Mobile Payments in IndiaThe Next Wave of Growth

Abhinav SharmaMBA (Finance) Candidate, Class of 2017

SPJIMR, MumbaiEmail: abhinavsharma90@gmail.com

+91-9873373751

India : A growing but cash rich economy has a significant opportunity for mobile payments

US$ 90Mn

US$1.15Bn

68% CAGR

FY’12

FY’16

In India, 78 of every 100 inhabitants have a mobile phone while only roughly 50% have a bank account. – World Bank

3 segments that will lead mobile payments in India:• Proximity Payments• Mobile Commerce• Mobile Peer-to-Peer (P2P) remittances

Massive support from the government to use mobile payments for financial inclusion

Key Drivers

Availability of affordable handsets

Low mobile tariffs

Increasing voice and data network coverage across the country

Lack of adequate banking infrastructure

Low PC penetration

Mobile Phone Penetration in India

M-Payment Industry in India

Currently, Mobile Payments in India are at a nascent stage ready for growth A

d o

p t i

o n

Mobile Banking

IMPS set up in 2010

Select Telco/NBFI initiatives

Mobile payments have just started to pick up

Internet BankingLaunched in 1996

~ 8-9% of the population uses internet in India

Internet banking primarily restricted to urban India

ATMs

Launched in 1987

1,00,000+ ATMs in India

Brown label and white label fuelling next wave of adoption

BranchesPrimary and oldest banking channel

~1,00,000+ branches

Incremental innovation with expansion of low cost ‘ultra small branches’.

CardsLaunched in early 1990s

~13% of the population has debit cards, ~2% has credit cards

Innovation through third party PoS deployment, prepaid cards, new card networks such as RuPay

Business Correspondents

Launched in 2006; financial services through handheld devices

Innovation through delivery model and bringing in multiple services

Adoption and Maturity of Financial Services Technologies in India

a

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aIntroduction Growth Maturity

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India’s Mobile Payment Industry is divided into four segments

Acts as a storage device to electronically load all physical payment forms (credit card, bank account info, gift cards etc.)

Wallet based

Description

Advantages

Disadvantages

SMS allows transactions through mobile data network and mobile device

SMS

Unstructured Supplementary Service Data (USSD) uses a communication between the telecom provider and bank for mobile payment transactions.

USSD

Mobile application allows consumers to access and purchase goods and services through mobile web-based applications

Application

• Users can consolidate all payment mechanisms and remotely lock wallet

• Easy to load with multiple top-up options

• Conveniently tap to pay purchases with certain merchants

• Users only need basic mobile device with SMS facility

• Easy to use for basic transactions

• Connection remains open (often more responsive and faster than SMS

• Relatively more secure than SMS

• Works on all GSM handsets

• Mobile banking accounts can be linked through payment solutions to expedite the online payment process

• Very interactive and user friendly

• Limited merchants have tap to pay purchase capability

• Only work on smart phones• Risk of theft of phone• Transaction security

• Dependent on cell service and connectivity that can create delays

• Syntax to transact is complex• Not end to end encrypted.

Hence, transaction limits are lower

• Takes slightly longer than SMS to complete the transaction

• Till now, limited enrollment from telecom operators

• Need data services to operate• Limited to the merchants that

build and maintain applications

m-Wallets are expected to lead the mobile payments revolution in India

  The variety of purposes for which mobile wallets can now be used, and the pace of their adoption, suggests that they could replace credit cards as the primary non-cash payment model.

Mobile wallets will be to India what credit cards are to the West

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108

255

0

50

100

150

200

250

300

2012-13 2013-14 2014-15

Mobile WalletsNumber of transactions (millions)

+179.25%

Initially, mobile recharges used to dominate transactions through such wallets.

1

Then, most wallets added on categories like DTH TV and data plan recharges, utility bill payments, cab payments, train and bus ticket bookings, and e-commerce payments.

2

Now, mobile wallet players are partnering with brick-and-mortar stores to enable payments through mobile wallets.

3

PayTM appears to be the most popular mobile wallet and people are willing to use credit while shopping through mobile wallets

71%

66%

65%

61%

56% 58% 60% 62% 64% 66% 68% 70% 72%

Mobile Wallet

In-Store Digital Payment

Mobile checkout device assisted by store associate

Retailer's app

PayTM

MobiKwik

Oxigen

Citrus

m-Pesa

Yes

No

Yes, 86%No, 14%

Have you ever made a payment digitally? If yes, how did you make the payment?

A survey was conducted last week amongst 300 people aged 21- 26 years from different parts of the country and following are some of the key results:

What is the first name that comes to your mind when you think of m-wallet?

