With UPI 2.0 and RBI’s interoperability norms expected to be announced soon, the traditional business model of mobile wallet players has been upended. M-wallet players which entered the market to simplify user experience are losing their relevance as digital payment infrastructure gets sophisticated. However, these mobile payment firms have a big advantage — an existing user base and distribution reach. And it is these factors which players like MobiKwik, Oxigen, Truecaller, PhonePe, etc are looking to leverage with a focus on credit and financial services.
“The next best alignment of business model for these wallets is to enter the distribution business, be it micro-insurance or micro-lending. Banks and financial institutions alone cannot solve the inclusion problem and wallets have the reach to support this,” says Gayathri Parthasarathy, head, financial services advisory, KPMG India. To be sure, mobile and internet penetration in the next two years is going to add another 400 million users. By being mobile only, wallet players further have an advantage to create a market for these services.
Most of the mobile-wallet firms are still not profitable. In fact, payments in general is not a very high margin business and one needs to operate on scale. Mahesh Makhija, partner, EY says that from a valuation perspective it is important to have deep customer relationships, and credit is one such avenue that allows mobile wallet companies to increase their adjacent revenue streams.
MobiKwik, which recently launched an instant loan of Rs 5,000 on its app in partnership with Bajaj Finserv, says for every one rupee of payment revenue, it aims to make `10 in financial services revenue. “While we will also launch wealth management and insurance (services), we see more revenue and net margin in loans. I may be processing `10 in payment but if I process one rupee in lending, my actual revenue will be higher,” says Bipin Preet Singh, CEO, MobiKwik.
In fact, margins are in the range of 1.5-2% in payment while in loans it could be 5-7%, with a chance of greater stickiness and repeat customer rates.
Another payment solutions provider Oxigen plans to partner with NBFCs for micro credit to consumers and merchant credit to SMEs. It currently has two business verticals — micro ATMs, Oxigen wallet for corporate reimbursement, loyalty business and domestic remittances, apart from traditional online merchant payments. “Micro ATM has a positive unit economics unlike mobile wallets. Typically m-wallets compete with bank’s debit cards and credit cards and now UPI in online payments space. It is a difficult business case,” says Sunil Kulkarni, joint MD, Oxigen Services. “Unless used for converting cash to digital and remittances, pure online wallet will eventually become obsolete, while micro transaction and limited risk payments will continue to evolve.”
It is not just mobile wallet players but also payment processing companies like PayU and communication apps like Truecaller that are strengthening their offerings by incorporating credit. PayU India has partnered with Reliance Money to offer instant app based personal loans, via LazyPay on Citrus app. The loan amount ranges from `100 to `1 lakh and the duration could vary from 15 days to 24 months. “There is an unfilled gap in the market catering to borrowers seeking instant cash loans,” says Jitendra Gupta, MD, PayU.
Post the acquisition of Chillr — a multi-bank payments app, Truecaller now plans to launch a credit offering soon under its platform Truecaller Pay 2.0. “We have a user base of over 100 million daily active users. P2M transactions go hand in hand with credit,” says Sony Joy, VP, Truecaller Pay.
In fact, different players are entering the fintech space from their point of strength. For example, Amazon is entering from the e-commerce side; PhonePe is doing something similar. “These payment companies are morphing into a full-fledged shop for financial services for consumers; a similar trajectory was taken by WeChat in China. That’s the playbook,” observes Vivek Belgavi, partner, fintech leader, PwC India.
However, RBI’s interoperability norms are going to put further pressure on the topline of wallet players. Distribution of financial products and credit will become important. Merchant acquisition was once a differentiator for these players. But that advantage will get levelled out once interoperability comes in.
Going forward, fintech players need to innovate to provide value-added services to merchants. However, incumbents which already have an established brand will do better. “A few companies will dominate the payment business due to superior customer experiences and established credibility,” Makhija says. “However, the wallet ecosystem could continue to exist, especially for small value transactions.”