A year after the great Indian Demonetization: how are digital Wallets doing?

It has been a little over a year since the Indian government dramatically Demonetized a couple of high-value currency notes. This large-scale economic experiment still generates a lot of press. Analysts, economists and the media spent endless hours analyzing this move, reviewing the pro-and-cons. At the time, many also predicted the emergence of digital currencies and wallets.

A year after demonetization, life in India seems to be settling into a new routine. The Government announced newer currency notes of varying denominations and people continue with their financial transactions. In recent times, India has seen a proliferation of digital wallets with banks, financial institutions, entrepreneurs, startups and even phone providers jumping the digital bandwagon. While electronic transactions have taken off, cash is still the king.

What are Digital Wallets ?

“Digital Wallets” are a means of enabling financial transactions. A digital or eWallet is essentially an App in a smartphone, computer or other electronic device that allows an individual to make electronic transactions and payments. Users can use their wallets for online transactions and for purchases at a merchant’s store. Digital wallets, like physical leather wallets need to be funded with money prior to use. To add funds their wallet account, the customer may opt to link their bank account, credit card or other source of finance.  Like a physical wallet, a digital wallet may also contain other details like a driver’s license, health card, loyalty card(s) and other ID documents stored on the App.

eWallet workflow

Digital wallets are designed to be user friendly and rather simple to operate as the diagram shows.

  • The user signs up for a wallet from a provider. This begins with a download of an App to the smartphone or login to the URL of the digital wallet provider (e.g PayTM or OlaMoney)
  • An account is created and the user links their bank account and/or credit card to the wallet and ‘adds’ money to the wallet
  • The user can use the wallet for online purchases or at a store. Some wallets also provide ‘peer to peer’ payment option to enable transfer of funds between individuals.
  • Many stores offer near field communication (NFC) readers where users can scan their QR code from the smartphone
  • Many wallets also support a ‘two factor’ authorization by generating a one-time-password (OTP) or other means of verifying the transaction
  • The wallet provider makes payment to the merchant and deducts amount from the wallet ‘balance’
  • The user continues to ‘refill’ the wallet periodically as they operate them

Digital wallet services in India generally confirm to Unified Payments Interface (UPI), an instant real-time payment system developed by National Payments Corporation of India facilitating inter-bank transactions. The interface is regulated by the Reserve Bank of India and works by instantly transferring funds between two bank accounts on a mobile platform.


Just one wallet won’t do

In recent years, India has seen a proliferation of digital wallets with banks, financial institutions, entrepreneurs and even phone providers jumping the bandwagon. There are dozens of wallet providers competing for our wallets (pun intended) and they continue to signup merchants and users at a fast pace. Part of the reason for the increasing popularity of eWallets is the pervasiveness of smartphones with easy and cheap networks and data bandwidth.

Most of the wallet services claim to provide a robust Payment gateway, Security of transactions and Payment processing and reconciliation. However, the challenge is not with individual digital wallets or providers, it is an ecosystem challenge caused by the proliferation of eWallets in the market.

Wallet Providers compete with discounts at retailers

For example, as a consumer, I would be extremely happy with just one wallet, say PayTM. However, the challenge is that merchants have their operating constraints, and generally sign-on with one or two wallet providers of their choice. For instance, I might shop regularly at Reliance or More Supermart for my groceries. Depending on the store, I may be able to use Reliance’s own Jio Wallet, MobiKwik or HDFC Bank’s DiGiPOS.

If I shop more at Reliance’s Supermarket like a ‘smart’ consumer who chases deals, I might be tempted to signup for MobiKwik and DiGiPOS since they offer ‘5% discount’ at Reliance. However, I might realize that these wallets are not accepted by my electric company or water board that might have signed up with MobiKwik alone.   Faced with such a challenge, I will probably go back to using my credit or debit card for the transaction.  Consumers like me faced a similar challenge with credit cards in the past – some merchants prefer Visa or mastercard more than American Express or Diners.

