Semi-Closed mobile wallet - Transforming Indian mCommerce space

It's paradoxical that the number of Indians who have access to toilets are fewer than those who use cell phones. In that context, Government of India issuing "Semi closed mobile wallet" service licenses to seven entities a couple of months back, can prove to be a critical milestone in indian mCommerce space. Indian Telecom major Bharti Airtel and Nokia (closed wallet service) have already launched their mobile payment services. The Reserve Bank of India has already given its conditional nod to the finance ministry's proposal to allow 100% foreign direct investment (FDI) through the automatic route in these payment services. Needless to say, these are interesting times for Indian mCommerce space.


How does a Semi Closed mobile wallet service work?
In 'semi-closed' mobile prepaid instruments, you can load money into your cell phone from a licenced company and make payments with it, but you can't use it to withdraw money. 


For example, Airtel Money (subsidiary of telecom major Bharti Airtel) allows easy subscription by dialling *400# from any airtel phone or through their online portal or by visiting nearest airtel money retail outlet. Upon activation you get a mobile PIN. You load cash on to your cell phone through your netbanking account or manually from a retail outlet. Using Airtel Money, you can pay utility bills, shop for products at designated outlets (each outlet will have a designated airtel mobile number, payment happens by transferring money to this phone number) and transfer money from one phone to another. At this point, online shopping using Airtel money is not available.

Impact of Semi closed mobile wallet services on Indian mCommerce space

The semi-closed mobile wallet is particularly exciting because it has something in it for everyone – consumers, banks and telecom operators. It is a convenient cashless mode transaction, accessible even to those consumers who are not eligible for a credit card. Banks could save the cost and effort of credit card maintenance and administration by getting more customers to switch to the semi-closed wallet. 

That said, semi closed mobile wallet services are at very early stages of adoption. In order for mobile wallet services to replace Credit cards/ Debit cards or the use of hard cash, the service providers must take radically different approach, explore new monetization models and apply true potential of technology. 

Here are my thoughts on alternate business models semi closed mobile wallet service providers should consider

1. Incentivize mobile wallet adoption for merchants by driving down interchange fee: By a recent study, credit card companies suck out upwards of $50 billion / year in the form of interchange fee. Needless to say, interchange fees are never a hit with merchants. Mobile wallet service providers should incentivize merchants to adopt their services by reducing (or eliminating) interchange fee and focus on monetizing alternate value added services to earn their revenue
2. Make the transactions secure/frictionless: Adopt contact less NFC technology. Own up arbitrage responsibility (in case of conflict) to give the necessary comfort feeling to consumers
3. Explore alternate Revenue models: It is obvious that mobile wallets will compete with credit card companies in enabling B2C, B2B transactions. However the mobile wallet service can be extended to other segments such as Money transfer between consumers, can be positioned as a facilitator for government welfare schemes etc 
4. Explore value added services: explore the power of web and analytics to provide value added services to consumers(e.g location based services - show mobile wallet coupons for your nearest retailer, customer loyalty program etc) and to merchants (analytics on customer purchase, targeted advertising etc)

In Indian context, mobile commerce provides immense opportunity for indian consumers to simply skip credit cards and jump on to the next stage of evolution in payment systems. If you are already working in this space, please feel free to share your views on how to make this transformation smooth yet effective.