On November 8, 2016, demonetisation brought the entire country to a halt. The auxiliary benefit was touted to be a cashless, paperless Indian economy. In the weeks following the move, economic recovery was gradual. Digital payments, as predicted, got a boost. Mobile wallets emerged as a key transaction platform, saving millions from the misery of queuing up at banks and ATMs. After all, India has more than a billion mobile phones. However, the initial growth spurt did not translate into an increasing band of loyal followers for mobile payments.
Today, the share of prepaid payment instruments (PPIs) – the category under which mobile wallets fall – in the digital payment pie remains virtually unchanged at about 0.02 per cent (December 2016-October 2017) of the total value of digital payments every month, according to Reserve Bank of India (RBI).
In terms of volume, 87.8 million PPI transactions were made a month after demonetisation (December 2016). Nine months later, the monthly transactions remain more or less the same at 87.5 million (September 2017). To be sure, the transactions were higher in October 2017 at 96.2 million, on the back of festival-driven remittances and purchases.
Digital payments did get a massive push from the government post-demonetisation, with the launch of payments banks and the acceleration of initiatives like unified payments interface (UPI) and mobile wallets.
The fact that the pie itself grew at about 10 per cent in value terms (December 2016-October 2017), depicts a move away from cash towards digital payments and, more importantly, a growing familiarity with the use of mobile technology for banking transactions. However, this growth has been largely driven by UPI, card transactions and IMPS (immediate payment service), and not so much by mobile wallets.
RBI has directed mobile wallets compliant with know your customer (KYC) norms to allow transfer of funds among themselves. This could spell a mixed future for mobile wallets. The modified interoperability guidelines are a part of the larger vision to migrate to electronic payments and ensure that such payments are safe, secure, authorised, efficient and accessible. Its impact on the future of mobile wallets is yet to be determined.
Mobile wallet space
Although Paytm is the poster boy for mobile wallets, it is only one of the 55 PPI licensees. Some of the other leading players in this space are AmazonPay, MobiKwik, Oxigen Wallet and ItzCash.
The initial growth, of almost 50 per cent, led by demonetisation, saw the number of PPI transactions rise, from 59 million in November 2016 to about 89 million in December 2016. However, the average monthly transactions since have remained at around 88 million (December 2016 to October 2017).
Developments like the launch of payments banks, the entry of Google Tez and Paypal in the digital payments ecosystem and the integration of wallets with UPI under the new RBI guidelines may augur well for bigger companies with deep pockets but not so for smaller players.
Players like Bharti Airtel and One97, which were offering semi-closed mobile wallet services under Airtel Money and Paytm wallets respectively, have transferred the wallet service to their newly launched payments banks. Paytm has also integrated with BHIM UPI, the government’s mobile payments interface. It also aims to migrate all Paytm wallet customers to its payments bank and offer more services such as wealth management.
Google Tez, built on UPI, enabling users to make payments straight from their bank accounts, was launched with a lot of fanfare in September this year. Unlike a digital wallet it does not require constant topping up. Tez works with 50-plus UPI-enabled banks, so that the money stays in the users’ bank accounts until they need to use it. It has also partnered with several phone makers, including Nokia and Panasonic, to pre-install Tez on their smartphones.
Tightening the purse strings
The full KYC and interoperability norms announced by RBI are likely to usher in a key change. They are expected to not only weed out non-serious players but also prompt consolidation among mobile wallets as the cost of doing business rises, feel experts. As a result, consumers will be spoilt for choice. They will be able to choose the most convenient, hassle-free product. It would mean that they would be able to transfer money from the e-wallet, say, Paytm wallet, to another wallet, and also a bank account.
Full KYC will keep digital wallets safe and prevent fake wallet transactions. Wallets with limited KYC (with only name and mobile number details) have to be fully compliant by next year for existing accounts. Some industry players feel that this may be a deterrent to growth in the mobile wallet industry and lead to a fall in small-ticket transactions.
The full KYC process is tedious, complicated and expensive for wallet players and also cumbersome for many users.
To enable seamless digitisation of the economy, KYC-compliant digital wallets will be able to send money to other wallets and bank accounts through the UPI platform, under the modified interoperability guidelines. Moreover, interoperability is likely to create a level playing field among different PPI providers as they will not spend exorbitantly to get merchants on board. Customer acquisition will no longer be determined by cashback offers or discounts but by the seriousness of the user. Experts feel that it will increase and improve the credibility of a wallet because it will be like a bank as far as money transfers are concerned.
In the period post-demonetisation, mobile wallets have witnessed growth and are now gearing up for the entry of new payment formats and new regulatory norms. The impact of these factors may change the face of this fledgling vertical, and widen the scope of operations from offering pure-play wallet services to digital financial services.
Proposed interoperability roadmap
The new interoperability rules apply to all PPI issuers – banks, non-banks, system participants and providers. In the first phase, wallet issuers (that is, banks and non-banks) will make all KYC-compliant wallets interoperable using UPI within six months. From a user’s perspective, this means money can be transferred from, say, a Paytm account to an AmazonPay account.
In the second phase, transactions between bank accounts and wallets through UPI will be allowed. This will enable the retransfer of money from users’ wallets to their bank accounts without extra charges. Currently, most wallets charge around 4 per cent to direct money back to the user’s bank account.
In the third phase, interoperability will be allowed for wallets issued as cards, but banks may still issue prepaid instruments in partnership with authorised card networks. Wallets issue cards and usually tie up with banks. But with the new rules, wallet companies may not need to partner with banks and can simply sign up with a card network.