Electronic Wallets in India

It was only after the cash crunch of November 2016 that digital payments had received their booster shot into the mainstream Indian economy. Moreover, the increased penetration of internet and smartphone usage with government programs like Digital India have paved the way for electronic payments in India. The digital payment instrument that has gained exponential popularity among both the merchants and consumers however is the mobile wallet/e wallet.

A mobile wallet is a virtual place to carry your credit and debit card information in a secure digital form on your mobile device. Instead of using your physical plastic card to make purchases, a mobile wallet allows you to pay with your smartphone, tablet, or smartwatch in stores, in apps, or on the web. All it requires is to download these digital wallet apps from the app store or play store. Some of the leading players in this space are PayTm, Mobikwik, PhonePe, Google Pay among others.

There were multiple factors that contributed to the rapid adoption rate of mobile wallets in India. The increased use of the smartphones, the internet and improved telecom and payment infrastructure were drivers for the market growth due to the convenience smartphones offer in making payments. This growth in the mobile wallet market in the Asia Pacific countries is attributed to the falling smartphone prices. The granting of PPI licences (Pre-Paid Instruments) by the Reserve Bank of India played an important role in establishing e-wallets in the Indian market.

Features such as 1-click payment that enable user to easily pay across various services has made mobile wallet appealing to the users due to its simple working. There have also been multiple incentives offered by the mobile wallet companies through discounts and cashbacks to increase their appeal among the individuals. It is the ‘cost-effectiveness’ nature of these wallets that appeals to the merchants as the cost associated with acceptance of e wallets including setting-up infrastructure and transaction fees is much lower compared to the traditional card-based payment system. Paytm, for instance, does not charge merchant any fees towards installation and annual maintenance. While it charges merchant service charges for online payments, no charges are applied on QR code based in-store transactions.

However, it has not always been smooth sailing for mobile wallets even after their boost. They still face a few of the major challenges. Mandatory KYC and still evolving policies made by the government has had some negative impact on the overall growth of the adoption of these wallets. Additionally, while medium to large-value transactions continue to be made through digital banking and cards, only low-value day-to-day transactions are carried out through mobile wallets. Mobile wallets also face certain challenges from banks in establishing their foothold who are worried that it might negatively impact their revenue. Network problems and reliable and fast internet connectivity is not available in most part of the country and poses a challenge for those situated in rural and remote parts of the country. There is also a lack of awareness about the benefits of using wallets among traditional users who perceive online payment as insecure which is fuelled by instances of fraudulent activity in such transactions.

To remain competitive against cash and other alternatives, the wallet providers are now looking beyond ‘just payments’ and focusing on value-added services. These wallets encompass additional services such as utility bill payments, mobile top-up and even gold purchases. Some of the wallet providers such as Paytm and Airtel have also begun to move to other sectors to offer banking services, after receiving the approval from RBI. Although, mobile wallets appear to have a bright future in the Indian Market, several external market factors will also have an impact on their adoption. They need to keep on innovating and take advantage of the dynamism of market economics to stay in the game.

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