Will India go cashless if mobile payments take off?

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Media caption,

The success of mobile phone transactions will largely hinge on how reliable India's networks are

As soon as Binod Upadhyay arrives at a destination he immediately turns round to check if the customer is pulling out a wallet or a mobile phone.

"If it's the mobile phone, then I am relieved," he says.

For the last 25 years he's been earning a living driving an auto-rickshaw - a yellow and black motorised three-wheeler taxi, a popular form of public transport in India's financial capital, Mumbai.

But getting paid has not always been a smooth process for Mr Upadhyay. On many occasions both he and the customer didn't have change, forcing them to scout for coins at nearby shops.

Sometimes, this would end up in an argument.

"Some customers would think that I am lying so that I can pocket the change," he says in frustration.

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Binod Upadhyay says accepting payments by mobile phone has made his life much easier

But now that's starting to change with the arrival of mobile wallets and cashless payments. Since he started using the technology six months ago, life has become much easier, he says.

The payment procedure is fairly simple. After logging in to the app, customers key in the auto-rickshaw driver's mobile number and the amount to be paid before hitting the "pay" button on their smartphone.

The driver immediately receives a text message on his phone confirming the money transfer into his account. The app is designed and managed by Mumbai-based tech firm, Ongo.

Image source, Getty Images
Image caption,
Mumbai has about 250,000 auto-rickshaws on its streets

These are early days, however. Of Mumbai's 250,000 rickshaws, barely 10% accept electronic payment. But the number of transactions is expected to shoot up in the coming months as more drivers adopt the technology.

The march of mobile

There are about 200 million mobile wallet accounts in India, although not all of these will be active and many people have multiple accounts.

Most people use them to pay taxi fares, buy cinema tickets and settle utility bills. But now mobile wallet companies are expanding their services by tying up with shopping malls, grocery stores and restaurants.

"Payments for retail shopping will be disrupted in the coming years," says Jitendra Gupta, founder of mobile wallet Citrus Pay - the third largest payment platform in this space.

"People will use mobile wallets rather than cards or cash to make payments for their day-to-day shopping."

What's fuelling this optimism is the fact that India is one of the fastest-growing markets for smartphones in the world. It is expected to become the second largest market by 2017 - replacing the United States.

The number of mobile internet users in India is expected to touch 314 million by 2017, up from 280 million now.

Growing market

According to a recent report by GrowthPraxis, the market for mobile-enabled payments in India grew more than fifteen times between 2012 and 2015 to reach its current size of $1.4bn (£979m).

Interestingly, nearly 60% of users accessed the internet for the first time on their mobile phones - in marked contrast to many other countries, where desktop and laptop are the first web-enabled devices that people use.

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Growing numbers of Indian shoppers are enjoying the convenience of payment by mobile

"Earlier, most people used mobile internet for social networking sites," says Vivek Belgavi, financial services expert at PricewaterhouseCoopers India. "But that's changing now - as increasing numbers of people are using it to make mobile payments."

Service providers are looking to make money by taking a cut from vendors, as the apps are free for customers. They are also flooding the market with cashback offers and discounts to get more traffic.

Patchy network

So, can mobile wallets pave the way to a cashless economy?

Not in the short-term, seems to be the answer. Even though smartphone sales are booming in the country, mobile network quality is still a big issue.

An overwhelming majority of mobile connections are still on the 2G bandwidth, even as 3G is seeing rapid uptake in urban areas. Poor call quality and patchy internet connectivity are common complaints.

Telecom firms blame lack of available mobile spectrum as the main reason for this. Mobile wallet firms are concerned that this unreliability could hold back their growth plans.

Image source, Getty Images

"The biggest difficulty for mobile payments is connectivity," says Mr Gupta. "Today, even if you are on a 3G connection, most of the time it's on a 2G network."

And that's why everyone is pinning their hopes on 4G - the mobile equivalent of hi-speed broadband internet. It is being rolled out throughout the country, with telecom firms promising a much better customer experience all round.

Analysts believe that the success of mobile wallets is inextricably bound up with the effective implementation of 4G services.

"4G will play a critical role in creating an experience for consumers around mobile payments," says Mr Belgavi.


So can mobile wallets in India mirror the success that mobile payment tech has enjoyed in countries like Kenya, where more than 90% of the adult population has signed up to Vodafone's M-pesa payment platform?

India may have many more bank branches - 100,000-plus - but less than 20% of them are in rural areas. Yet this is where more than half of India's 1.25 billion people live.

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Will people in rural areas also be able to send money and pay for goods via mobile?

So sending money through banks becomes nigh impossible for the millions of villagers who migrate to big cities for work.

And that's why most migrant workers send money home in the form of cash via travelling relatives or acquaintances.

For this reason "person-to-person money transfer will be a real game changer", thinks Mr Gupta.

If reliable and fast mobile networks can make it out to rural areas then mobile wallets should see huge growth in India.

But it will still take a huge cultural shift to wean people off hard cash.

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