M-wallets emerged as a high-growth and high-profit sector due to its immense potential for value addition, particularly with the aim of making India a cashless economy. Over the past few years, the payment landscape in India, too, has mirrored these developments, with digital payments displaying a robust growth. However, India continues to have one of the lowest use of digital payments globally.

There are three key drivers:

Strong growth in smart phones: The digital payments landscape in India has witnessed unprecedented growth largely driven by increased Smartphone penetration. Smartphone user base has increased by 60% in the metros, but more importantly, it is the penetration in the tier 2 and 3 areas which is of critical importance.

Adoption of Aadhaar & UPI: Data availability along with Aadhaar based authentication will allow for seamless adoption of the digital wallet. Initiatives such as Aadhaar, UPI will have a catalytic effect on the industry.

Improved 3G & 4G services: 3G and 4G services are being offered at extremely affordable prices, giving a huge boost to mobile commerce. With 4G becoming more and more affordable, it is expected from smartphone users from tier 2 and 3 regions to adopt digital wallets.

Demonetization, mobile wallets and digital India

Until now, digital disconnect has been a major roadblock in India, as many have preferred transacting in cash instead of making use of bank transactions and plastic money. With demonetization in effect, several digital payment solution providers have created different ways for attracting new customers. The result has been positive for  mobile wallets like Paytm witnessing 200 percent increase in app download numbers, and Ola Money seeing a 1,500 percent increase in wallet recharges. The vision of connecting Indians through digital media has been further encouraged by demonetisation.

Why Digital?

Financial inclusion is one of the foremost policy challenges facing India today. As of 2014, approximately 53% of India's population had access to formal financial services. Since then, the Government has taken many significant steps towards including a major portion of India's population within the umbrella of formal financial services.

Payments are often the first and most used financial services, required by almost 100% of the population. While certain stakeholders have submitted that such an estimation might be misplaced, the Committee believes that ensuring convenient access to a basic transactional account (as a financial service distinct from a savings account), and a robust payment system, can complement the efforts of conventional banking, towards attaining greater financial inclusion.

Current and Future State Of M-Wallet Competition

M-wallet market can be segmented into three broad services – money transfers from wallet to wallet, bank to wallet and vice versa which accounts for 38 per cent share followed by recharge and bill payments for mobile, DTH, landline, electricity and other such services (31 per cent share) and the remaining share of 31 per cent captured by online shopping, hotel/travel/movie ticket reservations, online food order, payment of insurance premium, recharging metro rail card and others.

Companies such as One97 Communications Ltd. (Paytm), MobiKwik etc., are investing in advertisements to promote mobile wallet concept across the country. In 2014, Northern and Western regions of India accounted for maximum number of mobile wallet users as well as transactions across the country.

Demonization Effect on Electronic Payment System

Indian economy in the present scenario is witnessing presence of a strong retail payments framework in the country and perhaps even better than some of them in terms of the variety and efficiency. Various types of payment instruments that exist to meet the requirements of different users in different circumstances – bank accounts, cheques, debit and credit cards, prepaid payment instruments, etc. Various systems to meet the remittance requirements of users depending upon their time criticality and cost sensitivity – National Electronic Funds Transfer (NEFT), Immediate Payment Service (IMPS), Aadhaar Enabled Payment System (AEPS) and recently Unified Payments Interface.

UPI vs Mobile Wallets? Here's why everyone has got this wrong

People are confused with Unified Payments Interface (UPI) with an end-user app. UPI is an infrastructure on top of which end-user apps can build and implement the features offered by UPI.

The benefits of using a mobile wallet are multi-fold. One does not have to haggle for change, nor worry about a trip to a nearby ATM to withdraw cash. It is a secure, convenient and efficient way to pay for things without having to carry multiple credit or debit cards or even wads of cash and coins. Mobile wallet adoption in India has risen significantly in the last couple of years as smartphones and mobile internet have become an inseparable part of our daily lives.

Managerial Implications and Way forward

Based on current developments, it is safe to say that mobile wallets will soon be a self-reliant omnipresent ecosystem. In the near future, mobile wallets will be used to engage with the customer by the marketers and digital businesses. With addition of the value-added services that go beyond just payment, experts believe that mobile wallets will become a new marketing channel.

Irrespective of the market status of these mobile wallets, marketers should take advantage of the emerging opportunities for creating a borrowed presence on their customers' mobile devices.

The value offer of a mobile wallet is not about the payment, but the value-added services that can be offered across a mobile-enabled environment. No one wants to be left behind in the race of accumulating 'customer' and in a competitive environment, all the players are coming out with attractive offers and discounts. The question here is, in the name of customer acquisition/ retention, is this strategy justifiable or long-lasting?

Requirement of Increasing Awareness: M-wallet services across the country faces a major issue of lack of awareness regarding their benefits and usage. Majority are still hesitant in using m- wallet because of security and safety issues.

Introduction of Low Priced Smart Phones: Since some m- wallets are compatible with operating systems like IOS (Apple) which are expensive and not everyone can afford them. To tackle this problem, mobile phone companies should introduce low priced cell phones in the market which can be bought by all the customers, as the ultimate goal of m- wallet is to improve financial inclusion in the country.

Increased Limit of Transaction Amount: Limited amount can be transacted or transferred through m-wallets in a month which hinders the Indian m-wallet market. M-wallet companies should increase the limit of number of transaction and transaction amount even in the case of basic account.

Need for Transparency in Regulatory Policy: The regulatory policy of m-wallet industry is quite cumbersome and involves inflexible and complicated terms and conditions which make it difficult for companies to decide whether their product need RBI approval or not. Crystal clear policies and a common regulatory body for all m-wallets (closed, semi-closed etc) are required.

Need for Relaxation of RBI's Policy: The RBI licensing regime is discouraging mobile wallet growth in the country. The present system allows only e-transfer of money and approves semi-closed pre-paid instrument issuance while it does not allow “cash out” from the semi-closed wallet.

Mobile money hence is not the result of demonetization, but has taken off following the historical move of Indian government of removing Rs500 and Rs1,000 notes from circulation. Prevention of corruption and the spread of black money, stopping terror funding, and the creation of a cashless society were the main objectives of the demonetization measure.

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-Dr. Sana Moid is teaching in Amity Business School, Amity University, Lucknow Campus.