Nov 11, 2016 10:49 AM IST | Source:

Why e-wallets and startups are super happy after currency ban

There was a humdrum of excitement at Paytm's office. Many employees were poised to achieving their download and merchant on-boarding targets, well ahead of their schedule, thanks to PM Modi. On LED screens on its office walls, numbers such as transactions, GMV and wallet recharges were going up in green, every few minutes...

Priyanka Sahay & Harsimran Julka


The Noida based office of One97 Communications Pvt Ltd that runs online payments firm Paytm on Wednesday wore a carnival look. There was a humdrum of excitement. Many employees were poised to achieving their download and merchant on-boarding targets, well ahead of their schedule, thanks to PM Narendra Modi.

Some were working from home a day before, due to high pollution in Delhi-NCR. They chose to turn up in office on Tuesday not to miss out on the excitement of fellow colleagues.

On LED screens on its office walls, numbers such as transactions, GMV and wallet recharges were going up in green, every few minutes.

TV crews could be seen with their equipment interviewing key top staff. The marketing department boasted of pulling of jacket ads with PM Modi's picture in national newspapers post 1 am in the night.

However, the CEO's desk (there are no cabins) was empty. He was in Mumbai, to attend an event by Network 18, the evening before, even as the PM was giving his televised address. It was announced that Rs 500 and Rs 1000 denomination notes will not be legal tender on an immediate basis. His phone did not stop ringing since then.

The rest is history.

Next morning, when annulment of high value currency notes slowed sales for most of India's trader markets and e-commerce companies, for Paytm it proved otherwise. The Alibaba-backed company on Tuesday started seeing a 200 percent increase in downloads and 10 fold increase in addition of money in the wallet.

(Employees at Paytm's Noida office)

Customers in India's tier I and II cities looked up to digital wallets as an alternate when large currency notes in their pockets simply became pieces of paper. Even though valid for few weeks, retailers stopped accepting Rs 500 and Rs 1000 notes. A picture of Steve Jobs at the Paytm's office floor with his favourite quotes looked amused. Outside the office, rickshaws and taxis plied with ignominy.

Madhur Deora, Chief Financial Officer of Paytm told Moneycontrol that the offline transactions saw the biggest growth with the usage increasing by over 400 percent since a day before. "We already have the business model, now we need to educate people," said Deora adding that the company is expecting a massive decline in the customer acquisition cost post the announcement. It targets to close the week with almost 1 million merchants.

Marketing ads to continue

On Wednesday, Delhi Chief Minister Arvind Kejriwal tweeted to PM Modi on the Paytm ads. This is what Delhi CM tweeted: "Paytm biggest beneficiary of PM's announcement. Next day PM appears in its ads. Whats the deal, Mr PM?"

In reply, Paytm CEO Vijay Shekhar Sharma tweeted this to Kejriwal: "Dear Sir, The biggest beneficiary is our country. We are just a tech startup, trying to solve financial inclusion & make India proud."

Paytm maintained its pull marketing will continue for few weeks. The strategy for Paytm for next few weeks will be two pronged, explained CFO Deora. “On the one hand we will on-board merchants faster. We will hire more agents and outsource KYC verification to agencies for this. On the other hand, through such marketing campaigns we will on-board users faster,” he said.

The company will launch multiple public announcement campaigns to make people aware of the usage of digital wallets. It has started off by publishing front page print advertisements across all the major dailies in the country on Wednesday and Thursday, and this marketing will continue at least for a week.

Paytm is not alone. Rival wallet and online payments firms also reported massive gains at the back of this announcement. Mobikwik witnessed over 40 percent increase in app downloads within less than 18 hours of the announcement.

Additionally, user traffic and merchant queries went up by 200 percent among its over 35 million users, the company said in a statement.  Mobikwik also revised its business targets and now aims to achieve a gross merchandise volume of 10 billion by 2017. Freecharge reported a 12 fold overnight jump in the average wallet balance.

