War of the Wallets

Will traditional financial institutions entering the mobile wallet segment have a substantial impact on third party payment service providers - the likes of Paytm and Mobikwik?

In February this year, ICICI bank launched an e-wallet, called Pockets, in a clear bid to leverage the 'cashless revolution' ushered in by third party payment service providers such as Paytm and Mobikwik. The wallet allows users to instantly send money to any bank account, e-mail id, mobile number or a friend on Facebook. Users can pay bills, recharge mobiles, book movie tickets, order food, send physical and e-gifts, split and share expenses with friends using Pockets.

Anyone, including those who are not customers of ICICI Bank, can easily download the e-wallet from the Google Play store, fund it from any bank account in the country and start transacting immediately. This wallet uses a virtual VISA card which enables users to transact on any website or mobile application in India. It is to convey these features that ICICI recently rolled out a set of ads for its Pockets wallet. Titled, 'Don't take load, do the download', the videos executed by Ogilvy & Mather use a catchy jingle, while showing different occasions where Pockets comes in handy for users.

In the mobile wallet space, Pockets competes with Paytm, Mobikwik, Oxigen Wallet, Citrus, Airtel Money, Vodafone m-Pesa, Ola Money and Idea Money, among others. Last week, e-commerce marketplace Snapdeal also announced the launch of a mobile wallet in partnership with Yes Bank, through its recharge and utility payments unit FreeCharge. The new entrant will bundle location-based promotions, automated coupon redemption and loyalty card selection during check-out to enable single-click payments.

The popularity of these third party players seems to have shaken the conservative financial institutions that are warming up to digital wallets in order to stay relevant. According to RBI data, quoted in The Economic Times, the country saw more cashless transactions than paper-based ones in FY15. While paper-based transactions cleared through cheques amounted to Rs. 85 lakh crore in FY15, paperless transactions, including retail electronic transactions such as ECS (electronic clearing system) debits and credits, electronic fund transfer, card transactions, mobile transactions and prepaid instruments, were to the tune of Rs. 92 lakh crore in the same period, the report states.

The lure of cash-backs and schemes offered by app-based online payment gateways further discourages consumers from using bank debit cards. Keeping with the trend, last month, State Bank of India also launched a mobile wallet app, SBI Buddy, in collaboration with Accenture and Mastercard. Further, on September 15, SBI Card rolled out a new credit card called Simply Click, especially meant for transactions on e-commerce websites. Designed for the digital natives, Simply Click was launched in partnership with seven of India's biggest e-commerce entities - Amazon India, BookMyShow, Cleartrip, FabFurnish, Foodpanda, Lenskart and Ola.

Although Simply Click is not an example of a mobile wallet, it validates the fact that today even the most traditional financial institutions are not only taking note of the cashless revolution, but also joining it.

Banks vs. app-based payment gateways

Does the entry of traditional institutions in the category intimidate third party players?

For Govind Rajan, CSO, Snapdeal and COO, FreeCharge, this is a welcome move. He is of the opinion that there is no better time than now to add momentum to the journey.

Unperturbed by the development, he points out that the success of players in the category will depend on how well they manage partnerships. "Our success is in the success of our sellers, over 200,000 of them. We want to partner to build an ecosystem, and not go solo. In line with Snapdeal's vision of building the most impactful digital commerce ecosystem in India, the FreeCharge digital wallet will enable a culture of digital payments through multiple partnerships," he states.

Rajan believes that the heritage of Snapdeal and Freecharge - as technology companies born in the internet era - their focus on younger consumers and the combination of perspectives of both merchants and payments, makes it "best positioned to enable scale transformation."

He notes that features like biometric will help in making online transactions more secure and hence boost the phenomenon. Introduction of new models of credit scoring will also fuel consumer interest in digital wallets.

Like Rajan, Bipin Preet Singh, CEO, MobiKwik, is also dismissive of banks adversely affecting third party players which have shown rapid growth in a short span, owing to their ease and simplicity of use. "The foundation of our business is technology, which is not an area of strength for banks in India. Today, we connect 25 million MobiKwik users to 50,000 retailers. Given the user adoption that we have already seen for our product, it's very difficult for any new player to start from scratch and make inroads into the market," asserts Singh.

According to him, with as much as 95 per cent of transactions in India still being powered by cash, mobile wallets have a key role to play. "It's a hot space to be in, as is evident from the number of new players entering the market. We see it as further validation for our business," he adds.

Singh informs that India currently has around 30-40 million SMEs, of which only around 1.1 million have deployed point-of-sale (POS) machines and only about 0.7 million of them accept any form of electronic payment. The challenges get amplified when we take into consideration the fact that out of 500 million plus debit cards issued in India, only about 10 per cent of them are actively used for making payments. Credit card penetration is also quite low in the country, less than 30 million. "We are eager to fill up these gaps and enable easier access to digital payments for everyone," he adds.

Expert Speak

Pragya Singh, VP- retail and consumer products division, Technopak, believes that such developments clearly exemplify that banks, which have traditionally been facilitators of commerce, are now realising the need to equip and realign themselves to remain relevant to their fast-evolving, digital-savvy consumer base. Hence, they are taking on the mobile wallet trend - the next phase of card payments - seriously.

"Banks offer both convenience and credibility and, unlike some of the semi-closed wallets, they would allow end-to-end services, making their proposition compelling. They already have a captive consumer base and physical network which they can leverage. Their success will, however, depend on how well the wallets are executed," she says, adding that technology and customer experience will be the deciding factors.

The next innovation in financial services, opines Adhil Shetty, CEO and co-founder, BankBazaar.com, will be via paperless and instant transaction services, which will democratise finance in India. In his opinion, the crucial task, at present, is to make the ease of online payments/transactions available to everyone. "With so many players, the market will grow. This is good for the industry; but, in the end, the one who makes this ecosystem most secure, effortless and useful will be the winner," he states.