Electronic Payments 2.0: The Second Coming of Mobile Payments Startups

Mobile WalletUntil sometime ago, every trip on a cab run by Ola Cabs had to be paid in cash. If you don’t have cash in hand and an ATM isn’t close by, you are probably in for some trouble. A new partnership with mobile payment service Ezetap has solved this problem. One can simply use the Ezetap’s mobile POS device, that plugs into a mobile phone, and make the payment.

Ezetap is not the only startup trying to help an increasingly mobile Indian consumer make transactions on the fly. A new league startups are trying to make mobile payments easier in India, a country where there are more than 886 million mobile subscribers. Despite many failures in the past, this time around, things seem to be looking up as the country’s mobile infrastructure improves and investors pump in money.

Even though mobile payment systems were introduced to the Indian market since 2010, many of the companies had to shut shop due lower adoption and technology issues. mChek was one of them. Tamal Das, the former director of product management at mChek says

mChek was ahead of its time. The ecosystems was not ready for it at that point of time and that was one of the reasons for the service not picking up at that point of time.

Tamal now heads product management at Ezetap.

While India has over 800 million mobile subscriptions and a growing appetite for mobile Internet, only a small percentage of users make use of their mobile phone to make payments. But these numbers are rising in India’s cash based economy.

Besides Ezetap, Noida based Paytm, Mumbai based Mswipe and Citrus Pay are entering the market. Venture capitalists, who see opportunity in this changing ecosystem, have placed their bets in half a dozen such startups in the last 6 months. Since October 2013 mobile payments solutions companies including Livquik, emPay, Mswipe, iKaaz and Eashmart have raised funding.

As consumers slowly grow comfortable with electronic cash, mobile wallet providers are tripping over each other to acquire these potential customers.

Key Funding

The Past

In the past many companies have tried to break  into the Indian mobile payment and a lot of them had to shut shop. When mChek was introduced in the market, mobile payment services were heavily dependent on mobile networks and also had to deal with hardware limitations.

“Previously mobile transactions involved typing out complicated SMS based messages. Now with the access to data and better smartphone devices, the solutions have become easier to use and aren’t dependent on network operators anymore,” Pratyush Prasanna, Vice President of One97, which operates Paytm.

Another company Beam Money Private Limited, which had launched Beam Money prepaid wallet, wound up their wallet service in June 2013 citing customer usability issues.

The Present

One97’s PayTm is one of the fastest growing payment solutions in the country. The company recently launched a semi-closed wallet service called PayTm Cash Wallet, using which users can pay for a different services and not just subscription recharges from their mobile device. “Nearly 80% of the transactions on our service happen from mobile device, and only 20% are done on the web,” says Pratyush.

ezetapBetter devices and operating systems that allow payment companies to develop intuitive and user friendly applications have also changed the game. Unlike before the service offered is not the only criteria, the way it is presented matters to a lot of people.

Many of the new solutions in India are inspired by Square, the company founded by Twitter co-founder Jack Dorsey to simplify payments in the United States.

Ezetap and Mswipe have developed their own services around devices that convert mobile devices into a card swipe machines. Online merchants like Bigbasket and cab services like Ola use Ezetap. Mswipe has clients like Carzonrent and Eureka forbes.

Recently, mobile operator Vodafone partnered with ICICI bank to launch M-Pesa (December 2013). It has also launched a platform for service providers and application developers to integrate with Vodafone’s payment mechanism, by giving access to its billing API.

The Future

“Nearly 7 million transactions are completed through mobile wallets across India each month. But most payments are minuscule, averaging at Rs 260 per transaction.” according to investment banking & asset management firm Avendus’ report in 2013.

In 2013 IMPS transactions in India saw a jump of nearly 22X growth over the previous year, signaling a sharp rise in mobile payment transactions in the country.

Raghuram Rajan, RBI Governor  Image: Wikipedia
Raghuram Rajan, RBI Governor
Image: Wikipedia

On September 2013, during his inaugural speech, the new RBI Governor, Raghuram Rajan, paid considerable attention to mobile transaction. He announced plans for a pilot project to allow cash withdrawals from prepaid wallets, as well as the potential for the transfer of funds to any handset. Rajan said

Mobile payments can be a game changer both in the financial sector as well as to mobile companies.

As of January, there are 26 companies authorized by the central bank to provide mobile payment services. All this point to bigger opportunities in the offing.

But recently, MasterCard in its global report on mobile payments, ranked India near the bottom of the list on the basis of knowledge of mobile options.

On the hardware side, Near Field Communication (NFC) technology seems to be picking up in India. It  holds great importance for the future of mobile payments.

Globally, technology giants like Google and Apple are showing great interest in this space.

One of the major hurdles most payment gateways will have to tackle is failed transactions support. “There isn’t much clarity or support regarding the causes of these failed transactions,” says Tamal.

Even payment gateways are taking note of the growth in mobile payments. Payment gateway provider Citrus, which recently raised $5.5 million from Econtext Asia and Beenos Asia, plans to use the newly raised funds to expand in the mobile payment space.

“Our big focus right now is on mobile. We are seeing a 30% month-on-month growth on mobile payments through our gateway,” says Satyen V. Kothari, Chairman and Founder of Citrus Payment Solutions.

With changing customer habits and the rise of online shopping in the country, the future of mobile payments looks bright in the country.

Recommended Read:  Compared: Payment Gateways in India [2014 Edition]

Facebook Acquires Whatsapp: 4 Numbers & 4 Tweets that are Lessons for a Lifetime

Why It Is Difficult to Build a WhatsApp From India. No, It’s Not About the Product.