For e-wallet providers, survival is the name of the game

Rishma Kapurmoneycontrol.comPrepaid instruments aren't new. They have been in existence for a long time now. Think travel cards or gift cards. But e-wallets are a recent phenomenon. They are also prepaid instruments but with a difference: you neither pay in cash nor by a card.

In their simplest form, e-wallets are nothing but virtual piggybanks that you keep topping up with small change so that you can pay for a movie ticket or taxi fare. As a user, all you need is a smartphone and you can pay through an app, text message, social media account or a website. Currently, about 90 percent of transactions happen in cash -- which means service providers of e-wallets can look forward to more business. But unfortunately service providers are still unable to make big bucks. The main reason behind this the discounts that they offer to attract as well as retain its customers. How it works is like this: service providers open a merchant account in a bank and allow customers (that is, you) to transfer money into this account which is then routed to the business (eg. Flipkart) the money belongs to. In India, Paytm, which claims to have over 100 million and Mobikwik have been into discounts as are new arrivals in the business.Speaking to moneycontrol, Deepak Chandnani, CEO of Worldline South Asia and Middle East, comes down hard on this obsession with discounts. "Over a period of time, the question is what additional value they (e-wallets) can bring to you,” he says. 

The customers will look for something extra, not just discounts. 

On the plus side, Chandnani says these e-wallets are convenient and offer a great user interface - things essential for getting customers on-board. However, at present, it is a question of sustainability for them.

The likes of Google and Yahoo which have e-wallets of their own could afford to offer discounts because they could make up for any loss with revenues from advertising on their sites - their bread-and-butter business. But pureplay companies have no such luck as their sole business is an e-wallet, points out Chandnani.

Increasing competition from within the space and other instruments continue to weigh, too.The government recently launched Unified Payments Interface -- considered a potential threat to e-wallets as customers looking for security will transact through banks. But Chandnani says e-wallets are more for conducting e-commerce transactions. "UPI is used to transfer funds from one account to another; e-wallets allow one to trade as well as transfer funds from one wallet to another."

Besides, banks don't offer discounts. 

There are a few limitations right now. E-wallets have a limit of Rs 10,000 beyond which transactions are subject to know your customer (KYC) norms. This is because it falls under category of semi-closed instruments under the Reserve Bank guidelines. The money that you store in your e-wallet doesn't give you an interest. Nor can you withdraw the money.

But you can either transfer it to another account or your bank account with some additional fee, says Chandnani.E-wallet companies will get some help from the spread of digitisation in future. But technologies will have to be put in place to check fraud. “Whether they survive or die, it will depend on the function of business model,” says Chandnani.According to a study by research firm RNCOS, the Indian market size for m-wallet stands at Rs 350 crore and is estimated to rise to Rs 1,210 crore by 2019. Now, that is a huge market waiting to be tapped. E-wallet providers will have to play their cards right to tap it.