MobiKwik Payment Gateway: India Has Nearly 100 E-Wallets, But Most Are "Deflated"

India's mobile payments industry has been growing by leaps and bounds since the Modi government's sudden demonetisation policy that rendered most of the currencies in circulation invalid overnight. Major players such as Paytm and Mobikwick continue to enjoy a golden period of growth and expansion thanks to strong government support.

According to a report published by the Indian Chamber of Commerce (ASSOCHAM) in association with market research firm RNCOS, the mobile payments market in India was valued at INR 1.54 billion in FY 2015-2016. However, the market is expected to surge to INR 300 billion by FY 2021-2022, driven by multiple factors such as government support, smartphone penetration and rapid growth of mobile internet.

Major companies operating in India, including Amazon, Uber, Flipkart, Airtel, Hike and WhatsApp, have developed their own mobile wallet services or acquired existing mobile payment companies in a bid to get a slice of this fast-growing market.

After six months of maturity, how is the Indian mobile payments industry evolving? The industry now boasts of close to a hundred companies and there is still room for further expansion of the market.The first e-wallet was launched in India in 2006, in partnership with media conglomerate Times Group and large private sector bank YES Bank. A decade later, according to the Reserve Bank of India, there are 80-90 e-wallet companies in the market, with standouts including Paytm, FreeCharge, Mobikwik, Oxigen and PayU, among others.

Before the government implemented the demonetisation policy in November 2016, there were around 100 million e-wallet users in India (as per data from the Indian Chamber of Commerce). However, after the policy change, Paytm alone has 225 million users (as per the latest data released by Paytm).

Recent data from Morgan Stanley shows that in April 2017 alone, mobile payment transactions in India reached $9bn, nine times more than the same period two years ago. It is expected that by the end of 2017, mobile payment transactions in India could total $3.5 to $4 trillion.

Of India's urban population of 444 million, 60% have access to the internet and 77% see their mobile phones as their primary tool for accessing the internet (according to a joint report by the Internet and Mobile Association of India (IMAI) and market research firm IMRB). The growing number of smartphone users provides a potential user base for mobile payments. The industry is expected to continue to grow in India as the convenience of mobile payments becomes more prominent.

However, product homogeneity within the industry requires companies to differentiate to remain competitive. With 80-90 companies competing in the market, most mobile payment companies are currently operating at a loss. In the absence of a clear profit model, most companies can only profit from transaction service fees, which is limited in India due to generally low transaction amounts. Many companies are burning money to attract users and offering their services for free, leading to inevitable losses.

The current consensus in the industry is that for companies to survive in the industry, they must increase their revenue streams without overspending. Vivek Belgavi, head of PwC India, points out that to be profitable, mobile payment companies must differentiate themselves by offering a wider variety of services and expanding their sales and transaction volumes.

In the case of Paytm, the company is currently in the process of applying for a licence to operate financial products, with a view to expanding into areas such as insurance and wealth management.

ItzCash, one of the more profitable mobile payment companies, shares the same view. Naveen Surya, the head of the company, believes that in order to be profitable, it is necessary to diversify its business and enter niche markets. In addition to payment services, ItzCash also works with non-banking organisations to provide services to small businesses and plans to enter the remittance market.

Some companies are turning their attention to the relatively less competitive B2B market. For example, iKaaz initially focused on e-wallet services, but company CEO Soma Sundaram has found that competition is fiercer than expected and UPI-based payment apps are disrupting the industry. Recent reports indicate that Paytm plans to move to UPI from August, showing the momentum of this trend.

Against this backdrop, profitability has become challenging, says Soma: "After careful consideration, we decided that other payment directions were more profitable than the wallet business, so we turned to developing 'pay-as-you-go' payments."

Purple Path believes that with over 1 billion mobile phone users and 300 million smartphone users in India, there are still millions of people who have never experienced mobile payments. Although their purchasing power may not be high, they still have the basic spending power. With the popularity of smartphones and mobile Internet, this group of people become the potential user group of mobile payment, the market volume is large enough. More importantly, mobile payments are an important tool for the Indian government to promote inclusive financial development. As long as enterprises sincerely help solve the problems of the people, policy support and market opportunities are guaranteed.

This article originated from Purple Road, with some quotes from Quartz, Firstpost and other media.