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New Delhi: With increasing use of mobile phones to shop online, payment companies and e-tailers are planning to launch digital wallets to offer consumers a convenient and comparatively faster way to pay as well as reduce their own dependence on sales linked to cash on delivery (COD).

The daily deals website Groupon and the TV shopping channel HomeShop18 have already introduced digital wallets via third parties while other firms such as Flipkart, Jabong and ShopClues plan to launch them soon.

Payment gateways like Paytm, Oxigen, Mobikwik and QwikCilver Solutions are among the few who have a licence to work on semi-closed wallets and others like PayU will offer prepaid digital wallets very soon.

Digital or virtual wallets act as a holder of cash that resides in your mobile or personal computer and can be used to purchase goods and services online. These can be loaded with cash through a mobile payment provider, online banking or through telecom operators. Digital wallets can be closed, semi-closed or open. Closed wallets allow consumers to purchase goods and services from only one seller. Semi-closed wallets allow shopping at multiple merchants in a marketplace.

“Net banking pages are difficult to load on phones; so, people go on wallets, load money and make purchases. Effectively, people are going mobile and they are finding ways to shop and make payments on the phone," said Vijay Shekhar Sharma, founder and chief executive at Paytm, a payment solution provider from One97 group.

Even e-tailers are looking to reduce the quantum of cash on delivery or COD orders that come through the mobiles. Currently, 50-60% of the total orders are COD.

“If you want to build a scalable commerce play, a ‘payment solution’ is the trick and ‘digital wallet’ is the trick of the payment," according to Sharma. “Cash payments will eventually become very challenging. One can do 100,000 orders on COD but you cannot do 100 million orders on COD," he added.

India’s largest e-commerce firm Flipkart, which had applied for a prepaid wallet licence to the Reserve Bank of India, is now looking to tie up with a third party to launch its semi-closed wallet, according to sources close to the development. The move comes after its payment gateway PayZippy was not granted a wallet. Flipkart did not comment on its digital wallet plans.

QwikCilver, a gift cards and stored valuesolutions provider, got its wallet licence one year ago. For the company, the prepaid instruments are growing at 300% year-on-year. Last fiscal, the company did business worth 400 crore and is expected to deal with 1,000 crore of money loaded on prepaid wallets by next fiscal, said Pratap T.P., co-founder of the company. The company is running a pilot programme to launch a digital wallet that could be used at more than 100 merchants both e-commerce and brick-and-mortar retailers it works with. The wallet “giftbigwallet" (beta name) is expected to go live by Diwali.

“It is crucial for e-commerce to get a boost beyond the travel sector...making more payment instruments available online will only expand the scope of e-commerce," said Subho Ray, president of Internet and Mobile Association of India. “Virtual wallets is one such innovation that will help bring in the people who do not bank—housewives or students—and are dependent on the cards/bank accounts of spouses and parents respectively," Ray added.

E-commerce firms prefer to settle refunds to customers via wallets. “Refunds are a pain as it takes time to repay the consumer once an order is cancelled," said Nitin Gupta, founder and chief executive PayU India, a payment solutions provider. Several e-commerce companies try to refund the money by crediting money or points worth that amount into a consumer’s account on the portal which acts as a wallet. PayU India, a Naspers group company, which is expected to launch its prepaid wallet soon, currently runs “PayuMoney Wallet"—a service where users can store card data and get money back and reward points on using the service. It has more than 30,000 merchants live and is accepted on more than 60 e-commerce sites including BookMyShow, Jabong, Goibibo, Groupon, Domino’s, Infibeam, ShopClues and redBus. According to Ankur Warikoo, head of APAC and emerging markets at Groupon, PayUmoney wallet is doing really well for its portal. Transactions via the wallet have jumped to 22% from 5% in last three months. However, Warikoo believes that the sudden spike could also be attributed to initial incentives like 15% cashback provided by PayU. “Once incentives go away, I expect wallet contribution to settle somewhere close to 10% of overall payments," he added.

Warikoo does not believe wallets can help solve the problem of COD for the e-commerce market. “COD is largely being used by consumers who are wary of paying in advance. Wallets will largely be used for encouraging loyalty points and to reduce cost of transactions by e-commerce companies."

Paytm’s Sharma believes in the wallet story as it is a one-click payment solution. In a mobile pre-paid wallet, a consumer does not go through three layers of security levels required while using a credit/debit card or net banking. This makes wallets’ success rate closer to 99.9% while only 65% of transactions via credit/debit card are successful, Sharma explained.

Launched in January 2014, Paytm wallet sees 60,000 additions in a day with nearly 20,000 people depositing money in it on a daily basis. 10 million people have currently downloaded the Paytm wallet and the company expects to touch 50 million wallet downloads by May 2015.

“Interest in wallets is justified. You have examples internationally where wallets have done well," said Sanjay Sethi, chief executive Shopclues, an e-commerce marketplace. “Unfortunately the value proposition (for wallets) in India is coming from friction in payment transactions rather than providing an additional medium of payments and money transfers, he added," he added. There is a need for more open wallets for the concept to pick in India, he said.

However, companies like Freecharge do not believe in the concept of wallets.

“I do not believe in keeping money in two pockets," said Kunal Shah, founder of “Everybody is playing for the future and matching themselves to the success story of China’s Alipay. India is not China," he said. According to Shah, Indian consumers are anyway protected with COD and wallets will only make sense when companies are trying to kill COD.

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