1IMMay 7426 18 E Wallets - Their Cause Rise and Relevance 1 1

International Journal of Research in IT and Management (IJRIM)
Available online at: http://euroasiapub.org

Vol. 8, Issue 7, July-2018
ISSN(o): 2231-4334 | ISSN(p): 2349-6517 | Impact Factor: 6.505
E-Wallets – Their cause, Rise and Relevance
Rajendra Kumar Tolety, M.Com, MBA, FCMA,
Associate Professor, SVKR College of Engineering and Technology.
ABSTRACT:
Since the beginning of this decade, the wallet industry has been on a rapid growth trajectory. With the central
Government’s emphasis on digitalization of economy and its bold moves to make the economy less dependent
on physical cash, the value and volume of mobile wallet transactions more than doubled, leading the charge,
to making India a cashless economy. Even though the number of debit cards and credit cards issued and used
is on the rise for the last 5 years, they are accounting for a lesser percentage of the total transactions in the
digital payment aggregate. This is the result of growing patronage for e-wallets from the public at large.
Between 2014 and 2016 the number of transactions done through e-wallets doubled but the value of
transactions increased by 500 per cent. E-wallets served the cause of demonetization and were the first to
facilitate payments in the country post-demonetization. Lower transaction costs, much lesser establishment
expense, ease of use, and comfort of opening the account from home have made e-wallets take the lead in the
digital payments industry. Their surge is seen by banks as a disruptive innovation and they have started to
re-think their own strategies in the digital payments domain. The RBI estimates that the mobile wallet
Industry will grow phenomenally in the coming 3 years. As it estimates the volume of e-wallet transactions
to be 45 Billion INR, and value of transactions to be 32 trillion INR by 2021, the e-wallet industry has come
to focus of public and private players alike.
Keywords: E-Wallet; Banks; Digital Payments Payment; demonetization
E-Wallets – Their cause, Rise and Relevance

E-wallet is a virtual wallet that stores payment card information on a computer or mobile device, to
facilitate not only online purchases but also the payments at POS terminals of the brick and mortar stores,
following the due authentication by the user. In India, it is an online prepaid payment system where one
can load one's stock money, and use that money when required. In India, as it was a part of the pre-loaded
facility, customers can buy a wide range of products, from bus tickets to airline tickets, and use it for
shopping at various stores without using hard cash and without swiping their credit or debit cards. At
POS terminals, as customers mostly use mobile phones to operate their e-wallets, digital wallets are
becoming synonymous with mobile wallets.
The genesis of E-wallets

Digital wallets appeared on the payments landscape in the mid-1990s, with the electronification of
commerce. But for lack of awareness, acceptance and adoption among the people, they weren’t very
successful at that time. At that peak of the dot-com boom, digital wallets were developed by a variety of
Software houses, which were not of course very popular.
International Journal of Research in IT & Management 1

