Mobile Wallets – Market, Opportunities and Challenges

The Market Digital Payments Industry including net banking, credit/debit card transactions, prepaid cash cards, mobile wallet and IMPS was estimated at $14.51 Billion in 2013. Out of 800 million online transactions made in 2013, 53% were made using credit (21%) and debit cards (32%), while 44% came from Internet banking. The rest were attributed to Mobile Wallet, Pre-Paid Cash cards and Immediate Payment systems (IMPS). The current size of m-commerce – 4% of the market, is significantly low. At present, mobile payments form a miniscule part of the overall digital payments industry in India. However, contribution from phones and tablets is expected to increase to 30% by 2020. Mobile Payments in India is estimated to grow from $86 million in 2011 to $1.15 billion in 2016, with a compound annual growth rate (CAGR) of 68%. The M-wallet market is projected to grow at a CAGR of around 30% in the next five years from 2015-2019. Market of m-wallet segment includes transferring of money, services related to banking transactions, value added services such as shopping, ticketing, recharging, and bill payments In this segment, the highest 38% market share is captured by money transfer businesses, followed by recharge and bill payments, and utility areas by 30% and 12% respectively. Others enjoy 20% market share. Some of the major m-wallet players are Airtel Money, mRupee, Vodafone m-Pesa, Oxigen Wallet, Paytm, Mobikwik and Idea Money (VMSI). The Opportunities In this backdrop, potential opportunity lies in consumer payments industry (specifically wallets) –

1.  Tapping into the untapped market – According to data from Reserve Bank of India (RBI), India is the home to largest number of unbanked families (more than 145 million). Potentially one of the largest bases to capitalize on.

2.  A Focus on providing merchants with Multichannel Payment Services.

3.  Payment through wallets using NFC, tokenization, biometrics – Because Mobile devices will be a mainstream option for person-to-person or person-to-business payments.

4.  Cryptocurrencies. E.g. – Bitcoin, Litecoin etc.(Total Market Cap : $3,880,950,327)

5.  Developing solutions that are not payment solutions, but are touch payments – solutions for merchant, gift, loyalty, data analytics etc.

6.  Financial Inclusion – A wallet which can cater to this will definitely rule the Indian market.

Parameters 2013 2014
No of Transactions 250.5 million 328.6 million
Amount of Transactions $ 3.6 billion $ 8.2 billion
Banking Outlets in Villages (Branches) 40,837 46,126
Banking Outlets in Villages (Branchless Mode) 227,617 337,678
Banking Outlets in Villages (Total) 268,454 383,804

7.  Analytics solutions – Payments Transaction Data Analytics will be a major source of payments-related revenue.

8.  Remittances – Remittances to developing countries to grow by 5%. (Annual domestic remittance stood at $13 billion in 2010 and was expected to reach at $20.3 billion by 2014, growing at a compounded annual rate of 12 %.)

