Mobile wallets in India and their product adoption life cycle
People don’t use their mobile phones to make telephone calls nearly as much as they used to. They are using them to surf the internet, send instant messages, even wake them up in the mornings. The relentless wave of mobile-inspired innovation is continuing and now includes mobile payment.
What Is a Mobile Wallet?
A mobile wallet is a virtual wallet that stores payment card information on a mobile device. Mobile wallets are a convenient way for a user to make in-store payments and can be used at merchants listed with the mobile wallet service provider.
Understanding a Mobile Wallet
The business-consumer relationship is swiftly becoming digital. From e-commerce platforms to robo-advisors, businesses are transforming the way they operate to meet the ever-changing needs of their clients and the increasing use of mobile phones and devices. Companies in the financial sector are emerging that offer digital platforms and solutions and recognized as members of the Fintech sector. These emerging companies create disruptive tools and services that are easily accessible at a low cost. One area of the financial industry that is rife with innovations is the payments sector. Using mobile technology such as smartphones, tablets or smartwatches, companies and users are adapting to online and offline transactions using devices such as a mobile wallet.
The mobile wallet is an app that can be installed on a smartphone or it is an existing built-in feature of a smartphone. A mobile wallet stores credit card, debit card, coupons, or reward cards information. Once the app is installed and the user inputs payment information, the wallet stores this information by linking a personal identification format such as a number or key, QR code or an image of the owner to each card that is stored.
Fraudulent activities, such as identity theft, are harder to initiate with mobile wallets. While a user’s credit card can easily be stolen or duplicated, smartphones are not that easy to steal. A smartphone that is stolen may be hard to access if there is an access password or fingerprint check installed. Mobile wallets may also have encrypted keys. Mobile wallets are also useful for retail businesses that experience high volumes of transactions per day because mobile wallets help to reduce wait and payment times. This is a win-win for both the customers and the business.
Because mobile wallets are a digitized version of physical wallets, almost every valuable card stored in a physical wallet can also be stored in the mobile wallet such as driver’s license, social security number, health information cards, loyalty cards, hotel key cards and bus or train tickets.
Mobile Wallets Adoption in India.
Although countries like the USA, UK etc. had already experienced mobile wallets or digital wallets for a few years, it all started for India in the year 2006 when TimesofMoney launched India’s first e-wallet called ‘Wallet365’. It provided a platform to facilitate secured and instant payments between people and businesses. It provided a free signup with only a valid email address.
Even though it did everything that a mobile wallet does today, it never really took off; the main reason was the new RBI guidelines(2009) that made mobile payment companies dependent on the banks to facilitate their functions and Wallet365 did not have a big enough user base to convince them otherwise. But things started looking bright when RBI started issuing licenses for payment banks in 2010
The size of The Indian mobile wallet market has grown so significantly that research says that it stands at about Rs 350 crore currently and is estimated to rise to Rs 1,210 crore by 2019.
Type of M-Wallets in India
According to RBI, there are three kinds of mobile wallets — closed wallets, semi-closed & open wallets.
Closed wallets are accounts issued by a company to a consumer for buying goods and services exclusively from that company. Here a certain amount of money is locked with the company in case of a cancellation or return of the order, or gift cards.
Semi-closed wallets have a specific contract with the issuer to accept the payment instruments. They will allow you to buy goods and services or perform financial services at clearly identified merchant locations.
Open wallets can only be issued by the banks. They allow you to purchase goods and services, cash withdrawal at ATMs and to transfer funds.
Mobile Wallets User Profiles
1) Innovators: They are tech-savvy, risk takers and economically strong. They are young in the age group of 18–25 and started using mobile wallets from the very beginning. Majority of them are from metropolitan cities in India and are 2.5% of the total population i.e. 33 million. They will use mobile wallets for recharge, merchant payment, and fund transfer.
2) Early Adopters: They are influenced by the innovators and are technology product seekers. Since they are technology seekers so all of them own a smartphone. They are 13.5% of the total population i.e. 182 Million. Majority of them are from tier 1&2 cities and in the age group of 18–30.
or E-Wallet industry, the early adopters were the working professional comfortable to use smartphones. They found it very convenient to do shopping, book tickets or book a taxi using mobile applications using E-Wallet. They were also attracted by the sign-up gifts, referral bonus offered by the E-Wallet companies. These users provide feedback for the Wallet on e-stores and were updating the E-Wallet App regularly. This helped E-Wallet companies to fix the majority of the issue in initial stages.
After this lies the true test of the product. Most of the product not able to cross this valley, that Chasm.
