Bengaluru/ New Delhi: The removal of two-factor authentication for card transactions below Rs2,000 has made it easier for credit and debit card users, but digital wallets do not have much to worry from the change, industry executives and analysts said.

Removal of two-factor authentication simplifies and encourages electronic payments as the country battles a cash crunch after the withdrawal of high-value currency notes. Wallets need to be periodically refilled, unlike cards. The move will likely help cab aggregators, online movie ticket sellers and shopping portals, handling low-value, high-volume transactions where digital wallets are commonly used.

According to Vijay Shekhar Sharma, founder of One97 Communications that operates the Paytm digital wallet, removing two-factor authentication will not have any impact on wallet transactions. “It will accelerate adoption of card payments and will increase consumer convenience so that they use cards more often. Larger number of users will be able to do digital transactions after this."

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Digital wallets have clearly benefitted from demonetization so far. Paytm claims to have registered 10 million new users since 8 November, with its total user base crossing 160 million. It is registering 5 million total transactions every day with a total business of over Rs. 100 crore. The number of offline transactions have grown five-fold in the same period, making up for 65% of all total transactions.

“It (removal of two-factor authentication in card payment) does impact. The friction in payment will go away; hence it will become a open-market kind of a scenario. From a long-term perspective, it is a good thing," said Sreedhar Prasad, partner, e-commerce and start-ups at KPMG in India.

“But from a short term, wallets may have some impact but not enough to negate the windfall they made because the impact of demonetization. The user base of cards and wallets overlap. Hence, some of the businesses will churn. For instance, taxi payments is definitely a possibility. Again, wallets need to be filled, and cards do not have this issue. So, people will start paying directly by cards instead of reusing their wallets," Prasad added.

“The wallets should not bother much about users who have access to all payment modes like credit cards and debit cards. They should focus more on the next 100 million where wallets become a habit before credit cards can catch up," said Rutvik Doshi, director at Inventus (India) Advisors.

“Wallets now have a penetration of 40-50 million users while credit cards don’t yet. Wallets have in some sense leapfrogged credit cards. The big spenders, the top one or two percent of the country already have credit cards and they may not choose to use wallets because the convenience factor for wallets is gone. But if think of the next 100 million users, wallets still have a usage. There will be some churn in the premium consumers, but mass users are likely to stay," explained Doshi.

In last one month, digital wallet companies have increased the effort to sign up more offline merchants such as corner stores and road-side hawkers. Both MobiKwik and Paytm claim they have each deployed 10,000 people to sign up merchants.

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In order to retain users and keep the number of transactions intact, digital wallets may have to increase incentives in order to retain its users and keep transactions intact. One way of doing this is by moving to a payments bank.

RBI gave in-principle payments bank licences to 11 recipients, including Paytm, Reliance Industries Ltd, Aditya Birla Nuvo Ltd, Bharti Airtel Ltd and Vodafone India Ltd, in August 2015. Airtel Payments Bank Ltd became the first to start operations, offering services in Rajasthan on a limited scale last month.

“Mobile wallets are largely used for recharges and taxi payments. Many small vendors are accepting it because they don’t have option of point of sale (POS) but remember that over a period of time, these guys have to transform to a payment bank to make more sense. Otherwise, if you are keeping liquid money (in wallets), it is a waste because you don’t earn interest...(wallets) will have to create proposition for customers that will incentivize them to keep cash in your wallet... (and) compete with credit and debit cards. “ said Manish Saigal, managing director & leader - corporate solutions group and global commercial due diligence at global consulting firm Alvarez & Marsal.

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