How are wallets making India’s dream of financial inclusion a reality?

The Payment Industry in India today is exploding at a breakneck pace. There are multiple reasons for it –  more than 50% of population less than 25 years of age, large percentage of mid income category,  ever increasing mobile (smart phone) penetration with icing on the cake being Reserve Bank of India’s recently released licensing guidelines for payments and small banks. The objective of RBI is the financial inclusion of unbanked and under banked population in urban and semi-urban and rural India.

What do we mean by Payment and Small banks?

Payment Banks can accept deposits not exceeding Rupees 1,00,000 per account, can issue debit and ATM facilities, can sell mutual funds and life insurance policies. However, cannot be involved in lending or credit card issuing. Small banks are allowed to be involved in lending like any other commercial banks with stipulation on the amount of lending.

Mobile wallet companies, innovative approaches and Money Money -

The innovative technology companies which were trying to solve payment industry problems in India, now has a chance to make it big with the encouraging RBI rules and regulations, and government determination of inclusive growth.

People in India are known for Jugaad (a word in Hindi which captures the meaning of finding a low-cost solution to any problem in an intelligent way) and for the first time Indian technology companies are using the approach of Jugaad in solving payment industry problems.

Novopay -

Novopay’s Aadhar (kind of SSN number in USA) based payment solution start-up founded by top technologists is providing a solution which is WIN – WIN for customers, banks, government, Novopay and KIRANA (small retail) stores. India is a land of small kirana stores. Company is enabling them as a small bank by providing them a mobile app with biometric scanner. People can deposit, withdraw, transfer money linked to their Aadhar account number at ease with thumb impression to authenticate the transaction, which will be matched with the Aadhar database.

How are big bank’s benefiting by losing their customers?

If you go to a bank branch in semi-urban place in India today, you can see hundreds of people trying to withdraw or perform monetary value transactions of less than 100 rupees. The cost of servicing these transactions in the branch, coupled with opportunity cost of losing high net value customers is huge.

Banks see an opportunity to tie-up with Novopay to service their some of their customers, and Novopay could charge some convenience fee to the banks for the value provided. It sounds strange but economics is driving this innovation and SBI is handshaking with Novopay.

Telecom Companies – Airtel, Idea, Vodafone, RIL

Telecom companies acting as payment enablers is one area which was expected to take off 6-7 years back but not much progress has been made. However, it still remains one of the most convenient platform both in terms of reach and convenience. Money can be exchanged with the registered (with their service provider for payment operations) users, recharge the prepaid balances, pay bills, and of course withdraw cash as well. How can I withdraw money from a mobile phone? To solve this problem,

Mobile companies have tied-up with small retail stores, where users can show the receipt on their phone to cash out. Though service fee charged for the transactions is on the higher side.

Paytm 

Can I use my payment wallet to order a coffee or for a pizza? That’s what Paytm will be offering soon. Perhaps one of the most popular payment app in India today, which claims 60 million registered users. Offers market place for buyers and sellers of various goods in addition to recharge of pre-paid mobile phones. It has tied up with Indian Railways to book tickets along with many other stores.

Qxygen Wallet 

Can I send money to my Facebook, G+ or Twitter friend? Oxygen provides wallet services with the innovation of sending money to social media friends. Once on Oxygen wallet synch your social media account – Twitter / Facebook / G+ and select a friend and send money - sounds simple. However, your friend should have Oxygen wallet or should download the wallet with-in 7 days to receive the transferred amount.  Oxygen’s innovative social media approach could help in customer acquisition and it will be easy to send cash by selecting a friend in the social media contact.

Other companies on the field 

There are many other companies trying to innovate and capture the market - FINO PayTech, Money on Mobile, Mobiwiks, and many more on the horizon.

What are the benefits to customers?

The service charges charged for payment transactions using mobile apps Services is much less or free when compared to using Credit and Debit cards. There is a definite value add that these services provide –

• Instant fund transfer 24/7
• Convenience of using mobile
• Convenience of sending money without having to remember lot of information about the receiver – in many cases, mobile number, Aadhar number, email id, or using social media contacts is sufficient. Isn’t it easy?
• Less service charge or no service charge on transactions, which is great compared to the amount that Payment Networks – VISA, MasterCard and other network’s charge. Paytm charges – Loading Money into the wallet, Purchase at merchant site, wallet to wallet transfer, carried no charge, and only Wallet to bank transfer – 4%
• Can you guess the winner?

It is not sure if there will be one winner or there could be multiple winners? Market is ripe to accommodate multiple winners, and user behaviour is fast changing and ready to use the new ways making transactions. Innovation, ease of making transactions, collaboration with multiple on-line and off-line businesses, introducing new products, time to market and customer acquisition will determine the winner.