Despite improvements in technology to streamline payments, the convenience of wallets is likely to be tested with increased competition in the space. In response to market pressures, wallets are expanding their scale to reach new customers and merchants, are looking at the offline payments market with an enhanced focus to tap into the cash paying segment of the market.
For these players to succeed, other than offering seamless payments, they need to go beyond transactional relationships and build solutions which bring in purchase and payment experiences together.
The volume of transactions through mobile wallets stood at 255 million in FY15 and estimates for the number of wallet users in India range from 150-200 million. The value of transactions carried out through mobile wallets has grown by 500% between 2014-2016, led by convenience of transactions and discounts and/or freebies.
The average transaction value of a mobile wallet in India stood at R320 as of FY15. This indicates that wallets are preferred for small size transactions.
In value terms, wallets contribute only 0.1% to the consumer payments market.
While customer uptake and reaching a critical mass remain big issues for wallet players, they are also facing competition from payment companies such as Visa and MasterCard.
The removal of two factor authentication on card transactions with an expected threshold of R3,000-5,000 is expected to impact the usage of wallets. In addition, technological progress made by players such as Visa Checkout, MasterPass and Amex Express Checkout might reduce/remove any payment convenience edge from mobile wallets.
With payment banks led by telco players likely to go live over the next six months, the competition is going to intensify. The launch of Unified Payment Interface (UPI) of NPCI may also impact the need for a standalone wallet as it will allow a customer to instantaneously transfer funds across different banks with the use of a single identifier.
UPI will enable players reach wider set of customers and the ease of transacting directly with a seller, may result in customers reducing their preference for wallets, atleast in the short-term. Developing a cost-effective solution to provide the same convenience to customers as the online medium can also be a challenge. NFC has not really taken off in India. Providing solutions such as ‘tap and pay’ and creating infrastructure is another challenge.
The mobile wallet providers have been pioneers in creating innovative use cases, customer value propositions and customer experiences.Traditional banking competitors may find it difficult to match this nimbleness, and that is likely to be a differentiator for wallet companies.
By Kalpesh Mehta
(The author is partner, Deloitte Haskins & Sells)