E-wallet companies must make their revenue models sustainable
At a time when e-wallets have come to be accepted as the new normal, HDFC chairman Aditya Puri’s contention that digital payment companies have no future is rather interesting. Hefty discounts and unsustainable revenue models adopted by the e-wallet companies have come under scrutiny from Puri and other hard nosed bankers like him. Also, the other big possibility is that several top banks that launched their own e-wallets must have come under serious threat from the pure-play digital payment companies.
Well, the jury’s still out as to whether e-wallet companies would survive in the long run if they were to build their customer base only on paybacks. The eagerness to spread exponentially and fast in the aftermath of demonetisation seems to have raised serious doubts on their revenue model. An acquisitive model predicated on cash backs cannot run and this is the point puri is making when he says that this is unsustainable.
It’s pertinent to consider what Puri pointed out in terms of unsustainability for e-wallet companies that have slowly been building up losses like their e-commerce counterparts. Companies like Paytm have reportedly built up losses to the tune of Rs 1,651 crore in a short time after having offered huge cashback on using its gateway.
Paytm, Freecharge, Oxigen Wallet or for that matter any e-wallet company may not have been able to post profits given the wafer thin margins available. This is similar to huge discounts doled out by e-commerce companies that are currently in the midst of a big churn. Though the e-wallet companies have taken online payments to people that do not have bank accounts but mobile phones, a significant point is that they will have to still depend on banks as intermediaries to process the payments.
The debate on sustainability comes at a time when projections suggest 148 per cent growth in e-payments annually with a potential for such business at $ 4.4 billion in India by 2022. Potential for e-payments business is particularly huge given the spread of smartphones, larger internet connectivity and the ease with which the transactions can be done.
Here, the moot point is if the banks are getting jittery about such e-wallet companies gaining currency before their own products reached the consumers? In fact, banks resistance to e-wallet companies is not new. Last October, State Bank of India (SBI) and its associate banks had disallowed their customers from loading funds from their bank accounts. Even large private bankers like Citibank or ICICI Bank followed suit. And banks like SBI, ICICI Bank and HDFC Bank seem to be pushing their own e-wallet services like Buddy, Pocket or PayZapp.
The growing friction between financial services companies and e-wallet providers is not specific to India alone. In a similar standoff, Kenyan banks lost out to Mpesa run by payment platform Safaricom. Billions of dollars worth low value transactions in the rural and semi-urban markets have made Mpesa a hit while banks have cried foul.
It’s not that online payment companies have not had their bit of sour experiences, knowingly or unknowingly becoming party to unlawful or fraudulent money transfers. E-payments regulator, set up within RBI must come up with regulations for e-wallet platforms and e-commerce payment gateways to ensure there’s no hanky panky in the world of online payments.
What’s particularly significant was the fact that many telecom companies like Bharti Airtel and Vodafone have come up with payment banks that would in turn facilitate e-wallets or payments across networks. Banks, e-payment companies and telecom as well as internet providers will have to learn to co-exist rather than pulling down each other. And, the e-wallet companies must work their revenue model right to be sustainable in the long run.