Digital wallet was the most sought-after product in the digital-payment system in India — until now. However, with the launch of Unified Payments Interface (UPI), digital wallet service providers are likely to hit a major roadblock. Experts tracking the payment space say the wallet providers will either become obsolete or will have to pivot in a bid to integrate themselves with the UPI, going ahead.

Vikram Gupta, founder of VC firm IvyCap, said: “UPI is a game-changer for the whole payment system in India and it will lead to some shake-ups among the wallet providers. However, the transition will take at least a year, giving wallet players enough time to innovate in a bid to stay relevant.”

Multiple options

Gupta said that while new technologies always make older technologies obsolete, the banking system will always have multiple ways of transactions. Also, the whole process of execution will take time as the banking industry will need time for training and upgradation in wake of the new system.

“Wallets never made debit cards redundant. India still remains un-banked with over 400 million people still not having a bank account. Wallets can tap that market.”

Staying relevant

Harish HV, Partner at tax and advisory firm Grant Thornton, said the wallets will need to work hard on staying relevant by offering several value-added services or pivoting their model. For example, they can start with offering small loans, he said.

Oxigen and Transerve are already working on integration; Paytm is moving to payments bank. “With integration of UPI, our online customers will find it a very reliable and secure wallet-loading mechanism from a bank account,” said Pramod Saxena, founder and Chairman, Oxigen.

Nitin Gupta, CEO and co-founder, PayU, which recently launched its wallet PayUMoney, said: “UPI will fundamentally simplify Person-to-Person transactions. That is the biggest risk for wallets. However, for P2M (person-to-merchant) transactions, this will be another payment option like credit card, debit card and net banking.”

Fintech start-ups, especially digital wallets, were the most sought after venture last year. According to a Tracxn data, 76 fintech companies have been funded since July 2015 in 83 rounds. VC-funding activity has been centred around a variety of business models, including mobile wallets, loan comparison, insurance aggregators, online lending, payment devices, payment gateway solutions and personal finance management.

In the last two years, over a dozen of mobile wallets, such as Paytm, Mobikwik, Transerve and FreeCharge, have mushroomed, trying to woo customers— from offering cash-backs on transactions to booking a home on the wallet. Flipkart, Amazon, Ola and Uber are also investing in developing their own digital wallets.

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