Have you received emails and texts saying ‘Make your next purchase via X digital wallet and get 20% or 30% cashback’? Well, that is a digital wallet vying for your attention, urging you to keep your Debit and Credit Cards firmly in your physical wallet.
Since the introduction of the demonetisation scheme, digital wallets have been dominating the news as they roll out tempting offers on a daily basis to lure consumers into making transactions through them.
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The Dawn of Digital Wallets
With India seeing a huge growth in internet and mobile users, digital commerce is flourishing in the country. More and more people are shifting towards online shopping since it is a much more convenient option and offers huge discounts as well. Wouldn’t you love shopping while sitting in your office or while taking the cab home?
This e-commerce boom has led to the adoption of digital wallets by consumers as their preferred mode of payment. The reason being that making payments via these wallets is convenient and they reduce dependency on cash and cards. With convenience at its forefront, digital payment platforms and mobile wallets are slowly seeping into the payments scene. The recent trend shows that Indian consumers are embracing these digital wallets with open arms.
Digital wallets started out with mobile recharges, but now they have moved on to a whole range of services that include shopping, food ordering, utility, travel and more. As the era of cashless transactions is dawning on us, more and more players are entering the digital wallets space. PayTM, MobiKwik, Oxigen, PayUMoney, AirtelMoney, FreeCharge and Ola Money are just a few of the dominant digital wallet players.
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What is a Digital Wallet?
Basically, a digital wallet is a virtual wallet which lets you pre-load any amount of cash which can be used to make transactions with supported merchants. It is the digital equivalent of your physical leather wallet.
Also, just like your bank account, you can keep cash stored in your digital wallet. All you need to do is create an account with the wallet provider using your phone number. Once the account is created, you can add money using your Credit Card, Debit Card or through a recharge kiosk.
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Types of Wallets
Digital wallets can be classified into three types – closed wallets, semi-closed wallets and open wallets. Let us discuss each of these types.
If you’ve shopped on Flipkart or Jabong, you may have used a closed wallet already. Closed wallets are provided by a company to its customer and can be used to buy products or services from that particular company only. A closed wallet is where your money gets credited in case of refunds (cancellation or return of products/services).
Digital wallets like PayTM and MobiKwik are classified as semi-closed wallets. These wallets allow you to purchase products and services from all merchants that have a tie-up with them. However, they don’t allow cash withdrawals or redemption. Semi-closed wallets are the most widely used type of e-wallets in India.
Vodafone M-pesa is an example of an open wallet. The difference between an open wallet and a semi-closed wallet is that open wallets allow cash withdrawals and redemption. Open wallets are issued by banks only. Just so you don’t get confused, Vodafone M-pesa was started in partnership with ICICI bank.
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The Convenience Factor
If you have created your digital wallet account and added money into it, you can make payments easily by just logging into your account. You don’t have to enter your card details or pin numbers for every transaction that you make. Most e-commerce sites allow you to make payments via digital wallets on checkout.
This new mode of payment is easily accessible, allows you to make payments on the go and cuts down on the transaction time. Its convenient nature is what makes it an attractive payment option to consumers, especially the tech-savvy younger generation.
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Digital Wallet Roadblocks
Remember the chicken-and-egg problem? Digital wallets face the same. They are of no use to customers if shops don’t use them and they’re useless to shops if the customers don’t use them. However, this issue is slowly getting addressed as digital wallets gain more and more popularity.
Another major issue that digital wallets face are the loopholes in its technology and transaction process. These have led to misuse by fraudsters and even genuine users. However, the wallet companies are taking the necessary measures to fix these loopholes.
Let’s hope that they set up a safe and secure transaction system in the future. But for now, let’s enjoy our meals at half the price, get movie tickets for free and avail huge discounts on our purchases.
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The Road Ahead
With the significant increase in smartphone users and more consumers relying on the digital lifestyle, the future looks rather bright for digital wallet companies. In fact, the growth of smartphone users and its ability to enable internet penetration across the country is the biggest driver of digital wallets.
With the government trying to make us a cashless society by eliminating black markets and easing monetary policies, digital wallets will soon emerge as the preferred payment option for consumers.
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