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Vol. 8, Issue 5, May-2018
The main players on the e-payment market were Millicent, ECash and CyberCoin. Millicent was founded
in 1995, while ECash and CyberCoin were founded in 1996. The majority of the first online services used
micropayment systems and their common attribute was the attempt to implement the electronic cash
alternatives (such as e-money, digital cash or tokens)
These failed to make a mark for lack of publicity which failed to create acceptance and adaptation in the
market. In addition, these were more or less, programs developed and offered by small and not so popular
software publishers. It is a well-known fact that financial information is quite private and well protected
and hence can’t be shared with those companies that have yet to build authority and trust.
Banks realized the potential of e-wallets and entered the market, initiating the second generation of
digital wallets. Then some credible names like MasterCard, Visa, and some other leading banks were
backing digital wallets. The biggest limitation at that time was marked by the proprietary and defined
territory. Thus MasterCard's e-wallet worked with MasterCard only and Visa's e-Visa worked with Visa
only. They had to have a separate program for each of the credit cards, which is not quite convenient.
Thus their presence was only in a few markets and acceptance was quite limited.
Some innovative online security services, typified by Microsoft .NET Passport, also became a part and
played their role in the second generation of Digital wallets. ‘Passport’ would let customers automatically
sign into the network of Passport-friendly websites, and would allow Express Purchase giving it digital
wallet functionality. But Passport suffered from the same problem of that generation. Customers could
use it only with those sites that were part of the network. So the second generation of digital wallets were
wallets of limited acceptance.
The third generation of digital wallets seems to have successfully overcome the limitations of those from
earlier generations. This generation of e-wallets is actually software programs that reside on the
computer, store information of multiple credit cards, and work with virtually any website.
Thus, these digital wallets are secured databases of personal information to automatically sense and fill
in web-based forms to make online payments easy. But of course, the customer will be prompted for a
password, to keep unauthorized users on the PC from making unauthorized payments or stealing
sensitive information. The information stored on the computer is in an encrypted format, to prevent
information theft. As most e-commerce websites use ECML format, which is compatible with many
existing security protocols, including SSL and Secure Electronic Transaction, using E-wallets is quite
secure now. At present ‘Discover Desktop’, ‘eWallet’, ‘Gator eWallet’, ‘Q*Wallet’, etc., are the most popular
e-wallets used internationally.
E-Wallets in India:
In June 2006, ‘Wallet365.com’, launched by ‘Times of India’ is the first e-wallet of India. It associated with
Yes Bank to offer the payment services in the country. Today with companies from a variety of sectors,
launching their e-wallets, we have too many e-wallets in the country. Following the leaders like Paytm,
other players like banks, messaging apps, e-commerce sites, mobile service providers, etc., launched their
own e-wallets. By 2017 there are around 80 to 90 players in the market. While players like Paytm are
doing extremely well, some companies are struggling to find even a foothold in the extremely competitive
market.
One major difference we find between the international e-wallets and their Indian counterparts is that
the wallets from the west are more of credit/debit card information storage and payment processing
facilities, while the Indian e-wallets are mostly about storing cash with them and making payments
International Journal of Research in IT & Management

Email:- editorijrim@gmail.com, http://www.euroasiapub.org 2
instantly. While the mobile e-wallets of the west transfer money from banks, the Indian e-wallets in
addition to this also accept money, store it and pay from it. So in simple terms, we can say that the western
e-wallets are mostly card wallets, while the Indian e-Wallets are mostly cash wallets.
The cause:
It is a well-known fact that India is traditionally a cash-based economy. During the year 2015-16, it is
estimated to have over 11% of its GDP, in physical currency. This is ridiculously high compared to other
emerging economies across the world. This proves that a large proportion of India’s population is
unbanked and has limited access to technology-enabled financial services. Too much dependency on
physical cash is harming the economy in many ways. Some of them include
1. Counterfeit Currency: Economic war and Economic Terrorism have become the order of the day.
To attack the Indian economy, some countries are using their minting technologies to print
counterfeit currency of Indian denominations. Various reports estimated that anything between
8 to 40 per cent of the total money in circulation during 2014-15 is counterfeit.
2. Cross border Terrorism: It is well-known fact that terrorism is funded through counterfeit
currency minted in mints outside the country.
3. Black Money: Hoarding cash can be done without keeping accounts. Hoarding money can lead not
only to inflation but also can result in a growing disparity between the haves and the have-nots.
4. Tax evasion: With physical cash changing hands, the government can’t keep a tab on the real
incomes of people. It is widely accused that most of the businesses reveal and account for only a
small fraction of their income and evade taxes for the unaccounted money. This is leading to the
shrinkage of income for the government resulting in poor infrastructure and slower growth of the
economy.
5. Harming the environment: The paper used in printing the currency comes from cutting down
trees which are necessary for human survival.
6. Hygiene problems: How many of us wash currency notes? We don’t even wash hands after
touching currency notes. It was reported that a lot number of viruses and bacteria reside on the
old currency notes and spread through them as they change hands.
7. Easy wear and tear: Currency notes easily become damaged and have to be replaced quite often,
costing the economy a lot.
With economy mostly dependent on physical cash, financial inclusion of poor is very difficult to achieve.
So with the help of the central bank, the government has laid significant emphasis on making banking and
payment services accessible to all. The aggressive drive of Prime Minister Modi for financial inclusion
culminated into the launching of the Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme. This scheme of
the Prime Minister is aimed to expand and make affordable, access to financial services such as bank
accounts, remittances, credit, insurance and pensions.
Non-bank players such as telcos (through mobile money services) and business correspondents (BCs)
were roped in, for providing basic banking services in rural areas. Even though banking services became
accessible to the rural fold, it was still very difficult to make people change their old habits. In spite of
opening bank accounts for almost all the households of the country, the government was unable to reduce
the dependency of the economy on physical cash. Further, huge cash hoarded by the mafia, terrorist
organizations and other anti-social elements is helping the growth of the parallel economy in the country.
So after intense deliberation, on 8th November 2016, the federal government took the drastic step of
demonetizing INR 500 and INR 1000 notes removing 86% of India’s cash overnight from the Indian
Currency. This created a lot of inconvenience to people, for their habit of depending on physical cash, but

