E-wallets will actually be a burden for the banks, not a boon

A report has pointed out that the payment volume through e-wallets is going to increase by 100% year-on-year over the next few years and it will be a new headache for banks after bad loans, reported the Economic Times.

According to the report, 'India Payments 2015' by broking firm Motilal Oswal: "e-wallets may become a key driver for digitisation of flows that traditionally were dominated by cash such as payment to taxi drivers, domestic help, and local merchants."

Do you know how many mobile wallets are there in India? Check out these numbers. In 1981, the first credit cards were launched and later, debit cards were issued. Till date Indian banks have issued 57.4 crore debit and credit cards. That is 1.6 crore cards on an average a year. The number of mobile wallets in the country is 11.5 crore, since their launch in 2007. That comes to an average of 1.4 crore a year.

"The growth in this space is so dramatic that everybody, banks included, are going to participate in it (e-wallets),'' Jairam Sridharan, president and head, retail lending and payments at Axis Bank told ET, adding banks can't ignore this space.

"We don't know whether this is a passing phase or whether it will continue. The jury is still out on whether this is going to part of the payments infrastructure in the long run," he said.

Who made high street bankers wake up to the needs of the common man, who for decades was ignored for being an 'unviable' business? The refrain was, it is not profitable to service retail customers who don't provide opportunities to milk them in the name of cross-selling financial services.

It is CitrusPay, Oxigen, Paytm, which had nothing much to show in terms of pedigree, except that they had the commitment to innovate. And that is forcing banks to keep launching a feature a day on phones, or for tablets.

Moreover, ICICI Bank on Tuesday said it has re-launched an 'all-new mobile banking app', which provides 100 kinds of services, the highest by any bank in India. Do bank customers really need 100 services? HDFC Bank with its launch of PayZapp is almost replicating a Flipkart, or Paytm.

State Bank of India is also in the race with its digital baby SBI Rewardz. Axis Bank is not far behind with its Pingpay, promoted by actress Deepika Padukone. Kotak Bank is experimenting with taking its social media banking towards social commerce. It offers a hefty discount to customers who buy Amish Tripathi's book through a tweet from their mobiles.

Indian banking are challenged not only in terms of loan recovery, but also with how to generate future business. With loans growth at a decade low, there is little choice for banks other than chasing the retail customer, and lay the foundation to acquire more when the economic expansion gathers pace.

The boom in digital wallet transactions has been triggered by the rise in mobile commerce, emergence of cheaper internet access and increasing mobile penetration.

Mobile wallets also gained the upper hand after the RBI cracked down on ecommerce sites that violated the second-factor authentication requirement. Paytm and CitrusPay have stepped in to provide seamless payments to providers such as Uber and Meru Cabs. The big driver for e-wallets is that a large number of customers are unwilling to log in to their bank accounts to pay taxi fares or shop online fearing electronic fraud.

In fact, there are doubts whether banks are doing the right thing, or blindly aping the nimbler ones that are not even competing with them.

"Banks launching e-wallets is a really bad idea because technically when banks already had my account it already has a wallet,'' says Amrish Rau, MD and CEO of Citrus Payment, which has applied for a payments bank licence.

"They are trying to circumvent the second factor authentication by putting up a wallet. If you think of it calmly what does a wallet do? A wallet holds money, as do bank accounts. But they are enamoured by the world of wallets."

Still, banks cannot afford to be complacent. In advanced markets, technological developments are reshaping the way banking is done.

"If RBI actually looks at payments banks from the digital standpoint, we think we have a chance to compete with banks because they are coming to compete in our favourite spot of innovation and consumerled payments," says Citrus' Rau.

But Paytm, which is best positioned to topple banks from their ivory towers with its cash hoard after getting valued at nearly 23,600 crore with the latest round of investment, is downplaying its own impact on the financial landscape in India, though its top investor Alibaba shook the Chinese market.

"Paytm is a platform for transaction and banking is platform for savings,'' Amit Lakhotia, vice-president, Payments at Paytm, told the financial daily.

The Indian banking system was ignoring the bottom of the pyramid that for want of 'profitability.' It was this neglect that led to more than half the population live without a bank account till Prime Minister Narendra Modi forced banks to do so with his Jan Dhan Yojana.

The population may not be as wealthy as those in cities, which give a disproportionate income for services. But the sheer size of the unbanked, if costs are kept low and transactions made easy, could make banking profitable. It may be a long thin tail, but a small change could boost revenue and profits.

The final game is to convert the customer into a full-fledged bank customer, otherwise the revenue model will not be clear, said Jairam Sridharan.
(Image: Indiatimes)