By Upinder Zutshi
Somewhere in Caracas, Venezuela, the owner of a small cigarette kiosk takes home his day’s earnings in big plastic bags. Due to excessive inflation, the local bolivar is so devalued that people cannot carry money for their needs in wallets anymore, resorting to filling entire handbags or backpacks with cash. As a result, electronic payments have become very common. At a time when we prefer to use our smartphones for almost everything, mobile wallets are emerging as a convenient solution for payments. If a smartphone is like one’s ever-faithful shadow—fusing together everything from work, news, entertainment, communication, and more into one’s palm, the ease of extending its functionality to making purchases and paying bills can’t be far behind.
A new set of opportunities
Mobile wallets are gaining acceptance with increasing smartphone penetration, and also the thrust within certain economies to transition to a cashless mode. In the US, the usage of mobile wallets has been on a steady rise, and about one in six consumers have used a mobile wallet. In India, with the government’s demonetization move, mobile wallets received a big impetus—in the initial few weeks of demonetization, one million new e-wallet users were being added every day. Clearly, I see it poised to grow further, which signals larger behavioral and transactional changes in times to come.
The biggest advantage of mobile wallets is the convenience they enable. Being able to purchase something simply in a few clicks or paying a bill through one’s phone is refreshing, especially for the average person who spends increasing amounts of time on their smartphone. Mobile wallets also allow small vendors and retailers to swiftly keep up with the changing economic and political circumstances and avoid losses, as setting up credit card machines can be an expensive undertaking for them.
In Asia and several developing economies in general, a large proportion of the population is bypassing traditional banking methods and jumping straight to digital transactions via mobile. This is largely because on the one hand, the banking infrastructure is inadequate, and on the other, the quick growth of the mobile industry means that people across income categories can use a mobile phone and access the internet. For instance, in India, about 60 percent of users have accessed the internet for the first time through a mobile phone. In many western countries, there are already a variety of well-established payment options, and here, mobile wallets can ensure growth only by offering discernible advantages over other payment methods so as to convert more users.
Security is paramount
So while different economies are all turning their attention to mobile wallets, there are still some hurdles preventing a wider embrace. At the level of usage, the main barriers are payment fees or the absence of incentives, unstable data connectivity, and a lack of interoperability that means transactions are less seamless than desired. The biggest challenge though is security. Many smartphone users are reluctant to adopt mobile wallets for they don’t trust their financial details to remain safe through the process. Conditioned by previous financial habits, they are unwilling to get past this mental block and overcome their doubts. Therefore, strengthening the security of transactions on mobile wallet platforms as well as user identities needs consistent attention. For, as adoption has grown, so also have new techniques for phishing and identity theft. The first key challenge for mobile wallet providers will be to stay ahead of threats, and secure transactions and protect user identities through enhanced safeguards.
There are also systemic challenges that hinder adoption, even as the goal of cashless transactions may be similar across differing economies. Lack of smartphone usage in rural or lesser-developed areas, unfamiliarity with technology, and financial illiteracy are very real factors, and no transition to a cashless economy can be complete without adequately addressing these problems. In fact, these socio-political specificities require a larger push from the ecosystem they are rooted in by way of orienting financial provisions and enabling access. Adequate awareness and fair access for low-income communities can help in increasing adoption. Awareness also needs to be accompanied by genuine grievance redressal means in the case of loss or theft.
Our longer journey
Coming back to mobile wallet providers themselves, the second key challenge for them is keeping pace with user habits and expectations. Keeping the payment process as simple and seamless for the user ought to be the continuing attempt. Further, empowering mobile wallets to do more for the customer by integrating various services, can improve loyalty by building a stronger dependence.
Do we see more alternatives to cash payments evolve in the future? On this forward-looking journey, it is worthwhile to consider this. Mobile wallets are a solution today, but may not be the long-term solution, as user habits, and expectations evolve. Fundamentally, users will prefer payment mechanisms that further reduce effort, while keeping a focus on security. Does this mean more fingerprint-enabled or biometrics based platforms? As per Juniper Research based in the UK, by 2018, more than a third of mobile wallets will feature contactless payment. I believe providers can get this right if technology intuitively keeps up with the changing nature of financial transactions while balancing openness within government and financial institutions with users’ evolving requirements.