The mobile wallet industry has been on a rapid growth trajectory as India moves to a less cash-dependent state. The value and volume of mobile wallet transactions more than doubled in the last year alone and as such the industry is leading the charge to making India a cashless economy. “Increased adoption of smartphones and mobile data packages has been one of largest contributors to this growth and as the penetration of the technology increases and mobile data costs come down, the industry is primed for further growth,” says Rajat Wahi, Partner, Deloitte.
A research report by Deloitte says that the mobile wallet industry is expected to maintain the pace of its current expansion. Transaction volumes are expected to grow at a CAGR of 94% between FY17 and FY21 to reach 32 billion transactions. Value of the transactions is also expected to rise at a rate of 126% to reach Rs 32 trillion by the fiscal year 2021. As the penetration of mobile internet and smartphones aggregate, mobile wallets with their ease of use & convenience are expected to continue growing in popularity.
Along the road, however, there are a number of challenges that the industry faces and needs to overcome. These include the following:
1. Inertia in adoption: Cash transactions have been the dominant payment mode for Indians for a very long time. Even though the penetration of digital payments has been rapidly increasing, concerns regarding security, privacy and transparency of charges are still prevalent among consumers. Industry players will need to invest significant effort to overcome this barrier, not only through marketing campaigns, but also through actual continuous product improvement.
2. Risk of security breaches and fraud: The risks of a breach leading to financial loss is a very important decision factor for adoption of digital payment technologies. “Ensuring the security of the technological system is key, since singular events of breaches can lead to large reputational and financial losses for companies. Maintaining privacy of the consumers is also an important challenge, as an increased amount of data is collected and stored,” says the Deloitte study.
3. Competition from Credit & Debit Cards: Cards form one of the biggest challenges to further adoption of mobile wallets. Given the current limits on transactions through this channel, limits which are wider in the case of cards does provide a significant roadblock to adoption.
4. Issues with compatibility: Not all applications are made for all operating systems on mobiles. Many products currently on the market are only compatible with one or two operating systems (most commonly iOS and Android). Consumers are looking for options that make transactions the most convenient, and issues with compatibility can hamper that experience. Ensuring compatibility across all the major operating systems will play a key role for these companies
5. Consolidation in the industry: Despite the surge in the user base and popularity, mobile payment companies are increasingly moving towards consolidation in the e-wallet space. For instance, PayU acquired Citrus Payments, Flipkart took over the payments app, PhonePe, while Shopclues acquired Momoe, the mobile wallet for offline stores. Lack of funding and growth in transactions between merchants and existing customers of wallet companies has forced consolidation in this space. Investors are looking at minimizing costs and changing the business model, issues the firms will need to address in the future.
6. Impact of UPI: Introduction of UPI has created greater competition for mobile wallets, but in the short term, mobile wallets are not expected to face a great impact. UPI-powered apps will need to deliver on a number of fronts including transaction costs and ease of use that rivals that of mobile wallets. However, there is scope for some future cannibalization, and is a challenge the industry must face in the long run.
7. Moving beyond core services: Players in the mobile wallet space have begun moving beyond their core service and delivering collateral services. For example, PayTM provides a broad range of m-commerce services. “Offline connect has become one of the significant domains adopted by mobile wallet players to democratize their platform. In addition to m-commerce, other e-wallet players like MobiKwik have ventured into hyper local transactions, cash pick-up and microcredit facilities. Adapting business models to meet consumer needs, and to differentiate products from other alternatives, including the UPI, will be a continual challenge for the companies,” says the report.