By: Anand Ramachandran (Chief Finance Officer, TechProcess Payment Services Ltd)
As India marks its 68th year of independence, citizens have come a long way from visiting internet cafes to being privy to multitude of information on their devices – internet connected devices, television and mobile.
Of late, most radio listeners would be instantly familiar with the words ‘wallet’, ‘cashback’ or ‘cashless’ thanks to the relentless commercials extolling the virtues of these products. Every internet user is bombarded with advertisements urging them to sign up for these wallets which promise many features and benefits.
So, what exactly are ‘wallets’ and why are they creating such a buzz? For starters, most part of the noise is for the offers that are thrown-in, rather than the actual product. This primarily secures mass sign-ups because who doesn’t want a free pizza or soda while buying a movie ticket? This approach is good as long as the promos are on, but what happens after the offers dry out? This is bound to happen when the investors of these wallet companies start demanding returns on their investments.
To answer these questions, let us first understand how wallets work and what is the value proposition that they offer? A ‘wallet’ is essentially a prepaid instrument into which you load cash either at a physical store or using online banking. It can exist as a paper voucher, plastic card or a ‘virtual’ wallet which is accessible online.
So why do we need them? Globally, wallets are popular among the un-banked population as you don’t need a bank account to pay bills or buy stuff online. Even in an advanced economy like the USA, due to illegal undocumented migrants, there are many people who are inhibited from accessing a bank account. Hence, prepaid wallets are one way to beat the problem of financial exclusion.
However, India presents a different scenario altogether. The breathtaking success of programs, like the Pradhaan Mantri Jan Dhan Yojana, have ensured that every Indian can now open a bank account easily. Additionally, the compulsory issuance of debit card for every new savings bank account eliminates the chances of consumers not having an instrument which can be used for secure shopping online or offline. Storing money in multiple wallets is not of much use when it can be utilized only for specific purposes. Besides, wallets have a cap on the amount of cash that can be stored in them, without submitting any documents (usually Rs 5000). Any amount exceeding the limit for high-value transactions requires submission of documents, similar to a bank account. Most leading mobile wallets do not allow storing more than Rs. 10,000 in a month. So, those of us who plan to shop via mobile cannot think of buying goods/services that are high in value!
The subsequent question that one must ask is—what is the unique proposition of a wallet as compared to a debit card? On the face of it, not much: a wallet is just another payment method for you. One factor that distinguished this method is that you don’t need to undergo the mandatory two-factor authentication (i.e. CVV and One-time password) for online payments using a wallet. But with the Reserve Bank moving towards enabling small-value transactions without the two-factor authentication, this so-called ‘winning edge’ of convenience too is negated for wallet providers. A major drawback of wallets is that the money is sitting idle and not earning any interest.
Now, coming to the risk involved in using wallets. Since wallets for small value do not require any Know-Your-Customer checks, this is wide open for fraud and money laundering. For instance, a few customers of a leading nationalised bank recently found that their accounts had been compromised, and the monies were transferred to these wallets, from where they were misused on online shopping sites. Another major issue with wallets is forfeiture of unutilised balance at the end of a validity period (which varies between six months to a year). This is a very practical problem and can happen with any of us. Say, you’ve stashed your mobile wallet with Rs 500 for a taxi ride and now you have Rs 23 left, you have to find online payment options which match the exact amount. In most cases, such amounts end up getting forfeited as the customer forgets to check his / her balance.
Hence, when we talk about balance, while wallets may have garnered a lot of attention among the audience due to the relentless promotional campaigns, we might be better off using our existing debit or credit card to securely pay for online transactions. A slew of new products like Paynimo are already creating a ‘Super wallet’ of your existing debit cards, credit cards and bank accounts. This provides us, the choice to decide how we want to pay for various transactions. We can even opt to transfer money to our friends by using just their mobile number / email ID. With virtual POS as a feature of super wallets, the merchant and customer’s phones can be used to securely pay for shopping and provide a viable alternative to Cash –on-Delivery. Similar to virtual cards, a super wallet should also have the facility to do one-time-use-transactions using actionable payment links, which might expire within limited time span after use, to avoid being exposed to theft. Further, being a next generation payment method, a super wallet must provide its customers with the fastest checkout optimised experience, which leaves a regular mobile wallet behind.
So, it is time for us to ponder upon the perks and risks involved in payment methods before opting for them! As for those free pizza and soda offers, we will be wiser if we remember the old adage: “there’s no such thing as a free lunch”!