nevertheless, it is a deliberate shock to those harming the Economy. The inconvenience and trouble
endured by the people is a collateral damage to the cause of economic reforms.
The Rise:
In this decade, the electronic payments industry is growing rapidly. Rising aspirations of consumers
increased personal consumption expenditure, rapid urbanization and electronification have given a
thrust for the e-payment industry. Traditionally banks used to play the major role in providing payments
services through their websites and mobile apps. But non-banking players like e-commerce giants, telcos,
etc., entered the arena giving new colours to the landscape. Increasing smartphone penetration, growth
in digital commerce, improvement in computer literacy, access to the internet and broadband, supporting
regulations, etc., contributed to the surge in electronic payments in India.
From the data published by RBI, it is evident that digital prepaid wallet operators are gaining widespread
adoption in the recent years. Their customer base and acceptance are on a constant and consistent rise.
The rise in the money stored on the wallets also reflects their increased acceptance and adoption in the
country. According to an estimate, the top two digital wallet operators in India together have over 117
million INR stored, in their wallet accounts during the year 2016. Though wallets started with basic
services such as telecom recharge and bill payments, they slowly started finding acceptance as payment
options on some popular online merchants. By all standards, their acceptance is still limited with the
popular e-commerce sites, for many of them are still very selective in choosing e-wallets. For example, we
don’t find most of the famous merchant sites, accepting, more than one e-wallet, in their payment options.
This is mostly because the major merchant sites started developing their own e-wallets. Such sites don’t
even accept the mostly accepted Paytm in their payment options. In a sense, their internal competition is
limiting the acceptance and adoption of e-wallets by the public. But for all those sites that don’t have their
own wallets, we find multiple e-wallet options on their payment menus.
The next step for wallet companies is creating acceptance and necessary infrastructure at brick and
mortar stores for their wallet payments. This is mostly about creating acceptance than providing
infrastructure. Installing a little software on their computer or an app on their mobile phone and
providing a printout of the QR code to be displayed, is the entire infrastructure that is necessary for e-
wallets like Paytm. Any customer with a camera phone can scan the code and make the payment from his
wallet.
E-Wallet Transactions for the last 5 years:
Financial Year Volume in millions The value in billions INR
FY13 33 10
FY14 108 29
FY15 255 82
FY16 604 206
FY17 1630 532

E-Wallet transactions
2500
2000
1500
1000
500
0
FY13 FY14 FY15 FY16 FY17
Volume in millions Value in billions
From the data, it can be seen that both the number of transactions and the value of payments done
through e-wallets are growing rapidly and symmetrically.
Demonetization Effect:
With high-risk, high-stakes move of demonetization in 2016 November, many small stores were losing
business for lack of enough hard currency with the customers. Hence, they have to accept electronic
payments, which need swiping machines to accept cards. As per the records, there are only 1.5 million
POS devices mostly with large retailers and shop owners, again mostly in Tier 1 and Tier 2 cities. To
develop the necessary infrastructure at each vendor takes time and investment. So, the best alternative
was to adopt e-wallets. It was easy to call the Paytm agent who can finish the work for free in less than 10
minutes. Some had even downloaded the Paytm app on their mobile phones, opened Paytm account and
started accepting payments. KYC could be done at their doorstep with convenience. Major stores
immediately registered with leading e-wallets like Paytm, Mobiqwick, etc., and their acceptance
multiplied. All e-wallets turned out to be of great convenience at that time. Their acceptance surged, but
it was Patym which leveraged the effect to the maximum. Shopkeepers, vegetable sellers, petrol pumps
and even sex workers started accepting Paytm payments. Paytm’s traffic increased by 435%, app
downloads grew 200%, and there was a 250 per cent rise in overall transactions and transaction value.
As reported by the Hindustan times, immediately after demonetization, E-wallets in India was adding one
million users per day to their base. As smartphone penetration was only 17% in early 2016, Mobikwik
one of the follower in the race, launched a feature, where even feature phone users could make
transactions through the app making the app usable even by those who don’t have smartphones. This in
a way has multiplied the potentiality of the e-wallet market to a wide customer base.
The launching of government’s innovative payment app ‘BHIM’ also became handy, by facilitating
electronic transfers between bank accounts. Those registered with BHIM can use their 12-digit unique
Aadhaar ID number to make payments. The easy-to-use system works even on an ordinary feature phone
which needs no internet connection. The Harvard Business Review called it as an inclusive solution and
opined that if the BHIM service continues to improve, it stands a chance of scaling up to India’s large
market. Now virtually almost all e-wallets are usable with feature phones at the pos terminals.

