New technology is upending everything in finance, from saving to trading to making payments.

With Indians increasingly taking to e-payments for their transactions, routine or otherwise, the mobile wallet industry has been growing rapidly in the country.

Big opportunities have opened up, with an estimated 95% of all transactions being done in cash till at least November 2016, when the government demonetised two high-value currency notes, sucking out almost 86% of the money in circulation (by value) in the economy.

While the Indian e-wallet industry’s size stood at an estimated Rs154 crore in 2015-16, it is expected to zoom to Rs30,000 crore by the end of 2021-22. And everyone, from financial technology companies to banks to the government-backed National Payments Corporation of India, is scrambling for a share of that pie.

Recently, even some non-banking players joined the party, the latest entrant being Hike, the messaging app backed by Bharti SoftBank.

On June 20, Hike rolled out an in-app payments wallet, Reuters reported. It is the first messaging platform in India to introduce such a feature. Its wallet will allow instant money transfers from one person to another, and enable fund transfers to banks using the government-backed Unified Payments Interface (UPI) system.

Popular messaging app WhatsApp, too, is taking the plunge. Then there is the Swedish communications app, Truecaller, which, in March, launched a mobile payment service within its app for Indian Android users. And finally, Amazon, too, is set to bring out its e-wallet in the country.

While the growing Indian e-wallet industry surely holds immense potential, success won’t come easy, and certainly not for fly-by-night players.

Indian e-wallet industry: What does it look like?

The e-wallet industry is over a decade old in the country. The first such product was Wallet365.com, launched by the media major Times Group in association with YES Bank in 2006. By 2017, there were between 80-90 players, of which some 55 were non-banking players like Paytm, Mobikwik, Oxigen, and ItzCash.

While in November 2016 there were approximately 100 million (pdf) e-wallet consumers in India, the number has shot up since then, not the least because of demonetisation. Market leader Paytm alone had over 200 million users by the end of March this year. The table below names the prominent industry players, according to the Pradhan Mantri Jan Dhan Yojana, a financial inclusion scheme of the Narendra Modi government.

Mobile wallet players Industry Paytm Prepaid payment instrument issuers MobiKwik Prepaid payment instrument issuers Oxigen Wallet Prepaid payment instrument issuers Citrus Wallet Prepaid payment instrument issuers ItzCash Prepaid payment instrument issuers Axis Bank Lime Bank Airtel Money Telecom ICICI Pockets Bank Jio Money Telecom mRupee Telecom SBI Buddy Bank Vodafone M-Pesa­ Telecom HDFC PayZapp Bank

With the rising use of smartphones—this year, India is expected to replace the US as the second-largest smartphone market, a Morgan Stanley research report says—and increased internet penetration, about 60% of urban India is already browsing on phones. They are also warming up to mobile-based payments. Needless to say, the ease and convenience of using them are key reasons for this.

While digital payments were turning popular anyway, the government gave it a major push last year.

The game changer

Last November’s demonetisation of the Rs500 and Rs1,000 currency notes led to an acute cash crunch in the economy. This exercise was aimed at curbing black money and weeding out counterfeit notes. The drastic move also nudged more Indians towards digital payments.

For instance, in the first few hours after demonetisation, Paytm saw an eye-popping 435% in increase in traffic, a 200% growth in app downloads, and a 250% rise in overall transactions and transaction value. Rival Mobikwik, too, witnessed a 40% jump in app downloads in the days following demonetisation. The government’s payments platform, Bharat Interface for Money (BHIM), which is linked to over 30 private and public sector banks, had been used by 12.5 million people by February this year.

However, the fun didn’t last.

Less than three months after the currency ban, digital payment volumes began declining. As cash made a comeback, competition among e-wallets intensified. Companies now have to get creative to succeed in the overcrowded segment.

Profitability puzzle

Most Indian e-wallet companies are yet to turn profitable. “If you are just a wallet company that consumers are using to make small payments then there is no revenue stream and the margins are very narrow. A wallet is able to make money only if it expands into additional services and gives an opportunity for cross-selling or up-selling,” Vivek Belgavi, leader, financial services technology, PwC India, said.

So iKaaz, which began as a mobile wallet player in 2015, has now shunned the business and transformed itself into a payment solutions company. CEO Soma Sundaram said that with competition heating up and the UPI app set to revolutionise digital payments, making money will get tougher for e-wallet companies. “We adopted a cautious approach and decided that it makes better sense to shift the business focus to the other payments solutions method, such as tap and go, than being a wallet,” he said.

Meanwhile, such is the lure of the market that newer players keep flocking in, sometimes even without understanding the basics of the game, experts say. “There are players who have got the licence (from the Reserve Bank of India) but have not started operations yet..,” said Ashvin Parekh who runs Ashvin Parekh Advisory Services. “This is because after getting the licence, when some of them go back to the drawing board, they realise that the cash requirement is massive and they need huge volumes to be profitable, and therefore they back off,” said Parekh who has advised several companies and banks on their digital economy game plan.

Diversify, or go home

The best bet to stay in the game without burning a hole in the balance sheet is by expanding the revenue streams, admit mobile wallet players.

“In order to make money, you have to diversify…and also go niche at the same time,” explained Naveen Surya, managing director, ItzCash, a Mumbai-based wallet firm that recently turned profitable. Besides wallets and pre-paid cards, ItzCash has also entered the financial services segment and is collaborating with non-banking financial companies to provide loans to small merchants. It is also looking at the remittance market.

The huge scale India offers is alluring. Digitising payments is a gateway to low-cost banking and payments. “There will be over one billion people with digital IDs, one billion phones…people are going to use them,” said Tidhar Wald, the government and corporation relations specialist at the UN’s Better Than Cash Alliance. “Then its a win-win-win situation for the government, the people, and private companies.”

It’s just that the companies must use their wallets smartly.