The phone is your wallet too

The past few years have seen the emergence of mobile wallets as a rapidly growing alternative to digital payments. You can now pay your cab fare, do a mobile recharge or send money to peers; all in a jiffy, with no hassles of cash or time-consuming card payments.

The country’s mobile wallet customer base is estimated to be over 150 million, largely propelled by the convenience it offers over traditional banking products.

It can be activated instantly on a mobile, carries low risk due to spending limits, and enables instant payments without two factor authentication. Mobile wallet issuers have also done a great job in exploiting the versatility of mobile apps and developing a user friendly payments interface, something that banks had failed to do for long.

Having made this mark, mobile wallets are clearly at an inflection point. A high user base and growing popularity does not mean maturity in its life cycle. Several challenges that need to be addressed. Mobile wallets have so far not managed to go beyond merchants who already accept cards. While India’s consumer expenditure is close to ₹74.6 trillion, digital payments account for just ₹3.2 trillion, with the bulk of the market still running on cash. There is potential to expand to new segments such as public transportation, kirana shops, pharmacies, schools and parking lots.

The answer would lie in taking a segment-specific approach and employing suitable innovations to address the needs of each segment. The government’s push towards digital payments and the Smart Cities initiative is expected to create opportunities that include public players and their services.

There is no interoperable acceptance system so far for mobile wallets, as several merchants have been found to be accepting only one or two wallets. Each wallet issuer typically ties up with a merchant independently, which is inefficient and hampers the scale up of the merchant network. This is unlike the cards market, where in merchants can accept cards issued by a large number of banks. As long as you have a card affiliated to a network, it will be accepted across their entire merchant network, irrespective of which bank has issued your card.

A similar affiliation to network operators is desirable for mobile wallets, which may allow for sharing of the merchant network. This may also require the acceptance infrastructure to be upgraded.

A similar issue of interoperability exists on the issuance side as well. As per the regulatory framework laid out by the RBI, wallet to wallet transfers are only allowed if wallets belong to the same issuer, and not for different issuers. On the other hand, there is full interoperability for bank accounts as you can transfer funds between any two bank accounts. The reason for a differential treatment is that bank accounts are subject to stricter regulatory controls such as Know Your Customer checks and anti money-laundering guidelines. An interoperable wallet system can be more efficient as it may obviate the need for customers to open wallets with different issuers and encourage them to keep money in a digital form. However, inter-wallet transactions could be susceptible to greater risks.

Technology-based businesses allow for a fast scale-up, but with high levels of competition and commoditisation, customers can walk away equally fast. An added challenge could be to deliver services at an extremely low cost, since revenue per customer may also be very low. Companies can probably borrow from experience of other industries, such as telecom.

Mobile wallets have been successful examples in select countries, such as Kenya, the difference being that they have been executed in a much simpler environment – smaller market, limited competition, less stringent regulations and simple products. The Indian market is much more complex and could take much longer to mature.

The writers are with KPMG in India. The views are personal

COMMENT NOW