Typical challenges consumers face when it comes to digital wallets

  • Retailers may accept a limited array of digital-wallets – Depending on where one shops, an individual will   need to make sure the wallet they signed up for is accepted by their retailer. Consumer who shop at multiple supermarkets may have to sign-up with multiple wallet providers.
  • Travelling from one place to another is a challenge too. Some e-Wallets are more prevalent in one city than the other. For instance, during my recent travel, I noticed that Freecharge seems to be more prevalent among merchants in and around Chennai airport while other Wallets are common in Bengaluru and Mumbai.
  • Funding multiple wallets – In order to be prepared for all scenarios, one will have to signup with multiple wallet providers and connect their bank and credit card accounts with those wallet accounts. This leads to practical challenge for those with limited means: how to track funds added to all their wallets?
  • Limited funds – Many individuals have limited cash and funds in their bank accounts and some live from paycheck to paycheck. Adding and maintaining money in digital wallets may not be practical and may squeeze the cash-flow.
  • Interoperability challenges– Digital wallet services in India generally confirm to Unified Payments Interface (UPI) but generally don’t interoperate. For instance, if I must use my PayTM wallet and happen to have some balance in the MobiKwik wallet, I will have to ‘withdraw’ from MobiKwik to my bank account and then transfer that amount from the bank to PayTM wallet account.
  • Device dependence – The younger generation of tech-savvy users have become comfortable using digital wallets as a primary means of payment. However, rest of the demographics are yet to catch up and continue to use cash and credit/debit cards in addition to digital wallets. This means an individual needs to carry a digital device – just like one would carry a wallet with cash and cards – with them all the time.
  • Network challenges – digital wallets operate when one carries the device (e.g smartphone) that is connected to the internet. This is required to authenticate and verify the transaction. Any disruption in your network service will impede your ability to use the digital wallet.
  • Security – The systems and processes being designed to enable digital wallets are expected to be robust and trustworthy. Most of them enable two/multi-factor authentication (link).  However, the bad-guys are trying hard to stay on top of the technologies. Scams involving social engineering seem to be emerging too. (link).

The mobile payment marketplace in India seems to be hyper-competetive. Wallet providers are trying to gain marketshare by tying up with retailers and offering aggressive ‘cashback’ and savings. For instance, in November 2017, both MobiKwik and DiGiPOS (from HDFC) are offering 15% cashback to Reliance retail’s customers.

Bottomline: The increasing adoption of digital wallets in urban India has led to a proliferation of wallet providers. The market seems to be ripe for consolidation and perhaps a shakeup.


Some of the most popular Digital Wallets in India

Wallets offered by Banks and Credit card providers

ICICI Pockets: Designed by ICICI Bank, the wallet providers claim “Pockets Digital Wallet can be used by customers of any bank. ” It is VISA powered and can be used on most eCommerce websites or to transfer money to peers.

State Bank Buddy:   It is an offering from India’s largest national bank, State Bank of India, designed to support 13 languages. Users (including other bank customers) can signup and use the wallet for transactions or to send money via Facebook, or to other bank accounts.

Citi MasterPass: Citi MasterPass by Citibank® is yet another free digital wallet service that makes online shopping safe and easy by storing all of your payment and shipping information in one convenient and secure place.

Citrus Pay: Claims to be one “of the top e-wallets in India. India’s best payment stack for developers, instant payments for businesses and seamless checkout for consumers.” It has strong base of nearly 800 million customers.

HDFC PayZapp: a mobile payment app by HDFC Bank allows users to make bill payments, buy movie tickets, travel payments, taxi service, recharge your mobile and send money to peers.

LIME: It was launched by AXIS bank in 2015 and supports features like making payments analyze what you spend.

Wallets from Fin-tech Startups

Paytm: Launched in 2010, PayTM, is currently the big-daddy of mobile wallet Apps in India. It seems to be a ubiquitous payment platform with a wide reach across India.

Mobikwik: A Gurgaon based e-wallet payment system was  founded in 2009, and enables users to store and make payments digitally.

PhonePe: A Fin-Tech company headquartered in Bangalore was founded in December 2015. It provides online payment system based on Unified Payments Interface (UPI)

Ezetap: A Bangalore based digital payment solution was founded in 2011 and offers business owners solutions to accept card payments via electronic devices.

Freecharge:  An e-commerce fin-tech company headquartered in Mumbai, it provides online facility to recharge prepaid mobile phone, postpaid mobile, DTH & Data Cards in India. Indian eCommerce giant Snapdeal acquired Freecharge on 8 April 2015, in what is being referred to as the second biggest take over in the Indian e-commerce sector thus far.

Juspay: JusPay is designing a payment browser. Tagline “We are a team of engineers and designers working passionately to revolutionize digital payments in India with secure, reliable, efficient and cost effective solutions.”

Wallets from Phone providers


JioMoney: JioMoney, launched recently in 2016 by Reliance Jio, is a digital payment app. With JioMoney, one can receive great discounts and offers. Tag “Use JioMoney to make smart, simple and secure digital payments on the go.”

Airtel Money: Claims to provide money transfer. One can download mobile app for online shopping, prepaid recharge, bill payment, ticket bookings and more.

Ola Money: Launched in 2015, is a digital wallet in India offered by Indian ride-share company Ola. It is a convenient payment gateway for those who use Ola’s ride-sharing services though the wallet can also be used for other services.

MomoeXpress: MomoeXpress, a Bangalore based digital wallet in India, claims “The fastest payment experience in the universe.”

MoneyonMobile: A multilingual app that aims to “provide doorstep services and mobile app services aimed at bringing the ability to make hassle-free payments to every person on the street.”

Mswipe:  Claims to be India’s first mobile point-of-sales (mPOS) solution founded in 2012. Their solution is focused on merchants to enable them to accept card payments on smartphone, PC or tablet .

PayUmoney: PayUmoney is a free payment gateway solution for merchants to collect payments from customers. PayU claims to provides state-of-the-art payment gateway solutions to online businesses through its cutting-edge and award winning technology.

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