Chasm: The chasm is the phase of the product when the early adopters have used the product and if they see value in the product they start evangelizing the product. It’s very important to keep on adding value at this stage, if early adopters get disinterested then the product can not cross the Chasm valley. On the other hand, if early adopters see the value and see the benefits from this product then the product can easily cross the chasm.
For E-Wallet industry in India, the chasm valley was crossed using the bridge created by the demonetization. The innovators and early adopters have already tested the E-Wallets in different conditions in India and then came the demonetization. The Indian business which was mostly using cash before demonetization has no option but to switch to E-Wallets to continue business. The difference before and after demonetization can be easily felt. Earlier it was very difficult to find a local shop or roadside vendor accepting the cashless transaction option. Nowadays it’s pretty common to find small shops and vendors accepting E-Wallets (mostly Paytm).
3) Early Majority: They are the value seekers. After using the digital payment services they study the features, benefits, and services provided by the various digital wallet companies and based on their experience, they evangelize the services everywhere. Young working professionals, students, entrepreneurs, and technology friendly folks, who are aware of the benefits of digital services, falls under this category. They started using the mobile wallet services once companies started promoting the feature in TV, newspapers and other advertising mediums.
They are 34% of the total population i.e. 460 Million. Majority of them are from cities.
For E-Wallet industry in India, because of demonization, widespread use of smartphones and affordable internet early majority users adopted E-Wallet pretty fast. Now E-Wallets are pretty ubiquitous in Indian urban and semi-urban areas.
E-Wallet companies provide cash back and other discounts which attract more users to try E-Wallet. Indian E-Wallet industry is currently at this stage of Product Lifecycle.
4) Late Majority: They will adopt an innovation after the average member of society. They will start adopting when the products really add value to their existing state as they are very little financial lucidity. Considering Digital wallet industry majority of them belong to the rural and semi-urban region.
They account for 34% of the population i.e. 460 Million.
For E-Wallet Industry in India, they are the people older than 55Years in urban areas. In rural areas, even a person of age above 45 may not be comfortable using E-Wallets. These people are not comfortable using smartphones and especially doing the financial transaction on the smartphone. They are afraid because of the news related to financial frauds and fear of getting cheated.
5) Laggards: These are folks who are extremely averse to the idea of new products and are usually slow to accepting change. They wait to see if they require the product, at all, and would not buy the product unless they see the real value (which in most cases would be a cashback or heavy discounts). Majority of them will be from rural, semi-urban and above 40 age category.
The laggards make up the remaining 16% of the population i.e. 200 million.
For E-Wallet Industry in India, these are the people who are illiterate and cannot use smartphones. Most of them do not have a bank account and are the daily wage earners. They cannot adopt E-Wallet unless their basic needs are satisfied and they start seeing the value in it.Product adoption Lifecycle for Mobile wallets in India-Analysis
Where do M-Wallets lie in the adoption lifecycle ?
The number of consumers and m-wallet service providers have gone up significantly in late 2016 — early 2017 due to various reasons like demonetization, cheaper internet and smartphone availability. These factors have surely pushed m-wallets over the “chasm” that is encountered post early adoption.
What are the Factors affecting the rate of mobile wallet adoption in India?
1. Demonetization
In the above plot, we can clearly see that number of transactions increased drastically in Dec 2016 that is during demonetization stretch.
This is when the early majority was motivated to consider PayTM which is a major m-wallet service provider as the primary payment option. But soon after we can see that the number of transactions has gone down significantly and this is when we consider the product to hit maturity. It can be considered that in the product lifecycle m-wallets are somewhere between early majority and late majority. Although there is still a significant market to be covered, the growth is going to be slow and hopefully steady.
2. Cheap and Better Internet Connection
According to an IMAIA report, expected internet users in India are expected to reach 450 million by the end of 2017. This is mostly because of the entry of Reliance Jio in September of 2016. Jio came in with a scheme of free 4G connection for a whole year. This not only expanded the user base but also forced competitors to drop costs. Thus, with cheaper internet connections, it became easier for people to try m-wallet applications like PayTM or PayU.
3. Declining Price of Smartphones
India has become the second-biggest smartphone market in terms of active unique smartphone users, crossing 220 million users, surpassing the US market, according to a report by Counterpoint Research. “This speaks volumes for the scale [the] Indian market provides for any player in the mobile-connected ecosystem,” Tarun Pathak, senior analyst at Counterpoint Research, said in a statement.
