India has traditionally been a cash economy. With low financial inclusion and limited penetration of banking services, 95 per cent of payments in the country are made in cash. There is significant cost involved in printing the currency notes and keeping them in circulation. However, of late the paradigm is changing and the agent of this evolution is the mobile digital wallet. Simply put, the digital wallet is a virtual account created through a service provider where the user loads a certain amount of money. This amount can then be used to make quick purchases and payments without the hassle of carrying cash around, remembering multiple passwords or worrying about card frauds, etc.
In India, 230 million people with an account pay utilities or school fees in cash. Digital wallets made their way into the Indian economy as a means to pay utility bills, recharge mobile phones and DTH plans in a safe and convenient manner. The top players then tied up with leading e-commerce merchants enabling payments on their sites through mobile wallets with a single touch or tap. Consumers began to make a behavioural switch in favour of digital wallets as a quick, safe and hassle-free means of transacting online.
The money credited in a digital wallet is stored in an escrow account and is completely secure as per strict Reserve Bank of India (RBI) norms. Also, because the consumer decides how much money to store in a digital wallet, the risk of losing one's entire savings due to a fraud is not there, an exposure which is there in cards and net banking. So as the adoption of and awareness around digital wallets grew, so did the range of payments you could make with them. Today, a mobile wallet can be used to pay for a cab to work, buy coffee, pick up a quick lunch or shop for clothes. The entire ambit of offline and online transactions which one needs to make in a regular week can now be covered under this cashless form of payment.
In fact, in India, even the use of credit cards online has been overtaken by digital wallets, almost leapfrogging the card era completely. As per RBI, in March this year, 21.5 million credit cards had been issued by various banks in the country. Paytm, India's largest mobile commerce firm and the leading digital wallet, recorded 100 million accounts in August 2015. These figures illustrate the potential and the high rate of acceptance of this form of cashless payment in the country.
India's banked population is approximately 500 million, this means that possibly another 500 million Indians who live on cash, don't have access to basic services like sending money. In order to address the issue of financial inclusion, players such as Paytm have also introduced the person-to-person money transfer facility which allows users to send money from their Paytm wallets to the beneficiaries' wallets in a few easy steps: Enter the number, the amount of money to be transferred and a one-time password. With such innovations, digital wallets are not only eliminating the concerns related to carrying large sums of cash around, they are also making immense in-roads in tier II and III cities where traditional banking services are still out of reach for many.
As the use of these digital wallets becomes widespread, the consumer stands to gain even more. The most obvious advantage will be the increase in the number of brick and mortar stores where one will be able to pay through digital wallets. Beyond the consumers who possess cards, retailers who accept them are even smaller. With digital wallets, the time consumed will be less than that taken to pay through credit or debit cards, and will be far more convenient than paying by cash which often involves risk and running around for change. Enhanced loyalty programmes can also be expected, as there will be a tussle in the market to retain users.
The author is Founder and CEO, Paytm
