New financial reforms in India to further boost growth of mobile wallets

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The year 2016 has proved to be an eventful year in terms of financial reforms in India. With recent abolition of INR 500 and 1000 rupee notes overnight, India is experiencing tremendous reforms in digital financial services. Financial inclusion has always been top priority for India government as large section of people are still unbanked. In order to curb this issue Pradhan Mantri Jan-Dhan Yojana was introduced back in 28^th August, 2014 which has resulted in opening of more than 220 million bank accounts and INR 384 billion (USD 5.7 billion) deposited until June 2016. This year financial inclusion through digital space gained importance as Unified Payment Interface (UPI) and Bharat Bill Payment System (BBPS) was introduced.

With all these developments, various segments of digital financial services are gaining advantage. Fin-tech companies are on this rise due to popularity of alternative payment solutions being preferred more than cash transactions among larger section of consumers. Increased smartphone penetration andclose to 500 million mobile phone users’ digital transactions are expected to increase steadily in next 2 to 3 years.

Mobile payment industry as such in India has been posting strong growth rates, especially over the last 2-3 years. Even without the demonetization event, the industry was on track to records a CAGR of 50.4% from 2016-2020 to reach US$ 48.8 billion in transaction value terms by 2020 (according to PayNXT360's data). The entire demonetization episode has pulled a set of people onto the digital payment platform who could have used but were not using digital payment platforms. In short term this event is for sure going to bump up growth rate. However, over the medium to long term we don't expect this event to play a major role as such.

Credit lending service is likely to become influential for fin-tech companies. Data available through digital payments history will allow them to strengthen credit process which was previously restricted to bank statements for account holders. Unbanked and underbanked consumers are being approached for credit lending through this initiative. This is likely to increase working capital in this sector. Digital payment is also expected to lead to better credit scoring. However, companies need to build up consumer awareness towards alternative payment solutions for business growth.

Mobile wallets are predicted to experience average transaction value doubling in coming years. Digital transactions are likely to go up in both online and offline mode. Freecharge is expecting a 14 times increase in wallet account balance while Mobikwik is anticipating a 22 times increase in business volume. Paytm predicts that retailers more are likely to approach digital wallets for providing alternative payment solutions. Reportedly, Paytm experienced 300% increase in number of transactions and transaction volume with saved card detail count rising by 34% after recent abolition of 500 and 1000 currency notes.

To know more and gain deeper understanding of mobile payment industry in India, click here.