Payment services such as Paypal and Alipay compete with the established banks. Non-banks erode the banking revenues. Payments contribute about 25 per cent of bank revenues. There are many start ups who are entering this field. The disruption is putting pressure on the banks. Alipay does everything a bank does faster and better. It allows people to keep their savings, earn returns, transfer money and make investments. Though Alipay started as an e-payment system, it is emerging as a destination app and website on its own.

Indian banks see the writing on the wall. They too have launched apps. HDFC has launched Payzapp, a mobile app. Several banks are moving into e-commerce space by a tie-up with existing players, though the banking act prevents them doing so directly. Axis has also entered into this space. ICICI too has an app. Kotal bank keeps its peer-to-peer application open to anyone with a bank account. They are trying to offer a universal payment application. Banks already have a captive user base. They should be innovative to make their application score over non-bank companies. They should be able to match the ease of use of mobile wallets of non-bank players. Banks enter into this unchartered territory to engage the customers. Banking as a function is not very engaging. A customer is after the products/ services. He considers a bank just as an intermediary, a necessity. Banks realise that the customer traffic is not for the bank but for the real things out there. They have to be there where things are happening. That is the way they will remain relevant in a customer’s life. Payment banks are permitted by the RBI. Corporates can operate a marketplace whereas banks cannot. They are thus disadvantaged right at the start. It is now a competition between banking and non-banking entities.

Mobile wallets have increased their advertising spend to reach the customers. New entrants take the freebie route to lure them. As a result, discounts and cash back are very common. Still, customers do not remain loyal as they do not store balance in the wallet, and are free to switch over from one company to another. There is a constant churn. Paytm is yet to break even. It is too early to talk about profits. The model is not sustainable in the long run.

To stay relevant, mobile wallets have become service providers too. They provide check out service in which a customer’s credit/debit card is linked to mobile wallet and so there is no need  to store money digitally. This service earns them 1.5 per cent of the transaction cost as revenue which is greater than the revenue earned if consumers transact from the digital wallet.

There is an opportunity in the unbanked population. They can build a niche in the rural areas. They can facilitate mobile remittances. Payworld and Oxigen operate in this area. As all of them do not have a smart phone, such remittances can be effected through the retail outlets.

Mobile wallets are used as people avoid using cards for small ticket payments. Transaction through wallets for cell recharges, taxi-cab etc have worked well.

Banks will be at an advantage as they have a wide customer base. Still, there is a long way to go before mobile wallets replace cash altogether.

As almost 60 per cent transactions of e-commerce are on the basis of cash against delivery, this could be replaced by mobile wallets or mobile payment gateways. The only way a payment company can survive is by roping in more customers and merchants, both online and offline. It is necessary to tab the unbanked population. Wallet companies have retail touch points where consumers hand over cash to an agent who loads the money in the customer’s digital wallet. A wallet company earns commission on transaction value. It works on wafer thin margins. Out of these small margins which is their revenue, they have to offer discounts and cash backs. That leaves them almost nothing. Discounts are essential as here we are changing consumer habits. A consumer benefits from discounts offered by the vendor site, as well as the discounts offered by the wallet. Some download the app only to get discounts and cash back, and later delete it, or keep it unused. The cost of acquiring a customer is very high. There may be a shake out with the acquisition of smaller players by the bigger or more successful ones.

Technically, mobile wallets are stored value accounts which can store cash, debit-credit card details or even loyalty card details. You can identify these with a few known credentials — your mobile number and a mobile pin. Essentially, two types of wallets are in use:

• Wallets with card details stored in. These are used as surrogate while doing the transaction. The transaction is carried out by using mobile number and PIN.
• Wallets stores cash equivalent called stored value account. It is just like a savings account, but with no interest. Your mobile number serves as account number. This prepaid wallet could be used to the extent of money stored in the wallet account. You have to replenish the account by loading money on you wallet as and when money gets exhausted. Alternatively, you can use credit-debit card details for loading.

Instead of using several cards, it is convenient to use a wallet account. As it works as a pseudo account, it is safer. The transaction as authenticated only with mobile PIN and OTP.

India moved from paper money to plastic money, albeit at a slow pace. Since then, India is moving from plastic money to no money, albeit at a fast pace. This is due to the mobile wallets which enable payments through smart phones. The real revolution is yet to happen. When the PoS or Point of Sale terminal will facilitate the payment from mobile wallets at retail shops, it will be a huge step forward, and will benefit both the consumers and merchants. A system has to be developed where all transactions, with or without mobile wallet, are recorded at single place in the billing system. Yes, at present off-line transactions with mobile wallets are made by using customized solutions, but these are not standardized.