The first leg of digital consumerism saw the emergence of e-commerce companies handing over the power of shopping to consumers through just a ‘click’ of a button. And even as Indian consumers have mastered the art of shopping online, cash-on-delivery still accounts for 60% of all e-commerce orders. An interesting number which highlights an existing distrust of online transactions for a majority of the population. But this is expected to change soon, with a revolution round the corner.
In the last one year, the Indian market has been flooded with various start-ups launching their own mobile payment gateways or mobile wallets (m-wallets). According to a report by research and consultancy firm RNCOS, the current size of the mobile wallet (m-wallet) market in India stands at about Rs 350 crore and is estimated to touch Rs 1,210 crore by 2019. Of this, cash transactions account for 38%, while recharge and bill payments account for 30% of the total market. “There is a large and continuously growing percentage of population without a bank account. So the mobile wallet is expected to play a key role in allowing that part of the population to transact digitally for everyday needs as well as commercial activities,” says Akhilesh Tuteja, partner and head of IT advisory services, KPMG in India.
To be sure, each mobile wallet has found its own niche thanks to an increasing number of consumers joining the wave. Early this month, Paytm claimed that it has over 100 million users in the country with 80,000 merchants joining its platform. Hot on its heels is MobiKwik which claims to have 18-20 million users in the country. Next in line is Oxigen Wallet with six million consumers followed by PayU with five and a half million consumers. For Amit Lakhotia, senior vice president, Paytm the digital payment business is all about scale. “We are looking at getting half a billion consumers in the next two and a half years on the Paytm platform,” he says.
Agrees Ankur Saxena, chief executive at Oxigen Wallet, that it is very hard to run a mobile wallet business. “The only way a payment company can survive is by roping in more customers and merchants, both online and offline. The bigger the network, more the reasons to use the wallet,” adds Saxena. The company is looking at taking the number of wallet users to 20-25 million by the end of this fiscal.
While it is easier to get a customer who already has a bank account on board, the real challenge lies in getting the unbanked population aboard. But wallet companies are working their way around this. For instance, MobiKwik, Oxigen and Payworld run retail outlets across the country where consumers hand over cash to an agent who further deposits the money in the customer’s digital wallet. For Praveen Dhabhai, COO, Payworld India the focus is on an assisted model. “We are working towards increasing our retail touchpoints from 60,000 to 300,000 in the next three years,” says Dhabhai.
The rules of the game
There are two business models in this segment. In the first case, a mobile wallet company can choose to go beyond traditional offerings and provide services like m-commerce as Paytm has done. In the second, a mobile wallet can remain as a facilitator of secure payment partnering other e-commerce companies and retailers setting up a secure transaction. However, in case of the former, the challenge resides in signing up more e-tailers as well as offline retailers. Citing the example of Flipkart’s PayZippy, Upasana Taku, co-founder, MobiKwik says, “Flipkart had to shut down its payment gateway last year after it failed to garner support from other e-commerce companies. The question is whether the aim of a company is to provide payment support or compete as an e-tailer.” Flipkart had launched PayZippy in July 2013 year to compete with services such as CCAvenue and Paytm.
So far, small and medium sized businesses have found their calling in this space, with bigger brands still sitting on the fence. “While mobile wallets ensure a speedy checkout process and help the seller encash impulse purchases, we are not much benefitted by mobile wallets as they are a preferred model of payment for orders of smaller ticket sizes, up to Rs 1000,” says Manish Sharma, managing director, Panasonic India & South Asia.
Nonetheless, the business model remains the same. According to Reserve Bank of India’s guidelines, a maximum of RS 10,000 can be deposited in an m-wallet. After a customer deposits RS 10,000 in her wallet, the company pays 1-2% transaction charge to the bank and earns a commission of 1.5-2% from every transaction made by the customer through the wallet.
For example, if a customer buys movie tickets worth R1000 from bookmyshow.com through a Paytm or a MobiKwik wallet, the wallet earns Rs 10-20 as commission. “A wallet company works on wafer-thin margins,” explains Lakhotia of Paytm. Moreover, most of the time a wallet is used to recharge mobile services, DTH connections, etc. For instance, in Paytm’s case, two million transactions take place every day. Of these, 50% account for recharges and the value of transactions is Rs 10-80,000. “Therefore, in actual terms the company earns very little,” says Lakhotia.
As if poor margins weren’t enough, much of the revenue earned by digital wallet providers is ploughed back to offer discounts and cashbacks, which leaves them with almost nothing. According to Nitin Gupta, CEO and co-founder of PayU India, discounts are essential in a business looking to change payment/buying habits. The fact that PayU is completely focused on payments means it provides discounts on any product/ website that it partners. It is to be noted that the consumer will get this discount over and above the discount being offered by the vendor site, or even on his credit card, etc. “That way the customer keeps on getting a discount till she actually purchases the ticket,” said Gupta.
This leads to the alarming trend of downloading the app just to avail discounts and cashbacks, post which the app is either deleted or not used. “So wallet companies need to focus on relevant categories such as food and cafes where people tend to get stuck in a long queue,” says Soma Sundaram, founder and CEO, iKaaz.
To promote discounts, online companies rely on advertising on television and other mass media such as print and radio. Paytm, for instance, claims to be spending R500 crore on branding and marketing this year. This ad spend excludes the company winning the title sponsorship rights for all cricket matches, domestic and international, played in India under the aegis of BCCI for four years in a deal worth R203.28 crore. Its competitor Mobikwik plans to spend R100 crore this year including sponsorships for celebrity dance reality show Jhalak Dikhhla Jaa aired on Viacom18’s general entertainment channel Colors. And digital wallet advertising currently revolves around creating awareness about the benefits of using an m-wallet.
Interestingly, the m-wallet war is not restricted to pure play online companies; it is also witnessing a host of companies from ancillary industries plunging into the arena. While telcos Airtel and Vodafone have their respective m-wallet apps Airtel Money and M-Pesa, Apple Pay from Apple was launched last year and Google’s Android Pay debuted this year. The latest to join is Samsung Pay which was launched in the US this month. Meanwhile M-Pesa and Paytm have been granted payment bank licences by RBI, which ups their game over others.
“The cost of acquiring a customer is very high currently which makes the wallet businesses totally dependent on the volume of consumers making transactions,” says Tuteja of KPMG India. “Going forward, we can definitely expect a shake-out with acquisition of smaller players by the more successful ones.”