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Tweaks in e-wallets: how you benefit

Consumers can expect offers to continue, in addition to small loan products and technology innovations in future

The way we make large-ticket transactions has changed thanks to technology such as core banking solutions, Net banking and card payments. Similarly, e-wallets or digital wallets, a relatively new entrant in the payment space, is trying to bring a change in small-value transactions too. For instance, the way you pay your taxi fares, mobile bills and purchase goods from a kirana store is also changing slowly. Currently, almost 95% of retail transactions happen in cash. It is this pie that the e-wallet providers are eyeing to convert into digital transactions. With increased adoption of smartphones, payment patterns have seen a change, which has led to the launch of e-wallets.

In India, banks, conglomerates, telcos and financial technology (fintech) companies offer e-wallets. While banks are allowed to offer open wallets, others such as telcos and fintech companies can offer only semi-closed wallets and need to have a prepaid payment instrument licence. Open e-wallets allow to do a cash withdrawal whereas semi-closed wallets don’t.

Till recently, e-wallets didn’t exist in our daily transaction space. But that’s changing. “E-wallet is a financial payment product and has a genuine place in the financial system," said Saurabh Tripathi, partner and director, Boston Consulting Group.

Have you wondered why these wallets exist and what problem they solve?

“The wallets are trying to solve the problem that financial institutions haven’t for customers—that of convenience and ease of transaction. E-wallets are here to replace physical wallets in your pockets. E-wallet providers’ aim should be to convert at least one of everyday cash transactions into a digital transaction. But bill payments or recharges are not daily transactions. Hence, wallet providers are trying to crack different use cases to get a share of the cash pie," said Vivek Belgavi, partner—financial services (fintech and technology consulting leader), PwC.

Mint Money takes you through the various kinds of e-wallets that are in the market, and their uses.

Bill payments

Pick any e-wallet and the one feature that each of them will have is bill payments and recharge for mobile phones and DTH television service. But why do all digital wallets offer this service?

“Firstly, it is a hook to get customers to use the wallet. Since mobile bill payment and recharges are recurring expenses, wallet providers find it easier to get consumers to use their wallets for these. Once a customer starts using the wallet, the company hopes that she will start using its other features too," Belgavi said. Most of the engagement for the app companies comes from bill payment and recharges alone.

You can pay bills using online also, visiting individual biller’s website, and paying using cards or from the account. In this, you have to enter your password or card number every time to make the transaction. In case of e-wallet, you can do a one-click payment for a repeat transaction. For the first transaction, you will have to go through the registration process, but not every time.

Also, depending on the tie-up that e-wallets have with merchants, you may be able to make payments to multiple billers from one platform.

For instance, most e-wallet providers allow you to book movie tickets, bus tickets, air tickets or hotels, pay electricity bill, gas bill, school fee, insurance premium, for DTH and metro cards using their e-wallet app platform. Hence, it becomes convenient for you to pay recurring bills and make small-ticket purchases only if you pick an e-wallet that has multiple billers and booking options.

Shopping

Say, you want to buy a pair of shoes from an e-commerce website. Usually, you would visit the individual website, scroll through the options, choose what you like, add the product to the cart and checkout using payment options such as Net banking or card payment.

Now, e-wallet providers have started offering e-commerce platforms in their app itself. One example of this is Axis Bank’s Lime digital wallet app, where you can visit multiple e-commerce websites such as Flipkart and Amazon. So, you only have to open the Lime app since it aggregates multiple e-commerce websites on one platform.

Similarly, Paytm allows you to shop from its wallet app. But unlike Lime, which aggregates multiple e-commerce websites, Paytm has its own e-commerce market place where you can shop. Both these apps allow you to make payments using the in-built wallet. This saves you from having to open multiple e-commerce websites or apps to shop.

An e-wallet provider that aggregates e-commerce websites on one platform also usually gives additional information such as price trend of the product and additional offers if you want to pay using the e-wallet. However, at times, your options may be limited because all e-commerce sites may not be available on that wallet, and you may have to still visit those websites individually.

Loyalty programmes

In order to encourage usage of e-wallets, many companies offer coupons, cash backs and gift cards. When you make a transaction, the cashback comes to you in the e-wallet, which you can then use for your next transaction. Then there are e-wallet companies that allow you to redeem the points from your cards, which is otherwise at times a cumbersome process.

“Say, you earn points on a particular bank’s card. You will be able to redeem those in the e-wallet and use those points against your next transaction through the e-wallet. Also, customers tend to use our wallet more when we offer these reward points. We are going to extend this to all nationalised bank cards too," said Bipin Preet Singh, co-founder and chief executive officer, MobiKwik Systems Pvt. Ltd.

