First it was cash, then plastic money and now it’s the era of digital money. India has seen a stupendous increase in the number of e-Wallet apps and websites. Post Reserve Bank of India (RBI) chief’s announcement of giving licenses for payment banks, many firms have jumped into the race. Payment banks mean “Digital wallet or Mobile currency”. A payment bank could be a mobile service provider, supermarket chain, non-banking and financial companies.
Digital wallets are fast changing the way people perform financial transactions. People are moving to the convenience of their mobile phones to do monetary transactions. e-Wallet connects directly to users bank account. It stores a pre-loaded amount from a bank account and the user of this wallet is permitted to spend the stored funds on transactions ranging from buying airline tickets to groceries. Through e-Wallets money can be transferred instantly to friends and family.
Three Types Of e-Wallets
1. Closed wallets: These are company specific e-Wallets. It can only be used exclusively for purchasing goods and services from the wallet provider. For example Meru cab, Jabong and Flipkart have their own wallets which can be used exclusively only on their apps/websites for payments and it can’t be used on any other portals or services. This particular wallet enables the company to earn interest on the money stored by user.
2. Semi closed wallets: These are used only to buy certain financial service or goods from selected merchants. For example Citrus cash app is used for booking movie tickets as well as for D2H recharges. In this wallet there’s either no interest earned or 4-8% is earned by user depending on the central bank rules.
3. Open wallets: These are used with any merchant or point of sale terminals that accept e-Wallets. One can even withdraw money and do host of other transactions which only a bank can authorize. For example m-Pesa by Vodafone which is running in collaboration with ICICI Bank. Interest earned is shared by the payment service provider and the bank.
Popular e-Wallets And Their Features
Initially many IT companies like Oxigen and merchant specific e-Wallets launched their services. But now we have banks like ICICI, Axis, SBI, many more and also telecom firms such as Airtel, Idea and Vodafone joining in the race.
Featuring Couple Of e-Wallets
Paytm: This is a semi open wallet app. Users are able to pay for services like Uber and Food Panda using their Paytm accounts, which have aided in increasing the company’s popularity. It is considered as one of the largest mobile wallet app. This wallet has over 100 million registered users and 75 million monthly transactions. It is accepted by 80,000 merchants.
ICICI Pockets: This is an open wallet app. Users can transfer money or request money from friends/relatives easily. They can even buy goods and services and pay through this app. Registration is done with zero balance in account and user earns interest on the money stored in this wallet.
One can deposit a minimum of Rs 10 and the maximum of Rs 100,000 in such e-Wallets but one needs to provide their KYC documents for depositing such maximum amount. RBI also allows single factor authentication on amounts less than Rs 2000 which comprise majority of transactions.
Mobile Banking Apps Vs e-Wallets
Mobile banking app has a direct connection with the bank account. They make basic banking services easily accessible such as account transfers, bill payments, and balance inquiry. An e–wallet on the other hand is a form of a prepaid card. Once the value in the wallet is utilised it can no longer be used unless a top up is added. Also, in an e-Wallet user doesn’t have to load card details again and again, thus making it more secured.
e-Wallet: Threat To Banking Services
e-Wallet promises to change the way we do our financial transactions. India being a country with a vast population has a huge problem with accessibility when it comes to banks or any other financial institutions. e-Wallets aim to fill this gap in the coming years. As per RBI data in 2014-15, more than 255 million transactions were recorded as compared to 107.61 million transactions during 2013-14, this is a growth of 137% compared to 2013-14.
Such growth in transactions has proved to be a threat to banking institutions and some banks have managed to turn this threat into an opportunity by setting up mobile wallets of their own. Examples include:
- ICICI Bank (Pockets App)
- HDFC Bank (PayZapp)
- SBI Bank (SBI Buddy)
Future Of e-Wallets In India
e-Wallets promises to provide an easy to use, futuristic and safe platform for any financial transactions. Due to e-Wallets being at a very early stage in India there could be a few challenges that its users could face. Due to tremendous increase in e-commerce, companies need a population which can pay online instantly. Currently, 60% of e-commerce transaction is cash on delivery mainly due to trust issues and inability of bank products i.e. debit or credit cards with customers for online payments. Such wallets are allowing the masses to pay instantly with mobile. It could take some time for people to fully trust e-Wallets and shift away from the personal touch that conventional banks offer.
The future of mobile wallets in India looks bright as India is transforming into a digital economy. Also, the convenience and ease in using such wallet service is hard to ignore. The potential is high of mobile transactions through e-Wallets to overtake e-commerce transaction with online banks/credit and debit cards in near future. In India only 5% of villages have access to bank branches with no formal source of credit available to farmers so e-Wallet also offers big opportunity to serve this underserved economy. Inclusion of payment for insurance premiums, pension schemes and investments through e-Wallets is a boon for investors.
Tarun Birani is the Founder and Director, TBNG Capital Advisors Private Limited.