Making cash on delivery history

As courier boys stopped accepting notes of Rs 500 and Rs 1,000 on the day after the ban, cash on delivery suddenly became history for India's ecommerce businesses. In order to help the e-commerce firms, wallets such as Paytm, Mobikwik and Freecharge are starting an option of "wallet on delivery" wherein the customers can now pay the delivery boys after they receive their products, through their wallet. This move will completely remove the use case of cash money.

(A cartoon by Sajith Kumar)

Deora told that such as service is already available for things like delivery of gas cylinder at home and can be easily replicated for e-commerce deliveries as well. "Multiple e-commerce firms have approached us and we are in conversation with them. We can make it live for a merchant within hours," he said declining to share the names of the companies.  Paytm itself also runs an e-commerce marketplace where customers will now be able to pay through wallets on delivery.

In the next few days, Paytm is expected to announce on boarding of a slew of merchants. Paytm's vice president business Renu Satti who is responsible for giving competition to BookMyShow through Paytm movie tickets feature looked happy. "You will see us in many more categories in the weeks to come," she said.

e-wallets gain from Modi's move

Valuations of all big wallet players and even small fintech companies trying to replace cash with digital currency will increase in the company months, as they show greater adoption. PM Modi is determined to weed out blackmoney and cash transactions from the market, which will force merchants to adopt apps in order to let customers pay.

Interestingly, the move by government brings Snapdeal, which was seen as the distant third largest e-commerce firm after Amazon and Flipkart after Diwali sale period, in a much stronger position against its rivals.

Snapdeal's wallet on delivery option will be available from Thursday and will cover Snapdeal and Freecharge users only.

"The swift roll-out of the feature is due to the seamless integration of the Snapdeal and Freecharge platforms, which allows users to smoothly make digital payments for digital purchases of goods and services," the company said in a statement.

To be sure, a couple of months ago, Flipkart too started off PhonePe, a wallet based on unified payment interface (UPI). The platform however is fairly new as compared to rival Paytm of Freecharge for now.

“For your future orders, we urge you to opt for alternative payment modes such as internet banking, credit and debit cards, gift cards, and PhonePe, our easy and convenient UPI and wallet payments solution,” Flipkart said on its website. Then there are smaller players such as Screwcash which sit on top of wallets as an aggregator, which have popped up in last few months.

As per Google Play, PhonePe has over 100,000 downloads so far. This is against 10 million downloads of Paytm and Freecharge each, on Google Play.

Fintech startups: The biggest winners

A July Google-BCG report predicted the digital payments industry in India to grow by 10 times to USD 500 billion by 2020. With the latest announcement it is likely to get a further push. It may cross those estimates.

“The move by government is like free publicity for the wallet businesses. It is going to become an electronic India from the payments perspective. This is one more step in that direction,” said Vinod Murali, managing director at InnoVen Capital India, which has invested in Gurgaon based Mobikwik.

Currently, 60-70 percent of the total e-commerce deliveries are cash on deliveries. The customers are still apprehensive of saving their debit or credit card online due to security issues.

A move such as wallet on delivery will go a long way in improving the customer experience and bring this lot to the online zone, wherein they can load their wallets and pay anytime as per their convenience without the hassle of carrying cash.

Even though this move will bring customers on the platform of wallet firms, it alone would not ensure customer stickiness.

“Wallet firms will need to expand their client base. They need to have more opportunities for customers to come to their platforms and that will only happen when they increase the breadth of the merchant of the platform, specially offline,” said Murali.

Tech investors are super happy

With e-commerce transactions in sectors such as groceries, food, retail, healthcare and even real estate expected to see high growth, venture capitalists have welcomed the government’s move.

“It’s a dream come true for any tech Venture Capitalist. Every online company in my portfolio will prosper,” says Sunil K Goyal, founder of Yournest Angel Fund that has invested in companies such as Uniphore, Rubique, Simpli5d, SmartQ, seeDoc, Fashalot and Zipdial, which got acquired by Twitter.

“Imagine a billion people with Aadhaar numbers and digital wallets. Even Rs 1,000 in each wallet after payments banks come in effect, will improve liquidity in system. It will be a game changer for Indian banking system,” he adds.

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