Putting mobile wallets through convenience test 


July 5, 2016

Ankita Rai, Financial Express

New Delhi, 5 July 2016

Think ‘mobile wallet’ and you will probably think of recharges, DTH/bill payments or at the fringes of your mind, even e-commerce sites. But paying for a can of yoghurt at a milk-booth near your home with, say, a Paytm? Not an idea to be scoffed at — this is a reality today. In order to drive the next phase of revenues, the offline ecosystem poses a world of opportunities as far as m-wallets are concerned.

Ranging from the Big Bazaars of the world to the neighbourhood mom-and-pop stores, petrol pumps, auto rickshaws and milk-booths, mobile wallets are available across most retail formats. Top wallet companies are investing heavily in changing customer habits and creating as many use cases as possible which include exclusive tie-ups with merchants, co-promotions with brands, cashbacks and so on.

While currently a mobile wallet business typically covers fund transfers, services related to e-commerce transactions like utility and bill payments, ticketing, and recharges, offline commerce is expected to drive good traction. Research firms peg the current market size of the mobile wallet business at R350-400 crore with volumes expected to touch R1200-1500 crore by 2020.

“Offline transactions are an important step to increase mobile payments penetration as they offer the ability to operate even in zero/low connectivity zones. It also speeds up the transaction processing which is very important in rapid services like mass transport systems,” says Kunal Pande, partner, KPMG India.

Experts say a bulk of the big market for wallets resides at the mid-to-low-end retailers. Recruitment of offline merchants is crucial to the viability of payment solutions, since most consumer transactions still happen offline.

“Payment providers that want to win the game will need to focus on usages that are frequent,” says Devangshu Dutta, CEO, Third Eyesight. So what is the potential of the offline ecosystem as a revenue generator for m-wallets?

The payment industry must overcome the ‘network effect’ while fighting customer inertia to boost adoption. 

“Payments work off the network effect. Without an adequate network of both payers and payees, the currency — or in this case the wallet — is of limited or no value,” says Dutta. Each company has had to build a market for itself, both in terms of consumers using mobilewallets and merchants who would accept m-wallet payments.

Each wallet player has made significant investments in technology, back-end infrastructure and marketing to boost the adoption of wallets in the offline space. And rightly so, as online still constitutes only 2-3% of total commerce.

The latest Paytm Karo commercial not only reflects the adoption of Paytm across multiple age groups, but also highlights its QR code scan feature for easy payments to offline merchants.

While Paytm is spending R50 crore to execute this campaign, which runs till July, its overall marketing budget for this year is R600 crore. “There is a massive fight for the ‘real estate’ on the mobile phone. We need to establish ourselves as a viable alternative to cash and give more use cases to create an ecosystem,” says Shankar Nath, senior VP, Paytm.

For Paytm, recharge is an anchor use case, followed by DTH electricity bills etc. The idea now is to expand offline as that is where the growth is. In the offline space, the traction comes from sub-thousand rupees transactions and out of three million daily transactions on Paytm, offline constitutes 40% according to the company. Paytm currently has four lakh offline merchants using its platform and 125 million wallet users. The wallet can be used at petrol pumps, educational institutes (school/college fee payments), restaurants and large format retailers such as More.

Clearly, the payment business runs on scale with thin margins. So frequency of transactions is the only way to profitability, even if for small ticket sizes. Apart from Paytm, mobile wallet player Freecharge plans to spend R2,000 crore over the next 18 months on marketing.

Freecharge’s last brand campaign Lo. Do. Khatam Karo was released in April  this year during the IPL season to cater to metros and tier-I cities. To facilitate payments through wallets at PoS terminals and online payment gateways, it has partnered with payment aggregators like ePaisa and CCAvenue.

It has also forged partnerships with Shoppers Stop, McDonald’s, Caf� Coffee Day, Cleartrip, RedBus and OYO, and  claims to have crossed a million transactions in February, witnessing a growth rate of 15-20% per month.

