Opinion: Can mobile wallets pave the way to a cashless economy?

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Updated: October 05, 2015 7:23 AM

It took Indian consumers decades to move from paper money to plastic money.

wallet, mobile wallet, rbiUntil October 2014, RBI put the number of credit cards issued by 55 scheduled commercial banks at 19.1 million. The country’s top mobile wallet company, Paytm, alone has over 80 million users.

It took Indian consumers decades to move from paper money to plastic money. But a switch from plastic money to no money is happening at a much rapid pace, thanks to mobile wallets, which allow you to make payments through your smartphone without actual money transaction.

Here’s how it works. Using any of the multiple mobile wallet companies—Paytm, Mobikwik, Freecharge—you can recharge a ‘virtual wallet’ with a certain amount of cash, and later use this to pay for shopping, bills, hiring a radio taxi, ordering food and a host of other services. It means you don’t need to carry paper money (or even a debit or credit card) at the time of payment—as long as the merchant or service provider accepts this sort of digital payment.

But the real revolution is yet to happen with Point of Sale (PoS) based services, which can facilitate the acceptance of mobile wallet payments at retail shops, unleashing a huge benefit to consumers and merchants alike.

Given that online platforms will occupy only 15-20% of the total spend of the Indian economy by 2020, a mobile wallet which does not find acceptance at retail shops will not be able to offer universal acceptability. There is no seamless integration of mobile wallets with PoS billing system of merchants. Besides, it is difficult for merchants to record cash/card-based transactions in a structured manner and record mobile wallet-based transactions separately. There has to be a common system wherein all transactions, whether with or without mobile wallets, can be recorded at a single place in shopkeepers’ billing system.

This is exactly what PoS-based services can do—provide a common platform to record mobile wallet-based transactions in the similar way a cash/credit card transaction is reported at PoS. The PoS technology can allow a phenomenally large number of merchants, both offline and online, to be on-board for payment through e-wallets. Consumers need not worry about security either; transactions via PoS-based services can be verified by generating a one-time password (OTP) that the buyer receives on her phone.

There have been efforts by some mobile wallets to provide acceptance at specific offline merchants by providing customised solutions. But in the absence of a standard technology, mobile wallets will find a challenge if they try to solve this puzzle themselves. With the PoS technology, mobile wallets can now leverage it to enhance their coverage.

The digital payments industry has been maturing at a rapid pace. A recent study by research firm RNCOS shows that the current Indian market for mobile wallets is about R350 crore. By 2019, it will increase to an estimated (and whopping) R1,210 crore. This will increase as the number of smartphone users goes up by the year. IAMAI data shows that mobile internet usage in India has grown from 159 million users in October 2014 to 213 million in June this year. As the number of smartphones and their usage increases, so will mobile commerce, which has now become the mainstay of e-commerce.

With the mobile wallet industry piggybacking on the growth of smartphones—you need a mobile device that can log on to the internet to make any virtual money transactions—it could also become a unique tool for financial inclusion. Now, thanks to the ubiquitous presence of telecom companies, areas in rural India where traditional banking hasn’t reached but the 3G network has could soon see aspirational rural customers—who don’t have either a credit or debit card—transacting digitally through their smartphones. The familiarity of the device, coupled with the assurance of security and ease of use, can provide impetus not only to the growing cashless economy but also the digital initiative of the government.

Currently, 10-12 mobile wallet companies are operating in India. The major ones are Paytm, Mobikwik, Freecharge, Citrus Pay, Oxigen Wallet and Instamojo. The big names, Paytm and Mobikwik, boast 80 million and 17 million users, respectively. The clincher is that, until October 2014, RBI put the number of credit cards issued by 55 scheduled commercial banks at 19.1 million. The country’s top mobile wallet company, Paytm, alone has users far exceeding the number of credit cards issued. With the introduction of the integrated PoS terminal, many more consumers can go the virtual wallet way. This, in itself, could be a game-changer in India’s digital commerce landscape.

The author is CEO, Pine Labs

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