67%

20%

9%62%

34%

4%

0%

10%

20%

30%

40%

50%

60%

70%

Yes No Don't Know

Would you like to take an instant credit/offer at a shop while making purchase?

The general sentiment among the youth in India is growing strongly in favor of mobile wallets

“I think mobile wallets can do everything that cash or card can do and way better than it.”

“It would be great if I can get money in my wallet as credit which I can repay later. It’s like Diwali.”

“With Ratan Tata investing in PayTM, I think that I can trust the company with my money.”

“I like to shop online and earn discounts through mobile wallets.”

PayTM and MobiKwik are the current leaders in the mobile wallet segment in India

Parameters PayTM MobiKwik Oxigen mPesa

Type of Wallet Semi-closed Semi-closed Semi-closed Open

Number of registered users

100 Mn 17 Mn 6 Mn 3.1 Mn (March’15)

Started in 2009 2009 2014 2013

Revenues ~ 6000 crore ~1500 crore Not Available Not Available

Investors Alibaba group – 40%, Ant Financial – 20%, SAIF Partners – 30%, Vijay Shekhar Sharma,Founder – 21%

Tree Line Asia, American Express, Cisco, Sequoia Capital

Payment Bank License Yes No No Yes

Given their size, current reach and some smart tie-ups, PayTM and MobiKwik look promising to capture the maximum value out of the Mobile Payments growth in India. Also, the general sentiment in India is in favor of these two mobile

wallets.

A closer look at PayTM and MobiKwik provides more details

Average number of transactions per day

MobiKwik PayTM

0.4 Mn 2 MnNumber of merchant tie-ups 50,000 80,000Alexa India Rank 402 21

• PayTM is the biggest mobile payment provider in India , whether on the basis of revenues, or number of transactions, or tie-ups

• PayTM’s priority target market is urban consumers, where as MobiKwik is targeting more towards semi-urban and rural consumers.

• PayTM in comparison with MobiKwik has tie-ups with all the leading portals in India.

The number of users registered with PayTM is 5 times the number of credit card users in India

Paytm is aggressive about growth and far more about breakeven and that’s why they have an asset light model on marketplace

Paytm is targeting to be the first major ecommerce company to be profitable and has set a goal of 2017 to do so

However, there are certain gaps which need to be addressed to speed up mobile payment adoption

Lack of Technological Know How

People in India are not very tech savvy

They need to be trained to use the technology

People in India believe that the risk factor is a bit high in mobile payments

Lack of enrichment of consumer experience

Current payment options available in India do not target towards enriching consumer experience

They target more on the convenience factor

This focus on consumer experience will differentiate the winner from all others

• Loyalty Management

• Geo Location Discounts, Credits and EMIs

• Comparison Shopping

• Product Reviews

• Faster transaction time, less number of taps

This gap can be addressed by:

This is where a bank can come in and change the

Indian payment ecosystem

How a US Bank can enter India with geo location discounts, credits and EMIs(1/2)

• Buy stake in a leading mobile payment provider in India like Paytm or MobiKwik.

• Paytm appears to be overvalued right now, but gives a huge customer base that helps the strategy

• MobiKwik appears to be undervalued as of now, but the custimer base is 1/5th of that of Paytm currently.

1

• Use the huge customer database of the mobile wallet provider and invest in a technology that can use the customer payment patterns, browsing history, customer location etc. to come up with instant EMIs, Loans and Discounts for customers

• In addition, can provide loans to small to medium merchants that are associating themselves with these mobile wallets and help them scale up.

• Based on consumer credit worthiness, provide credit in their mobile wallets to help them purchase products.

2

How a US Bank can enter India with geo location discounts, credits and EMIs (2/2)

CustomerAcquisition

ImprovingProfitability

Running the day-to-day business

New Tie-ups

Mobile Wallet Provider

Will perform its business as usual and try to improve profitabilityFocus on customer acquisition and merchant tie-ups

US Bank

Will play a major role in the growth of the mobile wallet provider• Provide geo-location EMIs, Discounts and credits to

customers which will increase sales• Provide loans to merchants who tie-up with the wallet

provider to help him scale up. Will result in more merchant tie-ups

Most importantly, the bank will depend on the credit scores provided by the financial technology firms like Keditech etc. for offering instant loans and EMIs

Financial Technology

Firm

Will use the customer database and other social and commerce data to com up with real-time credit scores for customers, which in turn will be used by the US Bank to make instant offersThe most prominent firm which can be partnered with is Germany based firm Kreditech

Thank You