MUMBAI (NewsRise) -- India's move to ban high-value currency notes to weed out unaccounted wealth has stirred a boom in digital wallets industry, but retaining the growth momentum remains a key challenge.
Earlier this month, the Indian government abruptly withdrew 500 and 1,000 rupee notes -- about 85% of the currency in circulation -- in a bid to flush out unaccounted money and curb corruption. The ensuing cash shortage has triggered a surge in the number of people using alternative payment platforms such as digital wallets using their smartphones.
Mobile payments and digital wallet company Paytm, backed by China's Alibaba Group Holding, Monday said it has served over 45 million users and signed up over five million new users since the crackdown on illicit cash. Paytm, which has 150 million digital wallet users, said it saw 25 million offline transactions amounting to 1.50 billion rupees ($22 million) in the last six days.
Last week, smaller rival Oxigen Services India said the company has seen the value of money loaded on its OxigenWallet prepaid visa cards increase four times since the cash ban.
"The daily average number of users has also increased by 167% which is clearly showing a trend that people are adopting new ways to make cashless transactions," Sunil Kulkarni, deputy managing director of Oxigen Services, said in a statement.
Mobile wallets have been growing at a steady pace over the last couple of years amid a boom in India's e-commerce sector, as millions of Indians get online to purchase everything from books to electronic goods and apparels. According to data from Zinnov Management Consulting, the size of digital wallets market in India is likely to touch $8 billion by 2020.
But retaining the recent spurt in growth after India's cash economy comes back to life poses a major hurdle to these businesses as shifting attitudes and changing behavior happen over a longer period of time, analysts say.
The surge in adoption is "a temporary blip," until sufficient amount of fresh currency comes into the market, said Arvind Singhal, chairman of retail advisory firm Technopak Advisors. "I don't see a behavioral change in the consumption pattern of the country, especially linked to payment, in the next four or eight weeks."
According to Singhal, the prospects for e-wallet companies are "very positive" five years from now, when the government's Unified Payments Interface system that integrates several major banks with their mobile apps takes off. "This change is a work in progress and would take three to five years."
Some experts say the best way to retain users on mobile payment platforms is by getting on board as many vendors as possible.
"You need to make the service ubiquitous - wherever people go and whatever they do they will be able to use the wallet, like online shopping, retail shops, restaurants, grocery, etc.," said Sandy Shen, research director at research firm Gartner. "When you have the ubiquity, at least the wallet is accepted as widely as cash."
India's fast pace of adoption of smartphones has lured top venture capitals to bankroll several digital wallet companies. Rising disposable incomes, a relatively younger population, and a fast pace of roll-out of high-speed Internet services is fuelling the proliferation of smartphones in the south Asian country that is home to more than a billion phone users.
According to research firm Strategy Analytics, India will overtake the U.S. to become world's largest smartphone market after China by next year.
Last year, Alibaba and its financial-services affiliate Zhejiang Ant Small & Micro Financial Services Group invested over $500 million for a 40% stake in One97 Communications, the parent of Paytm, whose mobile app can be used to pay for Uber rides and electricity bills. Alipay is China's biggest mobile-payment service.
In August, Taiwanese chip maker MediaTek agreed to invest $60 million in Paytm, in a deal that values the Alibaba Group-backed firm at $4.80 billion.
According to Gartner's Shen, in addition to services such as loyalty, rewards and coupons that incentivize people to use such payment platforms, the most important thing to keep the momentum is to offer "good user value" over what they are using today.
"This won't be achieved overnight, as it takes time to build the ecosystem and value proposition and make people realize that."