Lack of interoperability, inadequate smartphone penetration pan-India, and unviability/unwillingness of use for most merchants and consumers are the primary causes for the subdued growth of e-wallets in the country.
Improved banking/technological infrastructure and coverage, higher disposable incomes, convenience of use, enhanced cyber security measures, and increasing popularity have been triggers for the growth of cashless transactions in Indian retail over the years.
Alongside debit/credit cards and internet banking, e-wallets grabbed some spotlight in recent times, especially in the aftermath of demonetisation. However, despite active promotions undertaken by digital wallet providers (Paytm, Citrus Pay, Freecharge, JioMoney, Oxigen, amongst others) to ensure adequate visibility, spends from wallets aren’t growing fast enough. Moneycontrol got in touch with a few CFOs of India’s renowned retail companies at an event organised by the Retail Association of India in Mumbai to find the answers. Here’s what they suggest:
Reluctance to go digital: The reasons range from fears of online monetary/data fraud, hesitation to adopt new methodologies owing to the difficulties involved therein (especially when reloading and transferring account balances), and lack of adequate knowledge. In rural and most semi-urban regions across the country, where basic banking facilities aren’t up to the mark, use of online wallets remains a distant dream.
Closed-loop characteristics: Unlike cards, which are frequently accepted for a diverse range of applications within and outside India, the reach of e-wallets, in comparison, is considerably restricted to specific areas/outlets/products/services. Digital wallets are most commonly used for booking event/movie tickets and cabs, recharging cellphones, and paying for utilities/groceries. Furthermore, conditions associated with eligibility, validity period, withdrawal of balance, and transaction size make it immensely difficult for users to optimise the use of online wallets.
Unviable for most merchants: Sellers incur higher charges for accepting amounts through e-wallets compared to cards. This is because digital wallet providers pay a certain percentage of the amount spent by a customer through such wallets to banks. Consequently, it is difficult for them to offer competitive rates to retailers. As opposed to using card swiping machines at the Point of Sale (POS), the procedures pertaining to integration of e-wallets with bank accounts is relatively more intricate, which discourages merchants.
Too many options: India’s digital wallet realm is flooded with numerous options. Umpteen benefits and discounts offered by countless wallet providers have only added to the confusion of users. Though most people wouldn’t mind carrying a set of debit/credit cards along when shopping, the inclination to use a myriad of online wallets (besides keeping a track of schemes available in each), in contrast, is very low due to the cumbersome processes. A fairly complex user interface in e-wallets only makes matters worse.
High demand for cash: In spite of the advancements in digital platforms, cash rules supreme in terms of consumers’ preferences. Till date, a considerable chunk of India’s population heavily relies on physical currency, particularly as far as purchase of consumption items and high value goods is concerned. Secondly, very few stores in the country are technologically well-equipped to manage online wallet trades since working capital requirements on this front are high. Additional challenges to initiate and monitor terminal operations make it impractical for most outlets to consider e-wallets. Instead, they’d much rather stick to cash.
Is there any hope for revival?
As of now, the possibility of digital wallets making a noticeable headway in India in the immediate future is bleak. Three things are important for any payment option to succeed – access, interoperability, and financial sustainability of the wallet provider.
One of the biggest drawbacks of online wallets is that they are not interoperable. For instance, a Paytm wallet cannot be used by a buyer to transact with a seller who has a Freecharge or any other e-wallet. Transferring money requires senders and receivers to have the same digital wallet. Besides, the money transferred to a wallet does not earn interest either. Small merchants such as owners of corner shops and neighbourhood kirana stores can’t withdraw more than Rs 25,000 a month from such wallets, which affects their cash flows.
Apart from lacking interoperability, digital wallets can be used only by smartphone owners. Only 27 percent of over 1 billion mobile phone users across India have smartphones (vis-a-vis 70 percent in China), whereas the rest use feature phones.
In India, Aadhaar Pay and Bharat Interface for Money (BHIM), the upcoming Unified Payment Interface (UPI) technologies, stand a better chance of doing well in the long-run since these would facilitate hassle-free transfer of funds from the buyer’s account to the seller’s account at the time of making payments.
Going forward, it’s quite possible that people could be ditching their online wallets and opting for UPI or voice commands. Hence, e-wallets need to mature in lieu of such developments, while simultaneously being interoperable, to be relevant.