The proliferation of digital wallets seems to have ended—and even reversed—in India.
From just one in 2006, the number of firms offering e-wallet services had zoomed to 60 by 2017, according to the Reserve Bank of India (RBI). However, since then, their number has shrunk to 49 due to several reasons. Smaller firms, in particular, have gradually been exiting the space.
Experts cite several reasons for this, including consolidation, lack of profitability, competition, and unfavourable policy norms.
Wallet365.com was India’s first e-wallet, launched in 2006 by media firm Times Group in association with YES Bank. Since then, a number of banks and non-banking financial service firms have entered the industry. This includes retailers such as BigBasket and Grofers, e-commerce giants like Amazon, and even popular messaging app WhatsApp.
Some of these, such as Paytm and Mobikwik, went on to corner a substantial share of the market.
They were aided by rising smartphone penetration in the country, which has led Indians to increasingly adopt online banking over the past three-four years. The acute cash crunch triggered by the November 2016 note ban also came as a major booster shot.
From an estimated Rs154 crore ($21.3 million) in 2015-16, the Indian e-wallet industry was expected to grow to Rs30,000 crore by the end of 2021-22.
Yet, the boom hasn’t sustained.
“Payments is a high-volume, low-value business and that is why most companies continue to struggle,” Upasana Taku, co-founder of MobiKwik, told Quartz. “As a result, there has been a churn in the industry and many firms have either shut shop or gone slow in expanding their business.”
In order to make a wallet business profitable, companies not only need to create a customer base but will also have to maintain a merchant network or come up with other compelling reasons for customers to use a wallet as a payment option, which is another challenge, explained Taku.
“If you don’t have a large customer base then you are just burning cash on a monthly basis and that can’t be sustainable,” said Vinay Kalantri, founder and managing director of tmw (The Mobile Wallet).
As profits remain elusive, larger companies with deeper pockets are stepping in to snap up the smaller firms. For instance, earlier this year, tmw acquired Trupay, a New Delhi-based digital wallet company.
There have been many such acquisitions in the past two years: Axis Bank bought out mobile wallet firm FreeCharge, Amazon snapped up online payment gateway Emvantage, Flipkart picked up PhonePe, and Shopclues acquired Momoe, the mobile wallet for offline stores.
As the market matures, the number of players in the ecosystem may come down further.
Meanwhile, some of the new norms put in place by the central bank, too, have dampened the mood.
For instance, the net-worth requirement for digital wallet companies has been hiked to Rs5 crore from Rs2 crore, with a minimum positive net worth of Rs15 crore in three financial years. “This has made the entry barrier tougher and, therefore, only serious players are staying back, unlike previous times when companies were just acquiring the licence but not even using it,” added Kalantri.
The need for a full know your customer (KYC) verification for all wallet holders which kicked in from March this year and requires additional documentation has been another challenge for the companies.
This has been made even tougher after the supreme court’s verdict on Aadhaar, India’s 12-digit biometric identity number, in September. Corporate entities or even individuals have been forbidden from demanding Aadhaar in exchange for goods or services.
“Even though the KYC process was a pain point for the industry we were able to manage because of Aadhaar. One just had to put their thumbs on the biometric ID and the process could be completed,” said Praveen Dadabhai, CEO of Payworld, another wallet company. “But now that it is no longer allowed the whole process becomes far more cumbersome and expensive for companies and therefore all wallet companies are now struggling with the e-KYC.”
On the flip side, in October the RBI allowed interoperability which allows money transfer between two firms. Apart from this, mobile wallet companies can also now issue cards in partnership with payment networks like Mastercard, Visa, or RuPay. “As a result, it is likely that some other players from, say the loyalty industry, may enter the market even as the smaller ones exit,” said Kalantri.