eWallets OR UPI? The Elections are Not Over Yet!

Rohit Kumar Pandey
November 28, 2020

How popular are eWallets? While they are still in use, they are not as popular as India’s No. 1 digital payment option: the UPI. 

With UPI payments recently touching the 2 billion mark and emerging as one of the highest payment modes in transaction value, every payment provider is expected to facilitate UPI payments by their users.

With such alternative payment modes on the rise, what is the future of eWallets? 

Due to the pandemic, eWallet usage has seen a spike, but there’s a chance that this might not outlive the UPI surge.

While this remains an unspoken concern, there is also a stronger chance that payment providers can make eWallet usage coexist with UPI, by wielding a value-driven approach. 

A chance that is hard to go unnoticed, any longer.

Why eWallets Payment Providers have never run Dry

Unlike the UPI, which saw rapid uptake and increased usage post the 2016 demonetisation and the pandemic, eWallets by payment providers have waited much longer for widespread adoption. 

India’s first eWallet arrived in 2006, and by 2017, there were at least 60 eWallet providers. That number soon fell to 49, due unfavourable government norms and increased competition.

However, most providers bravely weathered these storms by pivoting to consumer demands with service and technology innovation; ranging from facilitating all kinds of payments digitally, to becoming e-commerce platforms and offering varied financial services. 

By constantly advocating value-driven transformations, eWallet payment providers have become successful e-commerce hybrids and NBFCs that are garnering more and more users. This is why they have never run dry. 

However, this is also the reason why almost every payment provider facilitates UPI transactions as well, to ensure customers stay loyal to their platform. 

Naturally, this is the antithesis to the convincing daily use-case for eWallets that providers have sought to build, over the years. 

So why would payment providers retain eWallets? 

eWallets are an important revenue source for most payment providers. 

To put this in perspective, while payment providers earn a commission on e-commerce purchases and financial services purchased, the money in each user’s eWallet gains interest in escrow accounts held by the payment provider with a bank. This interest is not paid out to users but is absorbed by providers.

With providers now cut off from other streams of potential revenue due to RBI norms (such as the zero MDR move), eWallets represent one of the few sustainable opportunities left for providers to remain profitable. 

However, with the UPI rapidly becoming the preferred payment mode and cardless credit payments on the rise, the dependence on eWallets could go out of fashion.

Nonetheless, the pandemic has revived eWallet providers by bringing back transacting traffic on the platform.   

This challenging terrain is actually a decisive playing field where payment providers can differentiate their eWallet services and re-attract customers, once again.

How can eWallets earn the public vote? 

Payment providers have thoughtfully designed every transaction on their platform (save UPI) to mandate the use of their respective eWallets. However, this will not be enough to revive eWallet’s popularity. 

Maybe there are some lessons that can be learnt from the UPI’s success?

The introduction of the UPI sought to create a new payment ecosystem between SMBs and customers, with digital-powered POS solutions like the QR code.  

Let’s decode the major factors that govern this new ecosystem:

UPI gained widespread adoption in P2P transactions, because of its convenience and simplicity. 

This prompted the shift of dependence of eWallets to UPI, with about 27% of users deleting fintech apps in about 2 weeks after installation, in 2019. 

In the P2M space, UPI payments have received tremendous acceptance, because of real-time payments, a true value driver for merchants. Additionally, UPI payments incur no cost, ever since the zero MDR came into effect by the RBI. 

With a daily transaction limit of ₹1 lakh, a sizable chunk of India’s SMBs prefer using UPI for M2M transactions. 

And the UPI shift has only accelerated ever since.

In March 2020, the RBI sought to improve UPI penetration by increasing the daily transaction limit to ₹2 lakh to promote B2B payments, AMC and credit card payments.

Forecasting the repercussions on eWallet usage in the P2P and P2M space, Anupam Pahuja, the Managing Director of PayPal India had this to say:

“It[mobile eWallets] is a business that is on the decline and I don’t think there is a great value proposition that can help them survive for a long period of time.”

In this statement, one can’t help but notice the opportunity for eWallet’s revival: to make a comeback with a great value proposition for its users.

Value-driven eWallets will win the Public Vote 

2020 is beginning to end on a good note for some, including payment providers.

Recently, the RBI has capped the percentage of UPI transactions on a payment provider’s platform at 30% in any given month. 

While many have opinionated that this move will pose a serious growth hurdle, payment providers actually have a windfall to revive eWallet usage. 

And if payment providers wish to build eWallets into a sustainable source of revenue, they will have to relook at customer experience. 

With some users now paying fees to refuel their eWallets with their credit card, payment providers are tasked to turn this around into rewarding experiences that warrant daily eWallet usage.

eWallets is not yet a business on a decline; it is yet to be perceived as a more rewarding payment alternative through effective customer engagement strategies. It is through enriched daily experiences that providers can build stronger customer relationships, which last.

But what about the M2M vote?

In May 2020, the RBI lifted the mandate to use only UPI and BHIM services for B2B payments. This is great news, especially for payment providers who are foraying into the banking space.

Needless to say, we are yet to herald another transformation in how customers and merchants will pay, everyday. 

But unlike its predecessors, this transformation could build an ecosystem that drives value to every stakeholder in FinTech.

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