- The Hindu
With competition from Chinese mobile manufacturers and the fact that over 20 companies are assembling mobile phones in India, there has been an overall drop in the price of 3G/4G smartphones. This has made it possible for lower income groups to own a smartphone. With smartphone and cheap/free internet, m-wallets have become easily accessible to a vast group of people.
Competitors to the M-Wallet
1) UPI vs. Digital Wallets
The biggest competitor of digital wallets is the UPI. The value of digital wallet transactions was hit by the mandatory requirement of KYC in March at the same time the value of UPI transactions is growing rapidly, it even surpassed digital wallets transaction in Nov’17. UPI is a democratic approach, unlike the wallet systems, in UPI money goes directly from bank account to bank account whereas you need to load money into wallet open the wallet to transact. Currently, it is the best method for peer to peer transaction.
2) Mobile Wallet vs. Cash
There is still a large section of society who aren’t willing to accept technological transactions and are stuck to the traditional approach. These are the late majority and the laggards. Majority of them aren’t using a smartphone and aren’t willing to change yet.
3) Mobile Wallet vs. Plastic Card (Credit/Debit)
No doubt Mobile wallets are user-friendly compared to plastic cards as the user doesn’t have to worry about carrying them everywhere and worry about not losing them. RBI has plans to reduce 50% of the ATMs by 2020 which will also give a boost to mobile wallets but currently, both are going to stay till cards are accepted at the merchant point of sale/purchase.
GROWTH HACKS USED
M-wallet providers adopted some smart strategies to grow in the cash dominant market of 2013–2016, some of them are:
1) Rise in active internet users in India.
This rise is mainly because of massive competition among carrier providers to manage their market share and hence the availability of reasonable digital products in the market.
2) The benefit of Demonetization.
3) Benefit due to a growth of the E-commerce industry
-> The above figure shows that e-commerce sales rose 2 times from 2016 to 2018 and will rise 2 times from 2018 till 2022.
-> Amazons 75% of payments made during its annual sale held in October’18 were made digitally.
-> Every e-commerce merchants have tied-up with leading digital wallets players.
4) Providing Discount and other Benefits
Huge cash back and discounts are the major growth driver of the mobile wallet. Mobile wallet in India offer users to get minimum 5% discount, and cash back this advantage can be availed at online as well as offline stores. These mobile wallet companies increase their customer foundation by contribution thrilling discounts and offers; also they are growing their number of merchant tie-ups to capture the market share.
5) Differentiation in the products
In order to attract more of an early majority and late majority consumers, the incumbents are coming up with new features and services. One such example is Paytm is now also selling products online as it sells goods at comparatively reasonable rates.
6) Partnering with other Businesses
M-wallets like PayTM, PayU, and Mobikwik were quick to find partners in various food delivery apps. PayTM went a step beyond to partner with Uber and now with UberEats.
7) Cash backs and wallet specific Rewards
Cash backs and rewards is the most attractive scheme that m-wallets could come up with. PayTM started with providing cash back for recharging prepaid mobile. And the latest m-wallet Tez (by Google) started with 51 INR cash back on the referral of a new customer.
8) Improved User Experience
With one click payments to payments using QR scanners. M-wallets have gone above and beyond to simplify and enhance the user experience of the consumer. Good UX is highly addictive for the user and helps retain users after the introduction phase. Further, companies are using data analytics to provide a more customised experience to the user.
All of these factors have helped companies cross the chasm.
Summary
In today’s India, mobile wallets have become an important part of our lives not just to make payments but to also to perform various other functions like paying utility bills, booking flights and other day to day tasks. Mobile wallets face a lot of challenges from the government like the regular change in mobile payment guidelines and the introduction of new digital payment methods like UPI etc.
“Mobile wallets are dead since they don’t have a long-term play. The move (towards interoperability) seems to have come too late,“ said Amrish Rau, CEO of payments gateway PayU India.“Also, since wallets will now have to do full KYC, it is likely that users would prefer signing up for bank accounts.“
- economictimes.indiatimes.com
The mobile wallet industry is on a rapid growth trajectory and will be moving to the late majority category in the next 5 years on the product adoption curve. The factors that will fuel the mobile wallets growth furthermore, outweigh the challenges/roadblocks that lie ahead. Demonetization in 2016 has been a major push in the growth however we are still not at the tipping point. India being a young, developing country- the pace of technology adoption is going to be unparalleled compared to any other time in history- in the coming few years.
In order to increase the reach, the industry needs to now come up with roadmap and ideas which could tap the rural and semi-urban India. One of such idea would be to launch a state preference of language-based User Interface options.
