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Mobile wallets usage falls; UPI gaining momentum

Apurva Venkat October 09, 2017

Post the historic demonetization on November 8th last year, the fin-tech and digital payments space in particular has become the most sought-after in terms of usage and investments. However, 10 months down the line, with cash levels going back to pre-demonetization, the space might be losing steam again.
According to data released by the Reserve Bank of India, for the month of May 2017, the number of transactions using Prepaid Payment Instruments—which include both mobile wallets and PPI cards—had declined by 21 percent. In June 2017, the number of transactions declined by 31 percent.

While July has shown a hint of improvement by 6 percent, overall it seems like the lack of incentivization, and availability of cash is behind the fall of digital transactions. However, experts believe that Unified Payment Interface based payment modes are becoming more popular among users due to ease and convenience.

D. D Mishra, Research director for Gartner feels that the digital payments space still shows promises of growth. However, the growth will depend on innovation, penetration and ecosystem.
“It is perilous to treat fintech companies early on as friends or foes. Fintech services are complementors, competitors or catalysts to financial services firms. Strategic technology planners who exploit the differences among them will seize growth in financial services in the future,” said Mishra. However, Mishra also maintains that post demonetization, the wallet usage had picked up for obvious reasons and then declined as cash was made available. The availability of cash, according him, is one of the big reasons for the dip in wallet transactions.

“The availability of cash is one big factor. The growth post demonetization was mostly due to the unavailability of cash. In India, people want to use cash as it is easy and convenient and it was bound to happen. Yes, the mobile wallet transactions can be made more lucrative by incentivizing the transactions through various means. Moreover, UPI is giving tough competition and transactions are free at this point in time as well,” said Mishra.

According to Kunal Pande, Partner, KPMG in India, the decline in May and June was a temporary phase as there has been growth in July and August again.   

“While there was a dip in the months of May and June, July has witnessed a growth again. Till July the year-on-year growth has been more than double in terms of amount transacted while it has grown almost four-fold in terms of transactions," said Pande.

He added that while there was a dip in wallet payments, other modes of digital payments such as BHIM, UPI, IMPS and Bharath QR have been showing growth and hence, the overall digital payment space has been growing.

“The transactions done via both BHIM and UPI are on a fast growth trajectory with UPI witnessing a 43% growth in the total transaction volumes taking place between July and August 2017. The upward trend is likely to continue primarily because of the vast untapped opportunity that still exists today," Pande added.

In terms of competition between companies, Pande believes that like any other space, even in the payment space, consolidation will take place and companies which have a bigger market share will emerge as winners.

“Some consolidation will take place. Some wallets will grow faster than others. Like any other digital business, a few companies shall emerge as winners with majority of market share and others smaller players competing at the fringes," added Pande.