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Is Digital Wallets The Future of Money?

India has been reckoned by many countries all over the world to be an emerging financial superpower. With swiftly growing internet and mobile services, India is currently on the cusp of something big—the emergence of digital payments on a never-before-seen scale. Moreover, with government-backed initiatives such as Digital India, the spread of digital payments will be catalysed at an even faster pace.

Currently, mobile payments account for a relatively small portion of the overall financial transactions in India. However, if estimates are to be believed, then the contribution from phones and tablets and other mobile devices is expected to increase by up to 30% by the year 2020. It is estimated that mobile payments have risen from $86 million in 2011 to a whopping $1.15 billion in 2016. An emerging segment of mobile payments belongs to the m-wallet (or mobile wallet) segment, which includes the transfer of money for services such as shopping, ticketing, mobile recharging, cab fare, bill payments and more. Within the m-wallet segment, there are different players who provide specific services, such as services that simply transfer money which makes up 38 percent of the market share, recharge and bill payment services which account for 30 percent, and utility areas which constitute 12 percent of the market share.   

Mobile money first tried to enter the market in 2011. While it didn’t really take off at the time, it certainly piqued the interest of emerging markets. Coupled with the rapidly growing mobile penetration rate, mobile payments mostly centred on identifying what would work and wouldn’t work for India. The Indian government’s recent move to demonetize INR 500 and INR 1000 notes may have caused some inconvenience, but there was a silver lining—the nation took to mobile payment interfaces like fish to water. The government and the citizens of India used the opportunity to push the Indian economy into a digital future.

With the proliferation of mobile wallets such as PayTm (One97 Communications Ltd), Freecharge (Freecharge Technologies Pvt. Ltd.), MobiKwik (One Mobikwik Systems Pvt. Ltd.) and Oxigen (Oxigen Services India Pvt. Ltd.), it is clear that Indians are no longer strangers to mobile payments. Banks like SBI and YES BANK have also launched mobile wallets to facilitate ease of payments for their customers. Since the introduction of mobile payments in 2011, we’ve witnessed e-money ebb and flow over the years. However, a few years later, mobile money seems to be more promising than ever before, mostly thanks to the development of the technology that supports it.

Mobile WalletsExactly What India Needs?

Whether it is mobile payment options, or something as simple as acceptability by merchants and consumers, the graph for mobile wallets in India is showing an exponential rise. While mobile wallets are still in a nascent stage, there is wide acceptability, and the pace at which mobile wallets are growing is staggering. In an interview, Nitin Mishra, the VP of Products at PayTM said, “We’ve seen exponential growth in wallets and a couple of months ago, we crossed the 100 million wallet mark. We witness about 70-75 million transactions on the Paytm platform, and one-third are via mobile wallet.”

Simply put, the way we use our mobile phones has changed remarkably. While there have been a few bumps in the road, countless people across the nation are becoming increasingly comfortable with making payments through their cell phones. With a certain degree of comfort setting in, a phone turning into a means to transact is natural and will become second nature in a few years.

Factors for Change

There are more than a few factors that have brought about the gradual shift from cash to digital. However, the factor that has been instrumental in the shift to digital is the unprecedented growth of mobile and internet capabilities. According to the CEO of ePaisa Siddharth Arora, compared to 240 million bank accounts in the country, India has more than 500 million mobile phone users, and 90% of these phones are capable of handling financial transactions.

After years of trying to rally people to move from paper to plastic money, the RBI has been prompt in taking steps to support the use of e-money. While most banks already have their dedicated mobile wallets, such as ICICI Bank’s Pockets, SBI’s SBI Buddy, YES BANK’s YES PAY and more, the latest development has been to introduce support for money transfer between online wallets.

What Does the Future Look Like?

India’s biggest challenge for e-wallets and e-money is the sheer size of the country’s population. While we do have the initiatives in place, when it comes to driving numbers, there is a certain amount of difficulty.

To deal with these challenges digital payment interfaces need to offer incentives to both consumer and merchant to promote adoption. The key question for both parties is why they should pick digital over cash. For the consumer, mobile payments need to be quick and easy to use, while also being secure. For the merchant, on the other hand, it needs to save time and cut costs, have low cost and give them a new stream of revenue.

While recharges, bill payments and taxi bookings remain strong e-payment opportunities, many digital payment services are trying to expand to other sectors as well. For example, PayTM has tried to add their interface to retailers, brands, small retail enterprises, coffee shops, hotels, and much more, even going to the extent of branching into the education sector by allowing people to pay for coaching classes through mobile wallet.

The initiatives of mobile wallet players will need to be backed by the RBI fully, and government initiatives such as infrastructure, data plans, stable networks, better communications and so on will be integral to the continued success of digital payments in India. There is also a tremendous need for awareness about e-payments, which will play a key role in getting more people on the e-payment spectrum.

All in all, if we manage to hit the right track, then mobile wallets will soon replace cash.

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