India: Is India ready for the mobile wallet boom?

Using your mobile phone as a handy tool for financial transactions, instead of cash or cards, has become a reality with mobile wallets (m-Wallets), and though a relatively new concept, it is fast gaining popularity across the world. With the human race’s increasing penchant for ‘all things technology’ to make life simpler and additional efficient, it’ll not be long before innovations like m-Wallets make the traditional leather wallet completely redundant.

A mobile m-Wallet is essentially a digitized vault for personal identification and making financial transactions, be it airline or hotel bookings, banking, communication, receiving and managing offers and reward bonuses; all integrated across various consumer platforms.

Japan and South Korea are currently leading the world m-Wallet scenario, with the developed Western world catching up. In the Indian context, it is still a fairly new concept, which shows great promise in the times approaching. Despite being a novel entrant, the number of m-Wallet users has by presently far surpassed that of credit card users. As per RBI released figures, the total number of credit cards issued till October 2014 was 19.9 million. On the other hand, Paytm, mPESA, others, pioneer m-Wallet in India, by presently has a chief start with millions as active users. The potential is for all to see.

The current scenario in India

India is slated to see a multi-fold increase in the m-Wallet market, currently pegged at Rs. 350 crore, and expected to grow to Rs. 1,210 crore by 2019 at a CAGR of 30 %, according to a study by RNCOS, a research and consultancy firm.

• Opportunities

With internet and smartphone penetration at an all time high in the country, the m-Wallet market is just waiting to explode. A statement by Internet & Mobile Association of India (IAMAI) and IMRB International suggests that the number of mobile internet users in India is expected to cross the 213 million mark by June 2015, which though a remarkable number, is only a fraction of the total Indian people. Add to this the ‘Digital India’ e-governance initiative being spearheaded by none other than Prime Minister Narendra Modi himself, that plans to achieve 100% inclusion on an enhanced, country-wide digital network, targeting even the remotest corners of the country and empowering people with basic digital literacy as a means to ensuring their financial inclusion in government schemes and subsidies. With over 6 lakh villages alone and only 70,000 bank branches across the country, m-Wallets can prove to be a viable and cost-effective solution. Together with easy availability of low-cost handsets, competitive mobile usage rates and better internet speed and connectivity, these factors will drive the m-wallet market in India.

Moreover, the advances made by m-Commerce have led to the movement of payment traffic to mobile devices and this has, in turn, has helped boost the case for m-Wallets. Currently, m-wallet services see maximum usage for recharge and utility bill payments, inclunding financial transfers.

Both closed and semi-closed models on m-Wallets are becoming popular, where semi-closed wallets have tie-ups with partner banks for encashing payments.

• Key players

m-Wallets are receiving an impetus from multiple directions. Major telecom service providers such as Bharti Airtel Ltd (Airtel Money), Vodafone (m-Pesa), Aircel (Mobile Money), BSNL (SBI Mobicash) and Tata Teleservices Ltd. (mRupee) have and are in process of launching operations. App-developers like Paytm, MobiKwik, Triotech (Through SBI Mobicash and their own any minute at this time to be launched Wallet TrioMoney) too are in the fray and competing with world heavyweights like Apple and Google that have launched Apple Pay and Google Wallets respectively. IBM too has been investing in the development of m-Wallet solutions.

• Recent Investments

With investors showing keen interest in the booming market, a lot of others are likely to join the race.

In February this year Alibaba, the major eCommerce company in the world, acquired 25% stake in Paytm, pumping in a whopping USD 575 million. Any minute at this time next, Ratan Tata invested an undisclosed all in the company and joined them as an advisor. Again this month, MobiKwik raised USD 25 million in Series B funding from Tree Line Asia.

More entrants are expected to turn the market into a level-playing field, creating competitive services and low price solutions, thus helping boost its popularity further.

• Challenges

Despite the advantages, the segment is facing some tough roadblocks. Prima facie, it is the traditional mindset of Indians, both the customers and the merchants, to rely heavily on cash transactions and conventional bank-to-bank transfers. Lack of education and awareness of the numerous benefits of m-Wallets is an extra factor.

Then, there are security concerns, felt even by the experts. Although the user’s personal data is encrypted at the same time as stored on the phone, cases of virus attacks, susceptibility to theft/loss of sensitive data and its misuse, congested networks and failed transactions where payments are actually debited, are all a point of contention for the wary customer.

The Road Ahead

Despite the teething troubles, there is no denying that the m-Wallet segment holds tremendous promise. Vodafone and Bharti Airtel, for instance, are carrying out extensive research and building prototypes to understand the customer and the Indian market dynamics. Bharti Airtel has been investing heavily in creating a national-of-the-art technology platform and training inclunding educating people about m-Wallet benefits.

RBI too has introduced a new regime for allowing the licensing of ‘payment banks’, which will allow mobile operators to give payment and remittance services to the unbanked people. This can help achieve financial inclusion and help the beneficiaries of various grants and schemes launched by the government, such as the MNREGA.

Moreover, interoperability between stakeholders and services, supported by friendly regulatory considerations can help build a robust m-Wallet ecosystem in India.

Technically too, the evolution of NFC technology (built on the NFC chip in the handset which will allows fasten and automatic communication between devices) will drive the next of m-Wallets.