The Bazaar of Digital Wallets

1Frictionless, intuitive, secure and multiple use cases – that’s the goal of a truly engaging digital payment solution. The speed of adoption of mobile internet and digitizing-everything is moving fast and breaking the long-held ideas of physical money; it is now that companies that provide digital wallet solutions can grow multifold given that they take the right route and ask the right questions at each juncture.

The Indian digital market has grown phenomenally in the last couple of years. During 2016 itself, digital transaction of value INR 1839 trillion took place, out of which INR 206 billion was due to mobile wallet transactions. These numbers highlight the massive opportunity that lies ahead in the Indian digital economy space. Even though the percentage contribution by mobile wallets to the whole digital transaction is quite small, the size of the pie is quite large, which makes it an attractive and interesting business problem to solve.



Figure 1: Mobile wallet transaction FY13-FY17; source: Deloitte


Figure 2: Mobile Wallet industry forecast FY17-FY21, source: Deloitte

As commerce moves to the cloud, so will payments. Mobile wallets today are 7 times the number of credit cards in India. This number is going to grow furthermore as the underlying technology scales the service. More robust, open and high-frequency use cases will help users to adapt to such solutions with ease. As the penetration of mobile device increases due to technological advancement and economies of scale, Pre Payment Instruments are expected to grow multifold in the coming years. However, for a company to survive in this high growth market, it has to make the right strategic moves and continue to find meaningful gaps to be filled. 



How much performance is good enough?

The digital wallet market is still in its nascent stage and is exploring new horizons where it could expand and improve. Few use cases like service payment, P2P money transfer, and e-commerce integration has been explored which have so far seen successful to a large extent. But, the whole concept of money is born out of the thought that any form of a transaction can be facilitated with money. We need to think about ways in which we can integrate digital payment systems into various forms of meaningful transactions that take place.

Security has been at the top of our mind and will continue to be so wherever there is involvement of data and money. Credit/debit card companies have been able to ingrain the very idea of close to 0% chances of losing money due to a technical fault. The same needs to be done for digital wallets. The customer has to be assured that they are not going to lose money under any circumstances.

Various other factors like the number of steps involved in each transaction and fluidity of the platform should be considered to enhance the overall experience of the platform that the company is planning on selling, which would translate to better and a superior customer engagement.

What are the real challenges?

The digital wallet industry is majorly built around P2P money transfer and payment to merchants. The industry has exponentially grown in India in the last couple of years due to technological growth and government moves. However, the usage of digital wallets has gone down since a few months. As the service offering is technological in nature, it is relatively easy to scale, but to retain the growth is where the businesses are failing. Along the path, however, there are certain challenges that the industry faces and needs to solve. A few of the challenges have been talked about below:

  • The inertia of cash: Customers are reluctant to let go of the ease and transparency of the use of cash. An exchange of cash is easy and a more visual transaction which makes it easy to comprehend. This is a pain point for digital transactions where the whole transaction is quite opaque in nature as customers do not visually see the process that goes behind each transaction. Hence customers prefer using cash rather than using a method which even though is easy to carry out, is not easy to comprehend. It is a herculean task to bring about a change here.
  • Internet connectivity: The telecommunication industry has complemented the growth of e-commerce and other internet-driven Though India today is adequately well covered by various telecommunication players, there are still places in India where the network connectivity is an issue. For a solution provider, there needs to be an ecosystem to cover such gaps. Something as simple as digital payment transactions over SMS can help close such gaps.
  • Customer attrition rate: Bringing a new customer to a platform costs the company but so does losing a customer. Post demonetization a lot of merchants went back to the traditional way of transacting by cash. Players need to focus on keeping the current customers as much as they focus on acquiring new ones. The RBI has proposed enabling cross-platform transactions which will help in this regard as this will give the customer more control over the way they prefer to move their money.

What should be the primary differentiator?

As the game progresses, so do the moves. A game of chess cannot be played by sticking to a plan which was valid 5 moves earlier; we need to improvise and adapt to the current situation constantly. Digital payments industry has have been competing for share of wallet and number of partner merchants primarily. This has largely resulted in an undifferentiated product positioning. Instead of fighting over business share the players need to focus on offering solutions which are unique and customer-centric. Various avenues can be targeted which can be better positioned to sell the service offering. A few propositions where the players could focus and build on could be:

  • AI-based monthly expense tracker: As a part of the product offering, companies can come up with a monthly expense tracker which at the end of each month can show patterns in their expenditure and make recommendations for savings in the following month. This is a tool which can result in a reduction of expected and perceived gap.
  • Location-based service availability notification: Mobile apps can be powered to push notification based on the location of the user if it has an offering in that particular location. Mobikwik can prompt its user in a D-Mart store to pay using its app at the store if it is a partner. Similarly, Paytm can notify travelers on the highway to use its app when it’s about to reach a toll booth and is in geographical proximity.


Figure 4: Key enablers and critical success factors

Where do we go?

The perspective and take of people on solving the problem of this highly unorganized and scattered market will differ from person to person depending on the exposure. However, with cut-throat competition, ready to jump customers and myriad unexplored avenues it is important that digital wallets find ways to integrate in a more transformative and permanent manner. Building innovative, complementary and value-adding products is the only way these companies can survive in a market which is gliding on a very steeply growing curve.  In the end, it is a matter of the vision and strategic choice that the player makes.

– Meraj Ahmed
Indian Institute of Management, Rohtak
Batch 07





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