Outlook 2016: Offline merchants, credit services to be key for mobile wallet business

The year gone by saw payment companies driving transactions through discounts and incentives on their mobile wallets. While Paytm, the biggest player in this segment, claimed that it had notched up more than 100 million users last year, rivals Mobikwik, Citrus and PayUMoney have also witnessed a surge in downloads. Digital wallets have today moved beyond smaller ticket items such as recharges and bill payments to big ticket purchases such as restaurants, cab bookings and even hotel bookings. With consumers finally becoming comfortable with the idea of making payments via mobile phones, the digital payment segment is now ready to enter its second phase of growth.

Year 2016 is expected to be the year of expansion for digital payment companies, whether in terms of the merchants on their platforms or in the range of financial services they will provide. According to a Bank of America Merrill Lynch Global Research study, mobile banking's share which currently accounts for 0.1 per cent of total payments will rise to 10 per cent in seven years, with the value of mobile banking rising 200 times to $3.5 trillion. And digital payment companies are looking to grab a bigger share of that pie.

At the same time, the trend of chasing after customers with steep discounts is also expected to diminish. While last year, a number of wallet players tried to acquire customers at huge costs, they have now realised that a high customer acquisition cost is not sustainable in the long run.

"Our overall spend on rewards have come down considerably and we want to take it down another 15 per cent. We want to work with the existing users to reinforce our position in the market," says Virender Gupta, business head, PayU India Internet Pvt Ltd, which runs PayUMoney.

Capturing the offline market Going after the offline market will be crucial this year. The first signs were seen in 2015 when brick-and-mortar stores such as Big Bazaar, Archies, Cafe Coffee Day, Bercos and others started accepting mobile payments.

"Offline market will be a big area of focus. Earlier, the primary use case was recharge and bill payments. Now we have started seeing payments for offline purchases through mobile wallets as well. Consumers have started to use mobile wallets to pay at offline retail such as super markets, gas stations, etc. So digital wallets won't be just used to top-up but will be a means to actually pay and transact," says Nitin Misra, vice-president (products) at Paytm, which is run by One97 Communications Ltd.

Similarly, Citrus Payments Solutions Pvt Ltd, which operates online checkout and payment solution Citrus Pay, plans to onboard 50,000-70,000 stores in 2016. It currently has 10,000 offline stores on its platform. This is the year where the market will focus on providing increased acceptance of wallets in the offline space.

"At Citrus Pay, we are also focusing on social commerce payments. A seller or consumer will then be able to collect payment through social channels and also market its products using our platform," said Jitendra Gupta, founder-MD, Citrus Payment Solutions, which currently has 18 million users.

Offering customised solutions to meet the needs of these offline merchants is also on the agenda. Gupta of PayUMoney says the digital payment solutions company will be making customised solutions. "We will be spending considerable time to becoming a premier choice for merchants in terms of increasing the scope of electronic payment. For example, we will be developing custom solutions to merchants who provide subscription services such as newspaper vendors, tiffin services, and we will provide them with a specific payment solution," he says.

Buy now and pay later To drive more impulse purchases on mobile phones, payment companies are looking at bringing in a credit payment feature in their offerings. "With the credit option, we are aiming to take away the payment steps altogether. It will work like a credit card but minus the steps and a customer can simply tap and make the payment," said Gupta of Citrus.

Citrus is already working on developing such a product.

Others, too, are looking at this option.

"We know the types of transaction our customers do and how much they spend on the phone or in a restaurant and we also know to what extent they dislike or like the wallet. Thus, we can graph how important is our wallet to a customer in their day-to-day life," said Mrinal Sinha, chief operating officer, Mobikwik. "A customer for whom Mobikwik is a necessity would use the credit and return by the end of the month just like in the credit card system." One MobiKwik Systems Pvt Ltd, which runs online recharge platform and mobile wallet venture MobiKwik.com, claims to have 28 million users transacting on the platform.

Issues such as charging interests on credit payments and know-your-customer (KYC) norms will have to be vetted before credit payments can be rolled out.

While Citrus and Mobikwik say KYC norms would not be necessary, Gupta of PayU says that startups planning to offer credit may need to adopt such guidelines. "We may start by giving smaller limits and later upgrade to a higher credit level based on the customer profile," Gupta adds.

Paytm gearing up for payments bank role

Of course, the biggest disruption in this niche segment is posed by Paytm. Last year, Vijay Shekhar Sharma, founder of Paytm, was among the 11 entities which got an in-principle approval from Reserve Bank of India to set up payments banks -- take deposits, pay bills, issue cheques and drafts, and even offer interest on deposits. This gives Paytm an edge over other players in the mobile wallets space.

It will be rolling out services by the first quarter of this year and is expected to disrupt the digital payments space, as well as the larger banking space. However, Paytm's Misra maintains that payment banks won't be a competition to other banks as they are targeting the unbanked population. "The market is huge and there is a lot of opportunity for us," he said.

Paytm will also be looking to expand its footprint in the offline market.

Competition While most banks already have their mobile wallets -- ICICI Bank has Pockets while State Bank of India (SBI) introduced SBI Buddy -- payment companies say there is room for many players and a consolidation is still far away. "The market is huge and mobile wallets have captured barely two per cent of the market. So it is cash-based transactions which are our strongest and direct competitor," adds Gupta of Citrus.