“Freecharge features such as on-the-go-pin and chat-n-pay are for peer-to-peer transfer and person-to-merchant payment. It is meant for merchants in the unorganised space who do not have the means to accept the payment,” says Sudeep Tandon, chief business officer, Freecharge. “The chat-n-pay feature is finding wide acceptance among taxi drivers, salons and kirana stores with almost 45% of our customer base using it.”At Freecharge, 85% of the transactions take place through the app and 15% through desktop and web. Currently the wallet can be used to pay at over one lakh merchants, including both online and offline segments. About 50% transactions are from tier-I cities and rest from tier-II and tier-III.

Or take MobiKwik, whose offline journey started about a year back with an association with Future Group’s Big Bazaar. It has top-down strategy for offline expansion starting first with large brick-and-mortar retail and then moving on to unorganised merchants. It has an over 30 million user base, of which 50% is active monthly users.

“Since last July, the biggest focus area has been offline merchants. The MobiKwik wallet is currently accepted at 25,000 retail outlets. The next big use case is unorganised grocery stores,” informs Akash Gupta, GM, marketing, MobiKwik.

To enable expansion, it has also launched cash pick up and loading to support offline consumers in tier-II and tier-III cities. Offline today contributes to 20% of its GMV. The wallet is available at Relaxo showrooms, Burger King outlets and Domino’s’ 1,000 stores, among others. It has also tied up with Madura Garments for its Van Heusen and Peter England stores.

Partnering with large retailers

To be really accepted as a currency and an alternative to debit and credit cards, mobile wallets must evolve from small transactions to larger transactions, thus, also increasing the average ticket size. For example, Future Group has an exclusive tie-up with MobiKwik. Currently, 320 Future Group stores across Biz Bazaar and Central malls accept MobiKwik wallet for payments.

“Mobile wallets bring incremental traffic to the store as consumers tend to use the store connected to their wallets, and we also benefit from the promotions run by MobiKwik,” says Vinay Bhatia, CEO, analytics and loyalty, Future Group.

Big Bazaar is also working with Oxigen for a co-branded wallet to create customer loyalty. Pramod Saxena, founder and chairman, Oxigen Services, says, “This solution is specifically designed for big merchants like Big Bazaar and airlines.”

Oxigen plans to spend Rs. 100 crore on marketing and branding this year. Currently, 150 million customers are transacting at Oxigen retail points and online which includes 25 million wallet users.

The company says it is adding 2-3 million wallet users every month. Then there is Shoppers Stop which entered into an exclusive one-year tie-up with the wallet company Freecharge last year across its 230 stores including Shoppers Stop, Crossword and Hypercity.

“The big advantage is convenience of payment. I see this is a great way ahead for people who don’t have credit cards,” says Govind Shrikhande, customer care associate and managing director, Shoppers Stop.

At Shoppers Stop, card transactions stand at 56% while the rest is cash. “The objective is how much of the cash can be converted to wallet. To enable this, we are targeting young customers at stores who don’t use cards,” he says .

Shoppers Stop is also leveraging wallet data for targeted and personalised promotions. “We are using our physical space to promote Freecharge while Freecharge is using digital to drive traffic at our stores. Therefore, it’s a win-win,” Shrikhande adds.

Caf� Coffee Day (CCD) accepts multiple mobile wallets such as Paytm, Mobikwik and Oxigen. “On the business side, wallets help in reducing the operational cost of handling cash,” says Bidisha Nagaraj, group president, marketing, Coffee Day. CCD has recently launched its mobile app in Bengaluru, Mumbai and Pune with an integrated mobile wallet feature.

Currently, RBI regulations limit digital wallets to transactions worth R10,000 without a KYC. However, a full KYC increases the limit on digital wallets to R1 lakh per month. This can enable high value transactions for customers. MobiKwik has launched Aadhaar-verified eKYC to enable upgrades in real-time.

However, the mobile wallet ecosystem is fragmented with each player operating in a silo. Most non-banks currently offer semi-closed wallets which pose a limitation to the usability of wallets primarily to the ecosystem built by the wallet operator.

Dutta says the Unified Payment Interface (UPI) should boost growth as the backend would be more seamless. “The key for the wallet companies will then be to differentiate themselves in terms of service and to more intensively craft the market for small merchants,” he surmises.

(Published in Financial Express)