Is mobile wallet and payment industry headed towards consolidation?
Originally published in the Economic Times, 15 July 2017
Mobile wallets have been one of the primary beneficiaries of the increasing digitalization of payments. The demonetization drive brought in an early Christmas for the wallet players last year, with the leading e-wallets declaring an unprecedented increase in the number of users and transaction volumes. Besides, there are over one billion mobile connections and six million new connections are added each month. Taking into account the massive opportunity, he e-wallet industry in India is set to acquire share of more than $ 6.6 billion by 2020.
Despite the surge in the user base and popularity, the increasing cases of consolidations in the e-wallets and payments space cannot be overlooked. Amazon acquired the online payment gateway, Emvantage. Flipkart took over the payments app, PhonePe, while Shopclues acquired Momoe, the mobile wallet for offline stores. Last year also witnessed one of the top acquisitions in the FinTech space, with PayU snipping up Citrus Pay for $130 million.
Consolidation: The Survival of the Richest?
The dynamics have changed since 2016. Drying of source of funds and lack of growth in transactions between merchants and existing customers of the Wallet companies has made the case for consolidation in the mobile wallet space. Consolidation often is also a reflection of investors getting into the driving seat, steering different enterprises to reach breakeven and be profitable. The two entities operating in the same ecosystem- one with perhaps the right customer connect and the other with an advanced technical infrastructure, are better off operating as a single entity.
This way, investors not only get to minimize the costs, but also bring about a change in the business model of the top-level management. It is critical that, right from the beginning, focus is on automating and maintain efficiency of operations rather than allocating money for hiring more people.
Most of the mergers and acquisition, especially in the FinTech, ecommerce, hyperlocal marketplaces and logistics segment have been to get newer technology, domain knowledge or talent or access to merchants or repeat consumers. However, at the heart of such deals was the concern of the investors to minimize cash or resource burnout. Hence, the ecosystem today appears to be more in favour of the players that have got the maximum money, instead of standalone entities with unique business model. This approach should raise concerns, because the times ahead are bringing newer challenges for mobile wallets and payments solutions providers.
Top Challenges for E-Wallets: Cash & ‘UPI + BHIM’
The ubiquitous cash continues to be a popular means of payment, despite the demonetization drive. While initially, different players in the segment registered an upsurge in the utility, the dip was apparent from January onwards, with the cash resuming its flow in the economy.
Digital payments have only reached out to 10% of Indian users so far. In fact, while India has over 30 million retail outlets, only one million of them possess the required wherewithal for digital payments. In fact, the presence of e-wallets and digital payments services providers is highly fragmented in the economy today, limited only to the urban locales. As per the reports shared together by Google and KGMP, 68% of Indian SMEs have remained completely offline. Moreover, only 2% of the total number of SMEs with digital presence is actively engaged in online buying or selling of goods.
Regardless to say, transacting in cash is the easiest, especially for people with a lack of technical know-how or electronic equipment. Instead of burning cash for acquiring customers, e-wallets and payment solution providers need to rethink their on-boarding strategies, whilst making digital transactions on their platform easier and more seamless in cash.
The launch of UPI and the BHIM (Bharat Interface for Money) app marks the onset of another era in the digital payments landscape in India. UPI, as an instrument for electronic funds transfer, makes it easier for users to receive or send money simply by putting the mobile number or VPA (Virtual Payment Address). This gives users a much required break from having to enter their net-banking or card details for making payments. Wallet companies utilize customers as data. They make it inconvenient for users to transact, by asking them to share extensive personal information. For any user who is not comfortable saving their bank or card details on a third-party app, UPI is the fastest means for transferring money.
While e-wallets have huge numbers to flaunt, the BHIM app is soon gaining steam. The UPI-based payments app already reached 10 million downloads within the first 10 days of its launch, while facilitating more two million transactions, within the same time span. Offering interoperability and a seamless experience, both UPI and BHIM app together should inspire e-wallet players to rethink their business models and strategies.
Tipping Point for E-Wallets to Consider Overhauls
One significant flaw in the business model adopted by mobile wallet players in the past was offering cash-backs for consumers to transact. The advent of a number of Government initiatives makes it impossible for e-wallets to exist as a standalone more. While one can certainly not deny the attention and activity attracted by mobile wallet space today, until and unless the leading players rethink their models, e-wallets will be haunted by the impending fear of running out of business.
The mobile wallet companies may either build or partner to gain access to a technically advanced and secured payment platform. This can help them move ahead of the offering of online banking as a payment method to pay online. If you as an individual consumer pay online by using internet banking, you still face challenges of buyer experience. Additionally, online sellers still face the challenge of not being able to offer all banks as options to their buyers. With UPI launched, we expect to see these challenges being addressed in the next 12 months.
Mobile Wallet companies will have to be ready to offer buyer experience, secure online payment platform and place no restrictions for their consumers to transfer money to another wallet that is owned by another mobile wallet company or work seamlessly with online payment aggregators in India, which are not more than 4 or 5 players in the country, anyway. Otherwise, the business model is fraught with challenges, given the pre-existing fragmentation in the economy. For instance, Flipkart had to shut down PayZippy that was launched back in July 2013.
Mobile wallet companies may endeavour to move beyond their core service and deliver collateral services. For instance, Paytm today provides a broad range of m-commerce services. In fact, offline connect has come to be one of the significant domains adopted by mobile wallet players, in order to democratize their platform. In addition to m-commerce, other e-wallet players like MobiKwik have ventured into other domains like hyper local transactions, cash pick-up and micro-credit facilities. It is not possible to predict its success but this endeavour of offering bouquet of adjacent services seems to be in the right direction.
I believe the social messaging platforms will enable revolution in two ways by 2020, one way image and voice will become more dominating form of communication and the other way is that social media and mobile phones will drive conversion of social conversations to business conversation and online payment. Can mobile wallet companies have a bigger role to play in this revolution?