The story and success of mobile wallets in India is pegged on three key aspects – customer acquisition, customer engagement and acceptance infrastructure. Telecom operator-owned wallets have the advantage of scale when it comes to customer acquisition. Most operators have a large distribution network and this makes acquiring a customer easier and less expensive due to the presence of several touch points. The challenge, however, lies in the high level of churn driven by deal-seeking customers. While it is easy to make customers subscribe to a wallet, it is difficult to keep them engaged and make them transact regularly.
Companies today are resorting to various means to get customers to transact through their wallets. They resort to cashbacks and discounts, which is a challenging business model unless the wallet company has a huge sum of money to burn. Telecom operators typically have huge investments committed to capex for spectrum acquisition, and network upgradation and expansion. Thus, unlike pure-play wallet companies, they have limited funds to offer cashbacks and discounts.
Further, the standard use cases are bill payments and recharges across any wallet. Therefore, to come up with a hook that can enable a customer to continue using a wallet on a regular basis without significant cashbacks and offers is a significant challenge. Besides recharges and bill payments, wallets are increasingly being used to perform e-commerce transactions. However, most of these use cases are for online transactions, with hardly any usage across offline stores/channels. Since offline is where the bulk of the cash spend takes place, attempts are being made to create an ecosystem in terms of merchant acceptance for wallets. Currently, the costs in terms of deployment and servicing of merchant acceptance infrastructure are very high.
Idea Cellular launched its mobile money services, Idea Money, in 2014. After a slow start on account of various issues on the technical side, the wallet has picked up in recent months. Customer acquisition has been highly satisfactory. During the year ended March 2016, Idea Money had 2 million customers, and by the end of the June 2016 quarter, this figure had shot up to 3.4 million.
Issues and challenges
One of the key challenges facing the mobile wallet market in India is intense competition. There are multiple players in the fray with anyone who has technology at its disposal venturing into the mobile wallet market. No differentiated drivers exist apart from cashbacks and discount offers. Thus, creating a proposition that resonates with customers and is scalable is a key issue. Further, it is very difficult to ensure customer stickiness in the absence of incentives.
There is also a functionality issue with a mobile wallet. Functionality is fairly limited with a restriction on the balance that a user can hold, no interest is earned on the amount stored in the wallet and cash cannot be withdrawn from it. Another issue is in terms of the weak economics associated with the wallet business. The economics does not really work from a strategic business perspective, which is to ensure customer loyalty, add to the company’s top line and reduce churn. Lastly, acceptance of the wallet is also a challenge. For people to start considering wallet as an alternative to cash, acceptance has to increase dramatically, especially in the offline space.
The way forward – Payments bank
A key challenge with any wallet today is not so much customer acquisition as differentiation. There is not one magical use case that will suddenly appear and transform wallets. At Idea, we believe that the move from a wallet to a payments bank will bring that change in helping us create a value proposition for our customers.
The Aditya Birla Group has got in-principle approval to be a payments bank. Going forward, our entire focus will be on developing a proposition for customers to consider us not as a mere wallet provider, but as a provider of a bank account plus wallet.
A payments bank licence brings a host of advantages in the face of intensifying competition. People are not very comfortable with parking large sums of money in a mobile wallet as they would do in the case of banks or other financial organisations. At Idea, one of the biggest advantages that we see in this context is that we have the Aditya Birla Group as our parent company, which has a strong brand value and trust associated with it. Also, the economics for a payments bank works out to be much better as there exist several revenue streams, which means a lot of third-party products such as credit and insurance can be sold through the payments bank.
The key to success lies in the ability of a company to differentiate its services from those of its competitors. To this end, developing an ecosystem to provide customers with a wide range of services in a convenient manner is crucial. There can be multiple ways of doing this – an open marketplace, where everyone and anyone is welcome to offer products and services, or a more curated marketplace where a company might provide its customers with options based on their profiles, previous transaction patterns, etc.
There is a lot of excitement taking place in this space, but also significant confusion as companies try to work out the best models.
Based on an address by Mukul Sharma, Senior Vice-President, Idea Cellular at a tele.net conference