The last decade has seen a tremendous shift in consumer behaviour regarding digital payments, with e-wallets and online transactions dominating the way businesses were conducted. With over 1 billion mobile subscriptions, including 550 million smartphone users, and a surge in 3G and 4G penetration in India, the widespread adoption of digital payments is unsurprising to say the least. Although e-wallets entered the market as early as 2009, with Mobikwik founded in the same year followed by the likes of Paytm, Freecharge and PhonePe over the course of the next five years, the payments landscape in India remained firmly bent towards cash and other traditional options like debit / credit cards. It was 2016’s infamous demonetization that turned the tables and led consumers to adopt digital wallets – something that led to digital payment aggregators like PayLo take centrestage since they helped merchants accept all payment methods through a single platform.
A country primed for digital payments
Digital payment wallets like Paytm and PhonePe would have arguably lost steam had it not been for the myriad government regulations announced over the course of 2018 and 2019 to facilitate the easy use of e-wallets. Some of the biggest game-changers came in the form of relaxed KYC regulations for small transactions under ₹ 10,000, exemptions from tedious two-factor authentications when using Indian debit/credit cards, the introduction of the Aadhar Card which made KYCs much easier even for those less comfortable with tech, and the NPCI’s initiatives, UPI and Bharat Bill Payments System.
Today, we see e-wallets integrated into almost every consumer website, from e-commerce giants to travel, food, and hotel aggregators. In an answer to mobile wallets seizing hitherto loyal customers, prominent banks like Axis Bank, ICICI, HDFC, SBI, and IDFC have all launched their own payment wallets by the names of Lime, Pockets, Payzapp, SBI Buddy, and Ziggit respectively to compete. Additionally, telcos like Vodafone and Airtel have also thrown their hat in the ring by launching Airtel Money and Vodafone M-Pesa.
However, even with prominent brands offering their own e-wallets, the proliferation of e-wallets in India has slowed down over the years, with the total number dropping from 60 to 49. Though demonetization accelerated e-wallet adoption, the boom in consumer acceptance fizzled due to major issues that most e-wallets are still striving to address. For starters, most e-wallet brands fail to provide a good enough value proposition apart from burning money on cash-backs to properly engage their existing users and create a large enough consumer base to sustain their companies. With fewer customers using their services, these brands do little more than burn money each day. As a result, many wallets were acquired by larger giants over the last decade. For instance, Snapdeal acquired FreeCharge which was further acquired by Axis Bank from Snapdeal, Amazon acquired Emvantage to create Amazon Pay, Flipkart acquired PhonePe and Shopclues acquired Momoe, a mobile wallet specifically for offline stores. As time goes on, one can expect further consolidation in the wallets space.
The fight to gain new customers is taking its toll on prominent brands like Paytm too. FY19 saw the brand struggle with losses worth 3,960 Crores, as the company spent as much as ₹ 3,507 Crores on customer acquisition, proving that in spite of its quick adoption post-demonetisation, it’s not easy to maintain a set position in today’s market.
What does the future hold?
The RBI recently released Vision 2021, a list of 12 milestones the bank believes the country will hit in terms of digital payments. Of these milestones, some of the most pertinent ones are that UPI and IMPS will see an average annualized growth of over 100%, with NEFT growing over 40%, the volume of digital transactions will increase to 8,707 Crore by December 2021, with over 5 million active PoS machines all over the country, and of all retail electronic transactions, cheque-based payments would account for less than 2%. With the country taking firm steps towards developing a largely digital economy, one can only expect the use of e-wallets to rise.
Interestingly, a lot of the wallet companies have moved into the credit and personal finance space – PayTM launched PayTM Money and also briefly offered a pay later solution called PayTM Postpaid, Mobikwik has also entered the personal finance space in addition to offering personal loans while PayU shut down its PayU Money wallet and launched a pay later solution called Lazy Pay which also offers the instant loans.
While value creation is for users is only one part of the story, the merchants need to get value as well if the wallets are to stay in the thick the action. Big Data and IoT can allow leading brands today to analyse usage and consumption patterns of their customers. With the kind of consumer data access that the wallet companies have, its high time they create product solutions which help merchants not only acquire new customers but also engage and retain their existing customers by giving them exactly what they are looking for.
As the new decade dawns, apart from major changes on the strategy side for wallet players to make themselves more relevant for their users, we should also see major technological innovations that change the way e-wallets function. While many startups have started working on advanced technologies like Artificial Intelligence and Machine Learning to enhance their offerings, however, we have not seen AI seep into e-wallets yet. The next phase of development for the likes of Paytm, PhonePe, Google Pay and others would be to offer AI enabled suggestions and recommendations based on a customer’s spending pattern, lifestyle and behaviour. Such features would not only help the brands stand out from smaller competitors, but create value for consumers which is currently only limited to cash backs.
Even though we haven’t seen many successful commercial products using blockchain technology at scale yet, the applications of the technology in the fin-tech space cannot be doubted. With consumers’ growing worries about data-theft and identity fraud, e-wallets can stand to generate a ton of goodwill by offering a solution that’s known for being tamper-proof.
Tech trends aside, the coming years will also see the market consolidate further, with smaller brands disappearing and giants reigning supreme. However, even with multiple brands at the helm, we are far from the point of market saturation. With the National Optical Fibre Network (NOFN) initiative launched by Digital India slated to bring broadband connectivity to over 250,000 Gram Panchayats in rural India, we may see the next wave of acceptance from these areas.