E-Wallets- Will the Losses Revive?

It is often that we hear Paytm, Phone Pe, Google Pay, Mobiwik etc. while making payments these days. These e-wallets have become the buzzwords for P2P transactions. Why so? Well it’s the feasibility associated with the services offered by these platforms that has made them so popular and a habitual trait for the mass.

Despite such penetration these e-wallets are mounting huge losses. Why, what went wrong with them?

Revolution of E-Payments

Payments are an aspect of our day to day lives. Online payment isn’t something new but it has revolutionized over a period of time. Post demonetization in 2016 in India, the hustle in the market due to liquidity crunch boomed the digital payment industry which gave a rise to the e-wallet players like Paytm, Freecharge etc. Consecutively the growing digital space and e-commerce boom due to big players like Amazon and Flipkart added to the transaction volumes of these e-wallets.

UPI (Unified Payment Interface), launched by NPCI (National Payments Corporation of India) allows the users to send and receive money between bank accounts linked with the registered mobile number. This is the most hassle free way of executing a money transfer. This new, easy and time saving payment mode led to the launch of more and more UPI-based payment apps like Google Pay, BHIM-UPI and any more. Further other e-wallets like Paytm, Phone Pe,Amazon Pay etc. integrated UPI in their transaction model. The P2PM (Peer to Peer/Merchant) transactions along with IPO application through UPI has most certainly led to higher penetration of UPI-based apps.

The real-time UPI based transactions have recently grown to a volume of 1.14 Bn in October, 2019 from 0.96 Bn in September, 2019. The value of these transactions amounts to Rs. 1.91 Lakh Crore in October, 2019 from Rs. 1.61 Lakh Crore in September, 2019.

RBI's DATA ON PPI’s (Prepaid Payment Instruments)

The above data is a shocker, it shows the total amount of E-wallet transactions are almost 6 times of the most popular alternate option for online payment i.e. debit and credit cards. The e-wallet transaction value as per the RBI data for August 2019 stood at Rs.15,693 crore in value and 34.93 crore in volume.

The above mentioned data is a proof of the success of these e-wallets. Despite such tremendous breakthrough these platforms have booked heavy losses. Surprised! Well don’t be.

In 2019, Paytm booked a loss of Rs.4218 Crore (Rs. 2615 Cr in payments gateway) in FY19; Flipkart owned Phone Pe booked a loss of Rs. 1904.72 Crore in FY19, Amazon pay reported a loss of Rs. 1160.8 Crore in FY19. These are the market leaders in e-wallets, capturing maximum market share.

What Went Wrong?

  • High Competition- In the last 3 years the online payments through such platforms grew exponentially and became a habitual trait for the mass. With a new business opportunity many new players entered this market segment. The availability of more and more options at the end of the users made it tough for the e-wallets to compete and capture a wide customer base. Further Facebook owned WhatsApp is also coming up with its e-payment services. Popularity and customer usage of WhatsApp is something which can be a major threat to the existing players.

Losses and Revenues of top E-wallets

  • E-Commerce Backed E-wallets- Amazon, Flipkart, Paytm Mall, Snapdeal all have their e-wallet services i.e. Amazon Pay, Phone Pe, Paytm and Freecharge respectively. In the e-commerce competition space these e-wallets play a major role in luring more and more customers for them by providing heavy cash-back and discount schemes along with other benefits. Such customer retention and marketing strategies led to ‘High Losses’ but ‘Low Revenues’. Huge expenses were incurred on branding and operations but the benefits were not reaped from these expenses as the top-line didn’t show much growth for these digital payment platforms.

  • Security Issues- Online payments are always questioned with the safety as any lack in security of the data can lead to a total money loss for the user. Customer’s personal data is highly sensitive and a compromise on the same is one risk factor due to which a lot of people are still reluctant to operate via these digital platforms.

Following are just a few stories about the frauds that have happened in the past.

With the more acceptability of UPI-based transactions these e-wallets have lost the crux of their existence and have merely become cash back and discount platforms with a little added feasibility to the users.

Paytm Incurred a Loss of Rs.7730 Cr to earn a Revenue of Rs. 4217 Cr.

In order to survive this high competitive market segment every platform has to ensure that it has the maximum customer inflow and retention. Customers are available with a multiple, easy to use e-wallet alternatives in the market and so the platform with the best offers attracts the most, and has to continuously deliver such benefits to keep the user. To achieve this, currently Paytm, Amazon Pay, Google Pe along with others are consistently providing heavy cash backs and discounts and spending massively on branding. This is the reason why these e-wallets ended up in losses in the first place.

To stay as a part of the competition, incurring losses have become a part of this e-wallet ecosystem. Thus, it seems that the company which will have a consistent liquidity to fund its losses will be the last one standing and leading the market.

Thank You!

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©2019 by Equialpha Wealth Advisers