The increase in mobile wallet usage has had a direct impact on the share of cash or cheque (cash on delivery) in total e-commerce transaction. (Source: Reuters)

Mobile wallet transactions in India grew manifold in last five years, rising from INR 24bn in 2013 to INR 955bn in 2017 and are slated to go past the INR 1 trillion-mark in early 2018, the latest report from GlobalData reveals. The report states that Indian customers are increasingly turning away from cash and card and are adapting to mobile wallets faster than developed markets as such as the US and the UK. The 2017 Consumer Payments Insight Survey by GlobalData reveals that India is one of the top markets globally in terms of mobile wallet adoption with 55.4% survey respondents indicating that they have a mobile wallet and use it.

This puts India ahead of China and Denmark in the last. The report states that Narendra Modi government’s demonetisation move in 2016 was a major factor in this growth as the massive cash-crunch in the country forced people to switch to electronic modes of payment. Even though people in India still prefer digital banking channels for medium to large value transactions, mobile wallets are the go-to option for low-value-day-to-day transactions.

The data revealed that value of mobile wallet transactions grew two-and-half times between 2016 and 2017. These wallets had emerged as an e-commerce payment tool in India but post demonetisation, are being used for day-to-day transactions at supermarkets, grocery stores, street vendors, tea stalls, fuel stations, and even inside taxis and auto-rickshaws.

Senior analyst at GlobalData’s Payments practice, Ravi Sharma believes that government policies are a key reason behind this growth. “The growth in mobile wallet market is fueled by the government’s policies to promote electronic payments, coupled with rise in smartphone penetration, and improved telecom and payment infrastructure,” he said.

The increase in mobile wallet usage has had a direct impact on the share of cash or cheque (cash on delivery) in total e-commerce transaction as its value declined from 31% in 2013 to 16% in 2017. On the other hand, the share of mobile wallets increased from just 7% to 29% during the same period. The usage of payment cards dropped from 38% to 32% during this period.

The consumers, of course, see mobile wallets as a more convenient payment option but it is the ‘cost-effectiveness’ that appeals to the merchants as the cost associated with mobile wallet acceptance including setting-up infrastructure and transaction fees is much lower compared to the traditional card-based payment system.

Currently, Paytm dominates the payment solutions section in India with a 9.9% share in total e-commerce transaction value in 2017, closely followed by PayPal with a 9.8% share. Two of the other big names, MobiKwik and FreeCharge, accounted for 2.8% and 2.7% of total e-commerce transaction value respectively.

However, the war is likely to intensify in the coming days with Samsung Pay entering the Indian market in early 2017 followed by Google’s mobile payment solution–Tez that enables users to link up their phones to their bank accounts to pay for goods in physical stores and online, as well as for P2P money transfers.

To fight off the competition, these mobile wallets are now offering value-added services like bill payments, mobile top-up, hotel/airlines bookings, buy entertainment tickets, and even gold purchases.