The Relevance:
E-Wallets a Market Disruption?
E-wallets in India have definitely changed the payments landscape in the country. Investing in costly POS
terminals was no longer an imperative for small merchants of interior markets. The adoption of e-wallets
among the public grew so rapidly that many opted for them instead of bankcards. As receiving payments
through e-wallets is more convenient than swiping cards, their acceptance grew rapidly even with small
merchants at the district level. While bankcards are charging customers for use of their cards, e-wallets
were rewarding customers for use of wallets by offering considerably good discounts and cash-backs.
Again as these cash backs are again in the form of wallet balance, they ensured further use of e-wallets.
While banks needed huge setups like a big office, branch manager, tellers, cashiers, receptionist, security
guard, etc., the e-wallets are mostly virtual in nature. One rarely finds a Paytm or Mobiqwick office in a
town. With a lot of savings in their costs, the e-wallets are transferring these savings to the customers in
the form of cash-backs. While many retailers collect extra amount as transaction surcharge fees for card
transactions, no such charges are collected in case of e-wallet payments. As many customers maintain
very minimal balances in their e-wallets, filling them on a need basis only, security concerns are also low
in case of e-wallets. Hence, it is neither a big concern for the e-wallet owner nor a considerable reward
for a hacker to work on.
E-wallets became convenient than using even the paper cash in many cases. People may forget to carry
their wallets, but they rarely forget their mobile phones. At many grocery stores, having the right amount
of change is almost impossible for any customer or the seller. Through e-wallets, one can always make
the exact amount of payment as was the bill. Even for payments among friends, e-wallet is the most
convenient channel. If both the friends are on the same e-wallet platform, payment can be done in a few
seconds. There is no limit on the number of free transactions allowed and no fear of charges. Thus, e-
wallets started to become more relevant than bank cards and even the paper cash in the semi-urban
markets of the country. As of February 2017, 40 percent of the smartphone users in India use Paytm and
there are over 40 mobile wallet services active in the country.
Banks are forced to rethink their payments strategy.

Banks started to notice the growing acceptance, rapid adoption, scale-up and increased use of digital
wallets by people. Their own customers are using digital wallets instead of their cards or electronic
payment systems. This made banks rethink their whole strategy for retail payments. So their thrust and
focus shifted to the developing more convenient and customer friendly payment apps. Many banks
launched their own wallets too. SBI has SBI Buddy, ICICI has ICICI Pockets, HDFC had PayZapp and PNB
launched Kitty. But still, none of them matched the level of acceptance Paytm had with small and marginal
retailers in tier II and tier III centres.
The major private and public sector banks have also initiated payments product and platform innovation.
Some of the banks started linking bank accounts to their own wallets and are providing additional
services such as social media banking where customers can access their bank accounts through their
social media account (accessing bank account through social media), specific consumer apps for enabling
Person-to-person (P2P) and person-to-merchant (P2M) payments, and linking of bank accounts to
wallets. One area where banks lagged behind the wallets is in the adoption of mobile platforms. Paytm,
Mobiqwick, etc. were much more famous on mobile than SBI, ICICI, AXIS or HDFC, for the simplicity of
navigation and ease of use of their apps. With the market disruption of Reliance Jio, mobile platforms