Generally, e-wallet companies that offer cash backs and discounts have tie-ups with merchant or cashback companies. This is essentially a marketing tool which is applied to incentivise customers to use the e-wallet, and then use it more frequently.

Since e-wallets are still a new product and are trying to find their footing in the digital payment segment, to encourage customers to use their platform, cash backs, coupons and other such offers are likely to continue till e-wallet usage increases.

Grocery and food

Most e-wallet providers are now creating a network for offline transactions as well. Currently, the focus is to include as many merchants as possible in the digital money space and empower them to accept money on mobile. As part of the strategy, e-wallet providers have partnered with offline stores—large format ones as well as mom-and-pop stores. “After the e-wallet providers included travel, e-commerce and billing, the online space got saturated for them. Now, the biggest hurdle or the tipping point will be to get people to use wallets offline," said Belgavi. Which is why financial services companies, banks and fintech firms are trying to build an ecosystem to bring small merchant in the digital payment ambit. “Increasingly, e-wallet companies are looking to add mom-and-pop stores to increase acceptance of e-wallet payment," said Vijay Mani, senior director, Deloitte Haskins and Sells LLP.

Though the scale is small, there are offline stores where e-wallets can be used. For instance, Big Bazaar accepts payments through e-wallet.

And to encourage offline payments, new technologies such as near-field communication (NFC) and quick response (QR) codes are now being used. However, it is still too early to say how this innovations will play out as every merchant and customer has different payment needs.

Seeking revenue

For every transaction you do in your e-wallet, the company gets a commission. For instance, every time you recharge a service, the e-wallet provider earns 1.5-2% of the transaction amount as commission. Similarly, every time you make a bill payment, the wallet provider earns a flat fee of, say, 10. In case you use at an e-commerce platform, the e-wallet company earns 1.75-2% of the transaction amount as commission. This is similar to the interchange fee a card issuing company earns from a merchant. In case of a retail in-store transaction, say, at a grocery store, the wallet provider can earn around 1.25% of the transaction. The commissions here are lower than for card transactions in order to encourage merchant to accept wallets. The fee can vary depending on the agreement between e-wallet provider and merchant.

The incentive you get as cashback or coupon is a marketing tool, either for the merchant or the wallet company, depending on the agreement.

Apart from all this, e-wallet companies are able to earn an interest of 5.5-6%, depending on the agreement with the bank, on the money that you leave in an e-wallet.

Mint Money take

At present, the e-wallet segment is still evolving, so as a consumer you can expect more changes and innovations. For instance, the next stage for the wallet companies, after payments, will be providing small credit and data mining. They will focus on data analytics and data mining for targeted marketing, which would be a revenue model. “Besides the transaction fee that they earn, e-wallet providers also get access to consumers and their data, which they will figure out a way to monetise in the future," said Mani. Remember every transaction you make using an e-wallet leaves behind a digital footprint.

Avoid putting in more money than is needed since money put into an e-wallet is usually locked into it (you can’t transfer it back into your account, or use for a payment that is not supported by that e-wallet, unless it is an open wallet offered by banks).

Also, there is a possibility of some glitches as most of the e-wallet providers are still trying out new technologies.

4 new ways to make wallet payments

CONTACTLESS PAYMENT

How it works: This is possible with near-field communication (NFC) technology. You can wave your smartphone near an NFC-enabled terminal and the payment goes through. To use this, both the merchant point of sale (PoS) terminal and your phone should have the technology. If your phone doesn’t have, some e-wallet companies use stickers that you can stick to your phone and tap it on an NFC-enable PoS machine.

Good: Quick payment

Bad: Works only for small-ticket purchases; NFC technology mandatory

LOCATING A STORE

How it works: The e-wallet app will use GPS on your smartphone and locate a store near you that accepts wallet payments. This comes handy as not all stores have e-wallet acceptance infrastructure. Besides locating a nearby store that accepts wallets, it will also alert you of offers available if you pay using an e-wallet. It will also show outlets nearby where you can load cash in the e-wallet.

Good: Auto alerts

Bad: Limited merchant outlets accept wallets.

VIRTUAL CARDS PAYMENT

How it works: Some e-wallet providers allow you to create a virtual card with the money in the wallet. The ‘card’ is usually in partnership with Visa or MasterCard. The virtual card will have a 16-digit card number, expiry date and CVV number like any other credit or debit card and you can use it on any online platform. To get this card you need to do a one-time registration. Some apps automatically generate a virtual card as soon as you load the money.

Good: No need of plastic; wider acceptance

Bad: You can use it only online

USING QR CODE

How it works? A QR (quick response) code is a machine-readable bar code that has details of the product you buy. You have to scan the code with your smartphone’s camera to make a payment. But first you will have to log in to the app that allows you to scan the QR code. Banks as well as fintech companies offer this payment process.

Good: Faster way of making payment

Bad: Limited acceptability

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