The war of e-wallets in India

This editorial was first published in our Payment Methods Report 2018 – Innovations in the Way We Pay. The Payment Methods Report 2018 presents the key trends and developments in global and regional payment methods by highlighting the innovation, challenges, and developments in the use of the most important payment methods across geographies and verticals.

India is and will continue to be a fascinating market for a lot of financial and payments professionals. Having spent just under a year living and working there, I can certainly see why this is the case and why opportunities are still ripe.

Cash has dominated the market for a long time, be it for transactions, employee salaries, and even for online shopping via the ‘cash on delivery’ as a payment option. However, the e-wallet market, in its current state, has seen a decline.

Factors that affect adoption

The main driver for the surge within the e-wallet market in India to date has been the demonetisation exercise in November 2016.

As a result of the demonetisation, the government removed from circulation both the 500 and 1,000 rupee banknotes, with the issuance of new 500 and 2,000 banknotes. The rationale was in part to deal with the amount of black money in the country, but also to try to drive and promote the use of digital services/ payments.

The government has been on a mission to foster financial inclusion and promote transparency across the country. In addition, government policies such as Pre Paid Instruments (PPI), the introduction of e-wallet interoperability and Universal Payment Interface (UPI) by the NPCI have further helped stimulate the market.

Adoption of e-wallet products remains a challenge for the Indian market, largely driven by competition from credit/debit cards. Ecosystems remain undeveloped in rural areas, especially as some merchants have yet to adopt crucial contactless point-ofsale terminals. A lack of knowledge or trust from the masses is also proving to be a hindrance.

Onboarding challenges

One of the biggest barriers to successful adoption of financial services in developing payments markets is KyC, or Know your Customer. One of India’s biggest achievements has been the introduction of Aadhaar, a biometric database with over a billion people registered on it. This has certainly helped customers to be onboarded in a much shorter timeframe.

However, there is still a debate as to whether it has improved processing times and whether it is an efficient and inclusive tool. As of the 1st of March 2018, all e-wallets now require full KyC, meaning that consumers will have to link their Aadhaar number to their mobile wallet.

In my experience, KyC has proven to be a challenge across regions in South Asia and the Asia Pacific because the processes involved have been long and tedious. As a customer, you would be required to make an appointment and meet an official faceto-face, in addition to providing an extensive list of documents.

A high percentage of the target audience for e-wallet providers is the so-called ‘unbanked’ population: people who are not registered with any form of account and, therefore, cannot provide any means of KyC. This is especially common in rural parts of India outside of the major towns and cities.

Something for nothing

Creating e-wallet products has certainly been expansive in India over the years, but adoption, as mentioned earlier, remains a headache for some. The Indian market is no different from others, and incentives are an extremely important consideration. Indian con sumers will only see the value in an e-wallet product if the incentives match their needs.

The majority of these now include the ability to top-up mobile phone credit, pay for utility bills, book holidays, buy tickets for entertainment or travel, and secure loans and generous cashback offers. They have also focused strongly on the onboarding and user experience, insomuch that banks are now using these as a benchmark to shape/update their own offerings.

New kids on the block

In addition to some of the major heavyweights in the e-wallet space, the likes of Paytm (as mentioned earlier), Oxigen, Mobikwik, PayU Money, Freecharge, PayPal, Vodafone m-pesa, Airtel Money and the local bank e-wallets dominate the market.

However, apart from local players, Google and Amazon are also trying to tap into the growing and very profitable Indian market. Google launched its own payment platform called Tez, which allows users to link their existing bank accounts with the app to pay for services, either in an online or offline environment.

The key to their success is not to focus on frictionless payments but on the additional value that a user would get from using the
service. I had previously stated other built-in features and capabilities focused on m-commerce and value-added services: Paytm and Airtel are two examples of e-wallets who have recently moved into banking services.

The future and beyond

I believe we will see a consolidation of the market, but this is a double- edged sword. It is true that intense competition forces companies to continually innovate, drive down costs and gives consumers more choice, but it can also lead to confusion amongst the users.

Who will win the war of the e-wallets? The current environment, which is dominated by diversification and fragmentation, is already setting the stage for a possible winner. In short, those who adopt a collaborative approach, respond to ever-changing market de mands, make use of emerging technologies and understand consumer behaviour will have the most to gain. It may seem as a long list, but checking all those points is essential for bringing to market a product that consumers need, want and will use.
 

About Kunal Patel

 Kunal has over 10 years’ experience in product development, innovation and strategy across corporate organisations and fintech start-ups. These include banks, payment acquirers, and mobile financial services, spanning Asia Pacific, South Asia, Europe, Central and Latin America.

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