paytm-mobikwik

One97 Communications (Paytm) and Mobikwik are among the latest companies to be allowed by the Reserve Bank of India to offer their customers semi-closed prepaid wallets: these wallets will allow customers to store money in these wallets, and purchase goods and services offered through third party merchants. Other entities to have received prepaid wallet licenses include:

– DigitSecure India Private Limited for a prepaid payment instrument called HotRemit. (HotRemit. Really?)
– QwikCilver Solutions Pvt. Ltd., which runs a white-labeled gift cards service called QwikCliver.

It’s also worth noting that Beam Money had surrendered their prepaid wallet license, saying that a major drawback was that, because it’s a semi-closed wallet, it did not allow users to withdraw money from the wallet. (note: more on types of wallets below)

*

This means that Mobikwik will not need to rely on Atom Technologies to power its wallet any more, although they might need to work on their customer acquisition practices: they shouldn’t be creating accounts without user consent. Update: Upasana Taku of Mobikwik informs us that ‘since 23rd July MobiKwik flow now asks user to explicitly click on “Create Wallet” button before a new wallet account is created.’ We checked, and there is still no opt-out option.

More importantly, though, both Paytm and Mobikwik can now do two key things:

Firstly, they can create marketplaces where consumers buy goods and services from third party vendors, and if, due to payment gateway issues, the money can be stored in a wallet and used to transact again. Given the issues with bank servers, payment gateway transactions in India frequently fail. Transferring money to a wallet is also a common way of creating prepaid wallet accounts, and the recharge services that sites like Paytm and Mobikwik enable see millions of customers daily. The idea here will be to create a large customer base, and enable millions of transactions, since these are typically low margin businesses.

Secondly, these wallets can be used to buy goods and services from other companies as well – for example, a Paytm or a Mobikwik wallet can be used to buy a flight ticket on a MakeMyTrip. Travel – especially IRCTC – is an important category for prepaid wallet pioneers like Itz Cash and Oxigen.

*

It’s worth noting that Flipkart has applied for, but not yet been able to get a license for its Payzippy prepaid card service. They had to do this when they shifted from a direct to consumer ecommerce business to a marketplace model, because vendors (who were distributing to Flipkart), became “sellers”, and Flipkart became more a conduit than a seller, they could not allow third party payments without a semi closed prepaid wallet system, as per RBI regulations. Theirs is a case of a marketplace trying to build a wallet (Payzippy), as opposed to what Mobikwik and Paytm can do, which is, build a marketplace around a wallet.

*

The key difference between a prepaid wallet and a payment gateway is the ownership of a customer: this is something which businesses like Paymate (and Giftmate), MChek and Obopay did not succeed in doing (they did not reach scale as wallets), because the RBI’s mobile banking transactions norms where stacked up against them. The recharge business, the way we see it, is an a critical entry point into creating (and hence owning) a customer base, and the business will come from higher volume of transactions.

*

I’m reminded of something that Arvind Rao, former CEO of OnMobile, said to me about the Mobile VAS ecosystem: “even if you’re getting Rs 0.25 for every rupee of transaction, it’s worth it, because millions of transactions will make it viable.” There appears to be a similar attempt here, but the difference between VAS and the Mobile Internet (or even the Internet) is that here, the customer will be Paytm/One97’s, and not that of another entity. Vendor, no more.

*

Types of Pre-paid Wallet Instruments:
1. Closed System Payment Instruments, which are not reloadable with cash and do not permit cash withdrawal (for example: phone calling, prepaid voucher and gift vouchers)
2. Semi-Closed System Payment Instruments, used at merchant locations, and which can be reloaded, but do not allow cash withdrawal (for example: cash cards and smart cards)
3. Semi-Open System Payment Instruments: these can be reloadable or non-reloadable, and can be used at any point-of-sale terminal, but they do not allow cash withdrawal. For example: gift cards issued by banks
4. Open System Payment Instruments: these can be re-loadable or non-reloadable, but most importantly, they permit cash withdrawal at ATMs. Examples of such cards are the Payroll cards and travel cards