retail payments, or $2 trillion (Rs 133 lakh crore), in India are still cash-based. According to some studies, this will go up to $8 trillion (Rs 532 lakh crore) in the next few years.
For prepaid instrument issuers, popularly known as mobile wallets, retail payments are a huge opportunity, as the mobile wallet can replace cash and route these transactions through formal channels. Smartphones are paving the way for these entities to provide transaction facilities for customers at their fingertips.
The numbers show an increasing trend. According to Reserve Bank of India data, the total value of transactions via mobile wallets stood at Rs 1,000 crore in 2012-13. Within two years, the value of mobile wallet transactions surged eight times to Rs 8,200 crore in 2014-15. (The rise and rise of money on the go)
Though the size of transactions on mobile wallets remains smaller than mobile banking, wallets have managed to surpass the latter in number of transactions. In 2014-15, the number of transactions via mobile wallet stood at 255 million, compared to 172 million banking transactions on mobile phones.
The Boston Consulting Group (BCG) believes that the rise in mobile wallets is a "disruption" that cannot be ignored. "The total number of transactions on digital wallets (promoted by non-banks) has already surpassed the total number of mobile banking transactions in 2013- 14. These transactions are growing at a stupendous rate of 180 per cent per annum, against 80 per cent in mobile banking transactions. This is a clear evidence of the substantial disruption in Indian banking," said the BCG report.
Experts say what is interesting is that the opportunity in this space was first tapped by non-banking players. Not surprisingly they have the first-mover advantage. Here is an example. While Paytm, claims to have over 100 million users, ICICI Bank, the country's largest private sector lender's m-wallet, Pockets, has seen only over a million downloads (till August 20).
The Paytm wallet (the entity was also awarded a payments bank licence by RBI) has been in operation for over a year while ICICI Bank's Pockets was launched in February this year.
A PwC report points out how m-wallets have reduced entry barriers in the financial services industry making it easier for players from other industries to enter the banking value chain. "Digital wallet is a prime example of non-financial services players entering the fray and challenging the status quo through differentiated offerings. Traditional banks are therefore being forced to alter their strategy and focus on innovation in the digital space to remain relevant and competitive," PwC said in its report.
Now, banks are trying to catch up. Even though they are late entrants into the wallet space, they are confident of faring well in the game. Rajiv Anand, group executive - retail banking, explains that banks have a ready user base that can provide them an edge over wallet players. "Moreover, as a bank, we can offer more services - a customer can open a recurring deposit or they can view all their past transactions. Also, since a customer already has a banking relationship, they would probably trust a bank's wallet more." Last week, Axis Bank launched its mobile wallet - LIME.
The BCG report also points out there is a clear opportunity for banks in this space considering that a survey revealed that 35 per cent of digital banking customers also use mobile wallets from non-banks. Anand explains that these wallets can also end up working as a customer acquisition tool for banks.
Even ICICI Bank's Pockets allows wallet users to open an account using their mobile phone. State Bank of India's SBI Buddy can be accessed by non-bank customers. HDFC Bank's Payzapp, which has the mobile wallet feature, is currently available only to bank customers but going ahead, the lender has said that it will allow non-bank customers also to access it.
Non-banking wallet players, however, are unfazed by rising competition. They believe there is going to be space for both banks and non-bank players considering the huge opportunity. As per the PwC report, about 90 per cent of transactions still take place through cash or cheque and only 10 per cent are via the digital medium.
Bipin Preet Singh, founder & chief executive officer of MobiKwik, says the one customer segment that is emerging and which banks are not likely to target are those who have debit/credit cards but are not very comfortable with using them online. "This is a big customer segment and they are going to be more comfortable using wallets, as they don't have to disclose the details of their card." MobiKwik has launched a cash pick-up service too, allowing cash to be directly added to the wallet.
Another area that wallet players believe banks are unlikely to get into is the "assisted model" which caters to the less digitally savvy customers. This typically includes the middle of the pyramid consumer that needs some assistance in creating and handling a wallet. "These customers can walk into a retail outlet of ours and get a wallet created. Also, the application can work with internet or on text messages. This can again cater to consumers who are not very technologically savvy, or are still using basic handsets," explains Naveen Surya, managing director, ItzCash.
Some other wallet players have been tapping the unbanked population that is not on the radar of banks for their wallet growth. PayWorld and Oxigen are some of the players in this category.
With over 30 active players in this space, competition has been heating up and as a result players are luring customers with cashbacks, discounts, exclusive services, etc. Experts believe it is too early to say who may emerge as the winner in the long run but agree that it will be a long time before digital money is able to replace cash fully. The opportunity is huge considering that India is among the most cash-intensive economies in the world with a cash to GDP ratio of 13 per cent in 2013-14, way more than countries such as the UK (3.36 per cent), the US (7.46 per cent) and China (9.47 per cent).
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KEY PLAYERS Vijay Shekhar Sharma Founder & CEO, Paytm In August this year, Paytm crossed the 100-million wallet user base and is planning to cross the 150-million mark by March 2016. Despite having the largest wallet user base in the country, Paytm is yet to break even. It was recently granted a payments banks licence and is looking at starting operations by March 2016. Earlier this year, Ant Financial Services Group, an affiliate of Alibaba had picked up a 25 per cent stake in One97 Communications, the parent of Paytm, for Rs 1,326 crore. Bipin Preet Singh Founder & CEO, MobiKwik MobiKwik has over 25 million customers and has tied up with over 50,000 retailers. The wallet player recently raised close to $25 million (Rs 166 crore) in a Series-B funding from Sequoia Capital, American Express, Cisco Investments and Tree Line Asia. The company also plans to raise an additional $100 million (Rs 663 crore ) by the end of this year and plans to scale up the total number of merchants to a million by the end of 2016. Prior to this, the firm had raised $30 million (Rs 199 crore). Nitin Gupta CEO, PayUMoney PayUMoney was set up in 2013 by the Naspers group, a $25-billion internet and media company, listed on the London and Johannesburg stock exchanges. Currently, the digital wallet player has a user base of five million, which it plans to take to 20 million by the end of this financial year. Last year, it acquired mobile-based payment application start-up Eashmart. To woo customers, it offers an additional discount of one per cent on every transaction. Naveen Surya MD, ItzCash Pre-paid card issuer ItzCash was the first to offer pre- loaded cards in 2006. According to reports, it recorded payments volumes of Rs 7,100 crore and a gross income of Rs 150 crore in FY15. Apart from offering wallet services, it also provides prepaid cards, online gifting solutions and money transfer services. It also offers offline services for the less technologically advanced customers. ItzCash has a strong franchise network in over 3,000 Tier-I and Tier-II cities. |
