Mumbai: Digital transactions got a leg-up post demonetisation, in turn giving a boost to mobile wallets, or e-wallets, and the Unified Payments Interface (UPI) platform. While mobile wallets dominated the market immediately after the cash ban, since November 2017, the UPI platform has beaten e-wallets hands down in terms of the value of transactions. Also, the volume of UPI transactions has been steadily increasing; though the volume of mobile wallet transactions is still higher, UPI volumes have recorded higher growth month-on-month.

“Before e-wallets, there was a lot of friction in making simple payments like recharging a mobile phone. Simplifying these transactions was the purpose of e-wallets. The new challenge emerged that the wallet ecosystem had become a walled garden as you needed a wallet to use their services. UPI is in a way democratising that space now. Unlike the wallet systems, it goes directly from bank account to bank account," said Amit Kumar, partner and director, Boston Consulting Group. 

The UPI system, which is based on the IMPS (Immediate Payment Service) platform, allows a user to transfer money from a bank account to another bank account instantly. An e-wallet allows you to make payments for various services or transfer funds, without using internet banking, but the wallet itself needs to be loaded first through internet banking.

Though e-wallets are still ahead in volumes, there are indications that they may lose out to the UPI platform, going forward. Here are four reasons why we think so.

Simpler to use

Upasana Taku, co-founder of Mobikwik, said that UPI is definitely simpler in peer-to-peer transactions and hence there is a pick-up in UPI transactions. A wallet transaction involves multiple legs, including transfer of money from bank account to the wallet and then to the beneficiary, which the UPI doesn’t require.

“But what most consumers may be worried about is paying to the grocery store next door, or buying fuel or paying for daily commute. So most of the use cases are actually available under consumer-to-merchant payments. As there is no concept of self on-boarding from a merchant point of view, unfortunately these options are not available under P2P payments right now," she said.

Merchant transactions are easily available on e-wallets, compared to UPI. Some of the bigger wallet companies have invested in merchant acquisitions and have a stronger game in person-to-merchant transactions, Kumar said.

Deepak Abbot, senior vice-president, Paytm, said small-ticket transactions might continue to be dominated by e-wallets for some time before eventually moving to UPI. “UPI has a much bigger use case as a user can do larger money transfers. UPI is directly linked to a bank account which is a bigger source of funds. But there are people who will continue to use wallets," he said. 

Increased adoption

Several mobile wallet companies are adopting the UPI platform. While Paytm has already included UPI, Mobikwik will be doing that soon, Taku said.

“For different transactions, consumers choose different methods. Someone might use UPI to pay the salary of driver. The same person would use a wallet to pay for fuel or food and use a line of credit to make a consumer durable purchase online," she said. 

UPI picked up quickly after the launch of the Bharat Interface for Money or BHIM mobile app. Subsequently, apps like Google Tez were launched that helped increase the volume and value of UPI transactions. WhatsApp too has started rolling out UPI-based payment features on its app to select users, but has not made a full-fledged launch yet.

This diversification in other forms of transactions, including UPI, addressed the scepticism people had about wallet businesses with the emergence of UPI, Kumar said.

No KYC

Another obstacle that e-wallets are facing is the requirement of mandatory KYC for all customers. This regulatory requirement kicked in from March this year and official data shows a clear impact on transactions. The value of e-wallet transactions has seen a fall of close to 30% between February and March. Volumes too have come down. 

As of now, KYC is not required for UPI as it is just like any other internet banking transaction.

Abbot said that for Paytm, March was similar to February, but it resumed growth in April. The official data for April will come in June. “KYC was top of our agenda for 8-9 months before March. Right now, we have over 100 million KYC users and most of them have been active in the last 60 days. This includes complete KYC and minimum KYC," he said. 

Mobikwik said that close to 50% of its 107 million users have already done KYC. “So we are in a comfortable position. The KYC requirement is a temporary challenge for everyone in the wallet space. There could be a significant impact on smaller companies who were not prepared for this. We started preparing last year itself," Taku said.

Interoperability

One of the major constraints in using an e-wallet is that even after you complete your KYC, it is currently not possible to transfer money from one wallet to another. The interoperability of e-wallets is expected to address this issue and once it is operational, you might be able to make payments and transfers from a single e-wallet account and may not need to have multiple ones for different purposes.

“The guidelines have enabled it but the practical system on how to do it have not been approved by Reserve Bank of India yet," Taku said.

Abbot said that it might still be some months away as even after the regulator approves it, it will be an “opt-in" feature for e-wallets and a lot of work is required to make it seamless.

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