The Rise of Mobile Wallet in Alternative Payment Environment

Posted in Operations & IT Articles, Total Reads: 1575 , Published on 04 April 2015

Scene 1:

Family is getting ready for the dinner. Father sits angrily on the dinner table whining that his son again forgot to pay the electricity bill. He is exasperated at his son for being irresponsible with his habit of whole day being on the mobile phone signifying his carefree attitude. Meanwhile there is beep. And son replies, “Bill Paid!!!”

Scene 2:

Mother calls up her son who works in Mumbai and asks him to give money for the painting of their house to the distant relative of their neighbor who will be visiting Mumbai soon. Son replies back saying he won’t be giving money to any unknown person and transfers the money to his mother the next instant through his mobile phone.

India’s biggest two telecom service providers, Airtel and Vodafone, have spent a significant portion of their humungous advertising budget on the advertisements such as above. It is clear that they are not promoting internet banking or mobile banking through these advertisements. So, the question arises, what a telecom service provider has to do with such monetary transactions? Well, you are witnessing the culmination of mobile technology and financial services to what is being seen as the next big thing in the world of finance – Mobile Wallet.

The technology has been around for a while but it is only recently that the buzz has picked up. And you might be surprised to know that the concept was not introduced by the developed markets like US or UK, but the emerging markets like Kenya with M-pesa and Philippines with SMART Money.

So what exactly is a mobile wallet? A wallet is defined as a flat pocket size folding case for holding paper money, cards or photographs. Mobile Wallet picks up from the above definition and according to a White Paper on Mobile Wallet, it is a software application on a mobile handset that functions as a digital container for payment cards, tickets, loyalty cards, receipts, vouchers and other items that might be found in a conventional wallet.

Though NFC is the most common technology used, other technologies like QR codes, Bluetooth, SMS and Mobile internet are also used for transmitting the payment information. Recently, biometrics as an alternative to NFC is also finding its feet in the mobile wallet space.

A simple transaction in the mobile wallet can be understood with the help of the below diagram:

With such an ease in its use, no doubt the technology is fast catching up.

As of now, the mobile wallet payment technology is primarily for recharging prepaid mobile account, direct-to-home services, paying out bills, redeeming vouchers and transferring money to another account. However, it is expected to touch each and every aspect of the monetary transaction process and is seen as a better option than the plastic money due to the increased security features it possesses.

According to the research firm Gartner, mobile payments are estimated to reach $721 billion by 2017 with more than 450 million users worldwide up from $235.4 billion in 2013 with 245 million users. According to the research, Asia-Pacific’s transaction value is expected to reach $165 billion by 2017 with India, South Korea and Singapore driving the growth. Another research firm, Forrester Research, expects in-store mobile payments to jump from $549 million in 2012 to $41 billion in 2017.

The competition in Indian mobile wallet space has already started heating up with players ranging from Telecom service providers such as Airtel, Vodafone, Aircel, Tata Teleservices Ltd. to Online payment players such as Paytm, Mobicash and Mobikwik. Technology giants such as Google and IBM are also gearing up for the competition in the mobile wallet market. Some stores like Starbucks have their own mobile wallet app which is a huge hit in the overseas market with nearly 10 million customers paying through this application.

Reserve Bank of India already has some regulations in place for mobile wallet transactions and has high hopes that this technology can play a crucial role in financial inclusion scheme of things. All transactions except in cases where it is with only one merchant are regulated by the RBI. Mobile wallets are categorized as open or semi closed. Semi closed payment instruments are redeemable only at the identified establishments/ merchant locations which are in contract with the issuer. These wallets are not linked to any bank and cash withdrawals are not permitted in case of semi closed wallets. On the other hand, open instruments are linked to a bank account and can be used for purchase of goods and services and cash withdrawals are permitted too. Vodafone m-pesa provides both kinds of wallets. However, keeping in mind the growth potential of the mobile technology and its increased reach, RBI has kicked off a pilot project that will allow some semi closed mobile service providers to test cash withdrawal facility. RBI was initially reluctant to allow cash withdrawals for semi closed service providers as there was a danger that this facility would allow companies to bypass the banking system threatening the financial security of the country. The pilot started in the month of May links the sender and beneficiary’s wallet with the Aadhar number and in case of a transfer, all the receiver has to do is to walk in to the wallet service providers’ outlet and receive the cash after authenticating his identity through a biometric scan. The pilot involves eight participants with Tata Teleservices mRupee being one of them

It is quite evident that the technology is on the rise and a bright future awaits mobile wallet. With increased use and competition, the technology will evolve and security will improve allaying the fears for its adoption. India with a population of 1.25 billion and nearly 65% of them being under 35 will be an icing on the cake for the new entrant in the alternative payment space. The reach of mobile services in the areas where formal banking services are absent strengthens the case for increased focus on mobile wallet.

The stage’s set and carpet’s laid. It’s time for the mobile to reach for wallet.

This article has been authored by Nishant Poojary SIMSREE



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