(From left) Satyen Kothari, chairman, Citrus Payment Solutions; Vijay Shekhar Sharma, founder and CEO, Paytm; Rajiv Anand, group executive and head (retail banking), Axis Bank; Monika Halan, Editor, Mint Money; Bindu Ananth, chairperson, IFMR Finance Foundation; and Ankur Saxena, CEO, Oxigen wallet. Photo: Ramesh Pathania/Mint
(From left) Satyen Kothari, chairman, Citrus Payment Solutions; Vijay Shekhar Sharma, founder and CEO, Paytm; Rajiv Anand, group executive and head (retail banking), Axis Bank; Monika Halan, Editor, Mint Money; Bindu Ananth, chairperson, IFMR Finance Foundation; and Ankur Saxena, CEO, Oxigen wallet. Photo: Ramesh Pathania/Mint

Payment wallets bring convenience, but concerns emerge over safety, crowding

A panel at the Mint Cash to Digital Summit discusses the issues, challenges and the possible solutions

New Delhi: With payment wallets mushrooming across the country as more people take to them for convenience and discounts, there are reasonable concerns on whether the sector is getting crowded, and the safety aspects related to wallets. A panel at the Mint Cash to Digital Summit discusses the issues, challenges and the possible solutions. Moderated by Monika Halan, Editor, Mint Money, the panel included Rajiv Anand, group executive and head-retail banking, Axis Bank Ltd; Satyen Kothari, chairman, Citrus Payment Solutions; Ankur Saxena, CEO, Oxigen wallet; Bindu Ananth, chairperson, IFMR Finance Foundation; Vijay Shekhar Sharma, founder and CEO, Paytm. Edited excerpts:

Halan: Banking used to be a boring business. It was called the 3-6-3 business. You borrow at 3, lend at 6 and at 3’O clock, you played golf. Banking space has undergone a huge churn and a series of almost surprising regulatory actions has opened space for a sudden burst of enterprise and action. A number of products have been launched in the market. Axis has launched several of these apps, there is Ping Pay, Line and the Axis Bank app itself. Mpesa has 3.6 million users, Paytm has over 20 million active users, Citrus has over 15 million user wallets, Oxigen has over 10 million users. Now is the time when you actually tweet money over to the next person, you can WhatsApp money, use Facebook to transfer money and there is traditional banking, and a host of companies are launching similar services. My question is that are we already overcrowded in this market?

Rajiv Anand: First let’s look at the transactions. There is a MasterCard survey that said cash transactions still continue to be 70% and 30% being electronic channels. Even if you look at e-commerce, the estimate is that about 60% is cash on delivery. So, I think we continue to be a very cash-dominated market place and this is changing quite rapidly. Let’s look at the channels through which the transactions are happening. In cash, where people are taking money out of ATMs for example, we do 6 crore transactions a month on our 13,000 ATMs and that isn’t coming down anytime soon. It’s about creating multiple channels to access this money.

Why have wallets come up? The level of friction in these transactions are quite high. Wallets have been able to reduce this friction and also give some customer delight; this will go forward. We are seeing a lot of innovations through financial technology companies through wallets. Banks, especially the private sector space, have embraced this change. As you mentioned, Axis has launched three or four apps, this is what is really happening at the front end. There are other apps that we are doing. For example, in agri, we are able to disburse loans instantly, we are able to create self-help groups on tablets.

It’s really not about digital banking but about the bank going digital. There is space for a lot more products. Will all of them survive two-three years from today? I don’t know. I’ll just give one anecdote here; when Google came in, they weren’t the first search engine. They were the 21st search engine. So, it is not important to be first in the market. It’s really being able to innovate and keep up with customer expectation.

Halan: A lot of times, I am confused about the payment gateway and as Nandan Nilekani was saying, inter-operability has to come in.

Satyen Kothari: It’s not crowded, it is noisy. The users confuse between the range of services out there, without a clear purpose. For example, when Google was launched, it was a pure search engine. You look at WhatsApp; it’s the simplest interface that serves 900 million people. There is confusion out of ambition; everyone wants to do everything as opposed to doing one thing and that translates into user confusion as well. Are you a wallet service, are you a payment gateway, are you a telco?

It is a great thing that we have such a big addressable market. So, we need to see what each segment wants instead of dominating everything. Banks come to us and we say you already have a wallet—your savings account—you just need to make it easier to access it.

Halan: What kind of innovations will you see in the wallet space? Satyan said banks already have a wallet—the saving account—but that is only a bucket. Any attempt to segregate that bucket into different uses?

Ankur Saxena: Definitely, a wallet is multiple use cases. Wallets are there to reach beyond where banks can’t reach. Ease of use is there. Wallet can allow money to be segregated—something we recently did—we have been telling corporates that if you put your reimbursements in your wallet, we can segregate it as your food bucket, or telephone bills, so that control is there.

Bindu Ananth: Where I am coming from, clutter is a dream. If you really think about why the regulations around payment banks came, it was really to speak to the 600-700 people and there you are competing with cash under the pillow, (and) gold is still the dominant reality of India.

Halan: When payment bank licences were given, it was assumed that it will go to the unserved. But looking at the plethora of services, we see they are serving the served. Do you think the payment banks will also chase after the urban cherry?

Bindu Ananth: Some of that is bound to happen as there is a larger digital opportunity. But universal banks are not going to be sitting around playing dead. There will be competitive response in urban bank segment and given the universal bank business model, given the ability to offer some of these services for free, I hope there will be a subset of banks which will say that the opportunity really is at tier 4 and below and the 500 million clients who have not been exposed to anything other than prepaid, top-ups etc.

