The Party Has Just Begun For Digital Wallets In India
Digital payment companies see fatter wallets as they cash in on demonetisation.
Digital wallet companies Paytm and Mobikwik had 150 million and 35 million users prior to the demonetisation announcement. A fortnight after the government withdrew old Rs 500 and Rs 1,000 currency notes from circulation, the number of users surged to 158 million and 40 million respectively, the two companies said.
Paytm and Mobikwik have together garnered 13 million new users in just 14 days, and the number is steadily increasing.
As the government stepped up its war on black money by scrapping high-value currency notes, the ensuing cash crunch meant consumers took recourse to digital wallets like those run by Paytm, Mobikwik, Citrus, FreeCharge to pay electricity bills, buy groceries from local kirana store owners or even pay a rickshaw puller.
Sudden Surge
Until now we were going fast, but with the demonetisation, it has become ultra-fast. We are growing at a crazy pace and there are abundant opportunities – in transport, as a substitute for cash-on-delivery for e-commerce, offline expansion and so on. And we are doing all of this at the same time.Upasana Taku, Co-founder, Mobikwik said in a phone conversation
Taku said that Mobikwik initially had a GMV (gross merchandising value) target of $1 billion, but after looking at the growing appetite in the market, the company is aiming for $10 billion by the end of 2017.
The number of transactions done on Mobikwik’s platform to pay for ride-hailing app Uber alone has increased from 20,000 to 1 lakh on a daily basis. “That is the kind of growth we are seeing and that is same across the board. We have also seen that the adoption of digital wallets among large merchants like 24*7, Big Bazaar has shot up as cash has gone down,” she added.
Digital wallet and e-commerce player Paytm which counts Alibaba and MediaTek Inc as investors has also seen its business expand multi-fold in the past two weeks. The user base has touched 158 million, daily transactions have touched 7 million, the company said. It has served more than 45 million new and existing users in the past 14 days.
Paytm’s gross merchandise value run rate has reached $5 billion so far this year, already outpacing 2015’s $3 billion.
Snapdeal-backed FreeCharge too has seen the volume of transactions shoot up. FreeCharge has seen both the number of merchant transactions as well as the money being added in wallets multiply five times, while the value of overall transactions has risen four times compared to October, Govind Rajan, chief executive officer of FreeCharge said in a phone interaction.
The number of merchant transactions that we saw in the first week of demonetisation was more than what we did last month. Over the weekend alone, the number of transactions was more what we did through the week. Clearly the rate of transactions is seeing a huge jump as we march ahead.Govind Rajan, CEO, FreeCharge
Without giving an absolute number, he said overall transactions are in millions, adding that the wallet has more than 45 million users.
Expanding Merchant Network
Digital wallets are now aggressively shifting their focus to brick-and-mortar merchants and other online-to-offline sectors to expand their offline merchant network. Most players have announced zero transaction fee for merchants on mobile payments and even waived off the fee on transfering money from wallets to bank accounts.
While Paytm has 1 million merchants, Mobikwik said currently 2.5 lakh merchants have tied up on their platforms. FreeCharge has seen a 10-fold surge in the number of retail merchant sign-ups in the past few days.
Last week, Paytm launched a point-of-sale application to encourage merchants to migrate to digital payments.
Mobikwik plans to launch a virtual card for online, offline payments where credit and debit cards are accepted by January 2017. “Users can pay through their wallets without having to worry about whether the merchant is included in our network. They can generate a new card every time to make payments and use the Mobikwik wallet across India for any purchases," the company had said in a statement.
FreeCharge and Mobikwik aim to add 1 million merchants by the end of this fiscal year.
Road Ahead
Investors say demonetisation has given digital wallets a shot in the arm but caution that these firms will need to build more use cases to stand out in the long term.
“Digital wallets have the ability to become an omnipresent acquisition channel. What you do on top of the wallet is essentially going to get you money. The installed base need to be large enough for sub use case to be profitable. Without that it will be difficult to build a large business,” said Karthik Reddy, managing partner of Mumbai-based early stage venture fund Blume Ventures, which has invested in five financial technology startups such as Chillr, instamojo, Slicepay among others.
Pankaj Makkar, managing director at Bertelsmann, the investment arm of German media giant Bertelsmann said that the issue is not monetisation but how to build use cases after Unified Payment system (UPI) starts to pick up space in India.
The space is undeniably bound to grow, but while wallets companies are seeing a lot transaction today the UPI will make some of the use cases that these wallets are doing redundant and that is the bigger threat. They have to figure out more use cases with the consumers to grow bigger.Pankaj Makkar, Managing Director, Bertelsmann
The UPI, launched in August this year, allows instant transfer of funds directly from one bank account to another through a smartphone app.