NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, October 6, 2015

It took Indian consumers decades to move from paper money to plastic money. But a switch from plastic money to no money is happening at a much rapid pace, thanks to mobile wallets, which allow you to make payments through your smartphone without actual money transaction.

Here’s how it works. Using any of the multiple mobile wallet companies—Paytm, Mobikwik, Freecharge—you can recharge a ‘virtual wallet’ with a certain amount of cash, and later use this to pay for shopping, bills, hiring a radio taxi, ordering food and a host of other services. It means you don’t need to carry paper money (or even a debit or credit card) at the time of payment—as long as the merchant or service provider accepts this sort of digital payment.

But the real revolution is yet to happen with Point of Sale (PoS) based services, which can facilitate the acceptance of mobile wallet payments at retail shops, unleashing a huge benefit to consumers and merchants alike.

Given that online platforms will occupy only 15-20% of the total spend of the Indian economy by 2020, a mobile wallet which does not find acceptance at retail shops will not be able to offer universal acceptability. There is no seamless integration of mobile wallets with PoS billing system of merchants. Besides, it is difficult for merchants to record cash/card-based transactions in a structured manner and record mobile wallet-based transactions separately. There has to be a common system wherein all transactions, whether with or without mobile wallets, can be recorded at a single place in shopkeepers’ billing system.