Halan: What kind of market will you serve?

Vijay Shekhar: Fairly broad market.

Halan: Will there be a different product for the rural market or a replica of the urban product?

Vijay Shekhar: We just have one product.

Halan: PSUs (public sector units) and small banks are finding it difficult to find a reason to exist with competition from private sector banks who are getting heavily into digital money space. Do you think that 5-10 years later, you will see a lot of creative destruction of the small and PSUs bank space?

Rajiv Anand: Banking ultimately is a business of trust, it is a localized business. A physical presence is absolutely critical. Having said that, once a person opens an account, he is doing more and more transactions on a digital platform. Banks being able to create a reasonable presence and generate customer delight will benefit the first within the liability franchise. Once you get a customer in, you use data analytics to be able to serve the customer in a more intuitive manner. Whoever will be able to deliver this omni-channel experience to customers will clearly be the winner.

Bindu Ananth: A lot of banks will find that there is no reason to exist, but that is not necessarily the worst thing in the world. We have different business models but the competition intensity has gone up, so everyone needs to find their niche. Casa (current accounts and savings accounts) party which used to be (a) small club has opened up and that’s good and this is what RBI governor Raghuram Rajan called the Grand Bargain. Some interesting analysis made was if you just looked at the Casa that banks had and if all of that was deployed in risk-free securities, the profit in that year of analysis was more than what the banking sector was making. Which meant that the lending arm was eroding value.

Halan: Loan books of banks is so bad that if you just look at profitability, a bulk of it is coming from fees and commissions. A lot of criticism from traditional banks for payments banks is that you will not be viable as you don’t lend.

Vijay Shekhar: That is a myopic view. We have a very profitable payment service.

Satyen Kothari: The way banks have operated in the past is not going to exist. They will do what they are good at doing and will be forced out of sectors which they entered because there was consumer demand but there was no alternative. Banks don’t really like the end consumer that much. The end consumers come in, they crowd your branch, but the real money is coming from either institutions that are borrowing from you, high-value products from mortgages etc. How do you deal with this? You have a regulatory headache, information technology systems which are a little archaic in most cases.

The customers we and Paytm are catering to today are really not those which bring any value in the traditional sense. Lending is not a problem for the everyday consumer, an everyday consumer is demanding better services for their lifestyle needs. That lifestyle creates ease of fund collection, ease of fund transfer and when you do it all digitally, you are going to have incredible cost savings when you rip out the paper aspect. The beauty about money is that it is conceptually digital.

Halan: So money is moving to where it was meant to be?

Rajiv Anand: A few years ago, people used to take a day’s leave to do bank work. We are in the business of trust, particularly for more complex transactions.

Halan: So, how important is credit in the whole scheme of things?

Rajiv Anand: In general, consumers want to fulfil all their financial needs through one entity. People don’t usually take loans from one bank, have accounts in another bank. In that context, lending is important.

Bindu Ananth: I agree that the consumer prefers convenience. But should we have the same manufacturer at the backend who is doing the credit also, the payments also? That is where the change will come. All regulations are saying that payments banks cannot have loan books on its balance sheet. But can it be at the front end of a credit-related cash-in, cash-out? Sure. That could be a very large part of its transactions.

Rajiv Anand: With payment banks, there will be certain areas where the incumbent banks would like to compete as well as collaborate.

Halan: Possibly Indians got used to putting money in the cloud with the full talk time, zero cost prepaid card. Has that first habit change happened already?

Ankur Saxena: There is going to be a graduation there. Until and unless there is a specific use, people don’t generally put their money in wallets. I don’t know if people will start putting salaries there.

Halan: You were a part of the committee that recommended payments banks. So, was the word bank used deliberately so that people have the same trust as opposed to, say, a payment gateway?

Bindu Ananth: It had nothing to do with the consumer, but with RBI and regulations. Unlike other markets where large payment providers have evolved outside the banking system, in India where these are at a nascent stage, let’s develop them within the banking system, reduce arbitrage, reduce possibility of systemic risk.

Halan: Unlike the earlier brick and mortar banks, now if my money gets stolen from your wallet, then who is responsible?

Satyen Kothari: The processor and issuer have to take the responsibility. Risk and convenience go in inverse proportion.

Vijay Shekhar: Naxalites call consumers from the east of India and ask for their PINs, the bank doesn’t bother and the intermediaries also don’t bother. Paytm has a 30% of cost in a business model to fund these guys back. We instantly give this money back. The gullible consumer needs to understand that the password you are giving is like signing a blank cheque. I have 7 FIRs against me from someone in MP, saying that I was the one benefitting because these consumers were giving the OTPs (one-time passwords).

I never saw the bank as a place where the money was stored. I saw it as what is the money is on API (application program interface)?

The point that Indians’ love for cash is so overrated. Paytm was 33rd licensee, everbody did the lip service job. I had tears in my eyes the day RuPay was launched as I thought that this is something that India should have got in 1947 or a few years later.

Money has to be available on API whether through a wallet or through a bank. Banks have launched about 7 apps but please launch it on API.

Whenever tech crosses an industry, it is met with reactions. The time the industry will take to understand the tech will be many times over the time the tech has taken to understand the industry. The issuer is responsible, always.

Rajiv Anand: Between the issuer and acquirer, there is a quick investigation and we get thousands of these transactions and they are settled quickly. Consumer has a responsibility of not sharing PINs but manufacturer also has responsibility.

Bindu Ananth: Issuer is responsible.

Ankur Saxena: Issuer is responsible but at the same time, it is the issuers’ responsibility to educate customers.

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