India is witnessing an exponential growth in the area of digital payment in recent times. With ever-increasing internet and mobile penetration, the country is all set to witness a massive surge in the adoption of digital payments in the coming years. Furthermore, flagship government initiatives such as Digital India will act as key catalysts and enablers of this transformation.

At present, mobile payments form a minuscule part of the overall digital payments industry in India. However, the contribution from phones and tablets is expected to increase to 30 per cent by 2020. Mobile payments in India are estimated to grow from $86 million in 2011 to $1.15 billion in 2016, with a compounded annual growth rate (CAGR) of 68 per cent, according to estimates.

The m-wallet segment includes transfer of money, services related to banking transactions, value-added services such as shopping, ticketing, recharging, and bill payments. In this segment, the highest, 38 per cent market share is captured by money transfer businesses, followed by recharge and bill payments, and utility areas by 30 per cent and 12 per cent, respectively.

Factors that count

The consumer payments industry (specifically wallets) will play a crucial role in the future growth of digital payments in the country. It will be driven by:

Tapping into the untapped market: According to data from the Reserve Bank of India, India is the home to the largest number of unbanked families (more than 145 million), potentially one of the largest bases to capitalise on

A focus on providing merchants with multichannel payment services

Wallet payments through near field communication (NFC)

Tokenisation, biometrics — because mobile devices will be a mainstream option for person-to-person or person-to-business payments

Crypto currencies such as Bitcoin, Litecoin Developing solutions that are not payment solutions, but are touch payments — solutions for merchant, gift, loyalty, data analytics, and so on

Financial inclusion: a wallet that can cater to this will definitely rule the Indian market

Analytics solutions – payments transaction data analytics will be a major source of payments-related revenue.

And, finally, remittances in developing countries is to grow by 5 per cent. (The annual domestic remittance stood at $13 billion in 2010 and was expected to reach $20.3 billion by 2014, growing at a compounded annual rate of 12 per cent.) These are clear indications that the mobile wallets market is definitely a lucrative one, with investors ready to pump in money. Mobile wallet providers are emerging as mini banking institutions and it won’t be surprising if they get banking licences in the future. This will be very lucrative if we take into consideration the government’s agenda of financial inclusion.

Paytm has over 100 million wallet users, which is double the penetration of Visa and Maestro combined (in India). Over and above this, in a country such as India and BRIC nations, the remittance market is immense.

Financial institutions/e-commerce/lifestyle shops are coming up with their own wallet, as can be seen with the launch of SBI Buddy, ICICI Pocket and even BookmyShow’s own wallet, to name a few.

Bubble in the making?

The value proposition of a mobile wallet is not about the payment, but the value-added services that can be offered across a mobile-enabled environment. No one wants to be left behind in this race of accumulating ‘customer’ and in a competitive environment, they all are coming out with attractive offers and unrealistic discounts. The question here is, in the name of customer acquisition/retention, is this strategy justifiable or long-lasting? Only the future can give an answer here.

Million-dollar investments are being pumped into the mobile payments industry. The industry of mobile wallet has too much to promise on the outside, which has caused many public companies’ valuations to be inflated. Some companies are also actively investing in mobile payment startups that could have strategic value for them. Investors too are pumping huge amounts of money into startups that aren’t even close to profitable. Putting money into something is easy but the tricky part is getting it out. Is this the making of another bubble?

For any new entrant thinking of venturing into this market, unless the business model is strong enough, it will eventually be a loss-making proposition.

And even though new entrants may acquire customers owing to the large customer base in our country; these questions remain: With so many deep-pocket players in the market, how will they continue to attract customers?

Will they be loyal? Will they use your platform in the absence of offers/discounts? How long will it take for the business to turn from push to pull? During that time, will the business be sustainable?

To the investors, blindly pumping money into a new venture without much experience will only over-crowd the already crowded market, and further decrease their chances of profiting, if at all.

Hopefully, with the launch of Apple Pay and Google Wallet in the country, and their deciding to support barcode and app-based payments as well, all the commotion will fall into place and the payment at most of the merchants will be streamlined and standardised, leading to a better life for customers. But there are still a lot of questions, unanswered.

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