Mobile wallets Let us talk about Mobile wallets. All these facts give a conclusion that the market of mobile wallets is definitely a lucrative one, with investors ready to pump in money. As e-commerce continues its rapid growth in the Asiatic region, mobile wallets have become one of the most trusted and preferred ways to pay online. Most of these wallets incorporate multiple payment methods, from bank transfers to credit cards, debit cards, gift cards and more. That way, consumers with or without credit cards, can use mobile wallets. NFC is now available on nearly all high-end smartphones. The only issue with NFC gaining popularity into the Indian market is the supporting hardware on the merchant’s POS. In-store payments drive mobile wallets adoption to a large extent, as more than 90% transactions occur in-store. The question here is, will NFC or app based/barcode payment rule? Some mobile wallet providers are giving facilities to unbanked consumers to deposit money into their wallet through agents, but that is geographically very limited. Mobile wallet providers have now become a kind of mini banking institutions (Payments banks) and it would not be surprising if they will get their banking licenses, and follow the path like Paytm, Airtel etc. This will be very lucrative if we take into consideration the Government’s agenda of financial inclusion. Paytm has over 100 million wallet users, which is double that of Visa and Maestro penetration together (in India). Over and above this, in a country such as India & BRIC nations the remittance market is huge. These Payment banks can also leverage in this landscape. The financial institutions/e-commerce/lifestyle shops have realized the potential of mobile wallets in terms of consumer experience and loyalty. That is why each one of them is coming up with their own wallet which can be recently seen with the launch of SBI Buddy, BookmyShow’s own wallet to name a few. It would be relatively easier for banks vs a non-bank product, because they already have a trusting customer base and their product is less likely to suffer from interoperability. Essentials A mobile wallet in today’s world should encompass the following 3 features (Source – Euromonitor) – Pre-purchase: Pre-purchase capabilities enable consumers to identify products or solutions that they would like to buy and provide incentives. These capabilities include offers and coupons that are driven by location, loyalty based services – including gift cards and rebates. Purchase: Existing payment technologies adequately cover the purchasing option. These include NFC based and QR code based solutions. Post-purchase: Ability to manage payment details after a purchase is key for a compelling mobile wallet solution. These capabilities include transferring of payment to another card and expense management. Some innovative capabilities could include the ability to purchase a warranty for large purchases, signing up for loyalty programs. Post-purchase is also a great time for providing cross sell/up sell features Challenges With a new mobile wallet coming up every month or so, the main thing to watch would be how they market themselves, which exclusive alliances they can come up with, like Uber and Paytm what effectively gave an entry to Paytm into the market and use all of the Uber users on its platform. In addition to this, a wallet which can better digitize the path-to-purchase and eliminate the friction tied to the payment process over its rival, will capture the market. With the advancement of technology, to create a unique selling proposition in term of features would be extremely difficult for the new players. The only thing that they can do, apart from making a good product is – market in a way that touches every consumer aspect (From excellent UI/UX to all basic wallet features to one touch payment –millennial generation – to one to one customer engagement), exclusive alliance with 1-2 service providers and most importantly partner with various e-commerce/traditional shops. The value proposition of a mobile wallet is not about the payment, but instead about the services that can be offered across a mobile-enabled environment. It is interesting to see scenarios where the mobile wallet is funded over the lower-cost EFT network in order to save money on card network fees. Wallet providers also save money by bundling transactions to get high volume discounts. No one wants to be left behind in this race of making “CUSTOMER” use their wallet for their next transaction and in the process encourage them by rolling out n numbers of offers. Is this much cost really justifiable in the name of customer acquisition/retention etc.? Conclusion There is just too much money going into the mobile payments industry. The industry of mobile wallet has too much to promise on the outside, which has caused many public companies’ valuations to be inflated. Some companies are also actively investing in mobile payment startups that could have strategic value for them. Investors are also pumping huge amounts of money into startups that aren’t even close to profitable. Putting money into something is easy but the tricky part is getting it out. Is this the making of another bubble? Compared to a decade earlier, 10 confusing cards have now been replaced by 10 confusing wallet apps, each working at a different merchant. To any new entrant, who are thinking of venturing into this market, unless the business model is strong enough, it would be a loss in the long run, even though they will have customers, owing to such a large customer base in our country. But the question remains,

1.  With so many deep pocket players in the market, how will they lure in customers?

2.  And will the customers be loyal? Will they use your platform in absence of offers/discounts?

3.  How long will it take for the business to become from push to pull? During that time will the business be sustainable?

To the investors, blindly pumping money into a new venture without much experience will only over crowd the already crowded market, and further decrease their chances of getting any profit, if at all possible. Hopefully with the launch of Apple pay and Google wallets in the country, and they deciding to support barcode and app based payments as well, all the commotion will fall into place and the payment at most of the merchants will be streamlined and standardized, leading to a better life for customers. But that’s a lot of ifs. About the author Ashutosh Singh is into eCommerce, Marketing and Analytics. He holds keen interest in Business Intelligence, animation, and learning technical languages. He is an IBM certified solution designer and holds an MBA degree from IIM, Calcutta.