became a lot cheaper and accessible even at the remotest of rural India. The market penetration of 4G
services through Jio made the followers like Airtel and other players who were leaders of 4G in the urban
markets, to upgrade their services to 4g even in the rural fold. The cost of data on mobile phones also fell
steeply to less than one-tenth, presenting a great platform for the e-wallets to take leverage of the
situation.
As digital wallets served the need of the day, immediately after demonetization, they proved their utility
and have built trust among the public, racing ahead of many banking apps in the area of customer
adoption. As more and more transactions go mobile, banks are facing stiff competition from e-wallets,
which are more mobile friendly. Innovation and focus on digital strategy will be critical for banks to
survive and remain relevant in the changing landscape of retail payments.
Challenges for E-Wallets in the Emerging Landscape:
Though e-wallets were quick to adopt in the scenario post demonetization, it is more of an opportunity
availed by them due to better positioning on the mobile platform. In long-term, with new challenges and
changing scenarios, they need to saddle themselves and anticipate the threats and opportunities that
emerge in the competitive arena. Some of them are
1. Risk of security breaches and frauds: Security breach is a serious risk to any fintech player and e-
wallets are no exceptions. Unless these companies upgrade themselves regularly and take
enormous care to minimize frauds, trust which took years to build.
2. Limited acceptance at the POS terminals: Hardly two or three wallets are accepted at the POS of
many retailers. Other than Paytm, PhonePe and Mobiqwick, even well-known wallets like Oxigen
and FreeCharge are rarely accepted in, tire II and tire III markets. Unless they aggressively
penetrate into the semi-urban markets, soon they may become irrelevant.
3. Retailers reverting to cash preference: Even though during the cash crunch following
demonetization, many retailers were forced to accept digital payments, now many of them are
again preferring cash instead of digital payments. Unless e-wallets continuously innovate, they
will lose the traction and many can become irrelevant.
4. Remonetization: E-Wallets got the real surge in demand post demonetization. With political
pressure from the opposition, a lot of cash is being pumped into the economy. The goal of ‘cashless
economy’ seems to be succumbing to the tirade of opposition, heralding the peril of making e-
wallets irrelevant. With free availability of cash, the elder generation will fall back on cash,
reducing the need and scope of e-wallets in the rural markets. If the space narrows, many marginal
wallets will peter out.
5. Long-term sustainability: The business model followed by e-wallets has yet to consolidate. They
are burning lots of cash to gain adaptability and acceptance. It is driven by discounts at present.
This drive has its own limitations. As e-wallets do not pay interest on the wallet balances, many
are filling them on the need basis. So the average balances in wallets are generally low. Hence, e-
wallets have to adopt new strategies to overcome these limitations. Like Paytm, which came with
its own bank and linked its wallets with bank accounts to give the advantage of a wallet as well as
a bank account, other wallets also need to come up with innovative solutions to sustain.
6. Retailer’s POS Acceptance: The true test for acceptability of an e-wallet is acceptability at the POS
terminal of retailers. Still, most e-wallets are struggling here. Paytm tied up with many telephone,
gas and electricity suppliers to accept payments through its wallets. Such acceptance will
contribute to its long-term sustainability in the market.
7. Introduction of UPI and then BHIM: UPI made payments very easy. One can link one’s bank
account with upi and make payments with ease to any other bank account. The only limitation
was that the customer had to link each of his/her bank accounts to UPI. The launch of the BHIM

app which can be linked to any UPI linked bank account also helped the bank accounts to become
more convenient for payments. Innovations like this can erode the advantages of e-wallets.
Though the leading e-wallets are adopting each innovation that arrives, with a lot of enthusiasm and
vigour, the narrowing of the convenience gap between the bank accounts and e-wallets is clearly
evident. To survive, the leading e-wallets have to reinvent themselves and migrate beyond their core
services. They have to work on increasing their acceptance and adoption in the market. In the fintech
market characterized by cut-throat competition, where only the fittest survive, other than those
sponsored by leading e-commerce portals like Amazon, only those that can remain relevant will
sustain in the long run.
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International Journal of Research in IT and Management (IJRIM)

Available online at: http://euroasiapub.org

E-Wallets – Their cause, Rise and Relevance

Rajendra Kumar Tolety, M.Com, MBA, FCMA,

Associate Professor, SVKR College of Engineering and Technology.

E-Wallets – Their cause, Rise and Relevance

The genesis of E-wallets

International Journal of Research in IT & Management 1

International Journal of Research in IT & Management

International Journal of Research in IT & Management

E-Wallet Transactions for the last 5 years:

Financial Year Volume in millions The value in billions INR

FY16 604 206

FY17 1630 532

International Journal of Research in IT & Management

Volume in millions Value in billions

International Journal of Research in IT & Management

Banks are forced to rethink their payments strategy.

International Journal of Research in IT & Management

International Journal of Research in IT & Management

International Journal of Research in IT & Management

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