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Global Summit on
Management Cases GSMC 2016, IIM Raipur
GSMC 2016

I Can Live Without Money, But I Cannot Live Without


E-Wallet: Comparing Business Models of E-Wallet

Authorised for educator review use only by Muzammal Sobban, Bahria University Islamabad Campus. Expiry date 9-Mar-2018
S
ince the inception of e-commerce, the trend of
Exhibit I: Different Payment Channels in
virtual money has gained importance due to

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Online Commerce
cashless transactions. Paytm, the leading provider
of virtual wallets has 20 million users. E-wallet has
become the new buzzword as you can park your money
in the account and use it while transacting online (Exhibit
I). The anonymity and delinking from the bank accounts
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has helped e-commerce users readily adopt it. This


prepaid instrument is now changing not only how
e-commerce works but also influencing adopting of
m-commerce as easy and user-friendly tool coupled with
security and privacy advantages. In addition to
telecom-led model, banks are also coming into play as
the number of people using mobile is seeing sharp
increase. According to Telecom Regulatory Authority of
India, for every 100 people residing, 74 have telephone
connections.1 India is among top 10 countries with Source: ASSOCHAM, Future of e-Commerce: Uncovering Innovation
(accessed date: November 11 2015) th

highest mobile e-commerce in year 20142. The challenges


like lack of standard platform, cost of infrastructure up gradation is now grappling the e-wallet players.

1
Passport, Mobile Payment Provider Gets Go-Ahead to Launch M-Wallet in India (accessed date: October 28th 2015)
2
Euromonitor, todays mobile payments landscape (accessed date: October 28th 2015)

This Case Study was written by Jyoti Pandey, Research Scholar, Marketing, IIM Indore, India and Khadija Ali Vakeel, Research Scholar, Information
Systems, IIM Indore. It is intended to be used as the basis for classroom discussion rather than to illustrate either effective or ineffective handling of a
management situation. The case study was compiled from published sources.
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ECOMM-1-0004 | I Can Live Without Money, But I Cannot Live Without E-Wallet: Comparing Business Models of E-Wallet

E-commerce Industry: An Overview


E-commerce in India is growing at a rate of 34% CAGR.3
Exhibit II: Mobile Wallet
The share of m-commerce is increasing as more than
13% of online transactions are via smart phones, while
17% of transactions use net banking, mobile wallets
(Exhibit II). Moreover, the restriction from RBI impedes
the development of e-wallets due to the privacy and
security issues in fictitious transactions.

Authorised for educator review use only by Muzammal Sobban, Bahria University Islamabad Campus. Expiry date 9-Mar-2018
The two dominant e-wallet models are telecom model
and the other one provided by banks. Companies like
Airtel are geared up for fierce competition as against the
banking sector-led model offered by ICICI named

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Pockets. Third segment of e-commerce companies who
are coming up with their own e-wallets have increased
the number of options a consumer has. A few players in
India such as MobiKwik, Oxigen, launched mobile
wallets, Citrus, which are user friendly and secure.
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Smartphone based mobile wallets such as Apple Pay,


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Google wallet provide easy payment options and even Source:http://cdn.eticaretmag.com/wp-content/uploads/2012/10/


manage the loyalty cards of the customers for future cuzdan1.png (accessed date: October 28 2015)
th

purchase. Banks collaborate with e-commerce players to


provide lucrative offers like cash back, Easy EMI, secured transaction, Loyalty points to promote card or net
banking payments. PayPal, CCAvenue and other payment gateways enable secure transactions on digital
platforms.

Types of e-wallets4:
An e-wallet is an electronic card, which works like credit/debit card for making secure online transactions
According to Reserve Bank of India (RBI) e-wallet is a kind of prepaid payment instrument that allows the
purchase of products and services by the amount loaded on this instrument.5 E-wallets could be used for
paying utility bills, mobile recharge, money transfer, booking tickets for movie and travel, restaurants, taxi
service, etc. Generally, e- wallets are of three types namely closed, semi-closed and open.6
Closed Wallets: It is a wallet issued by a company to its customer for using in-house purchase. The
examples include Flipkart, Jabong, and MakeMyTrip. A wallet is an account where money could be
credited when someone wants to purchase or refund in case of return of product. Here the facility of
cash withdrawal and redemption to the customers is not offered by this kind of instruments. Customers

3
PWC, http://www.pwc.in/assets/pdfs/publications/2015/ecommerce-in-india-accelerating-growth.pdf (accessed date: November 10th
2015)
4
http://www.ibef.org/news/rbi-to-raise-spending-limit-on-ewallets (accessed date: October 28th 2015)
5
https://rbidocs.rbi.org.in/rdocs/Content/PDFs/DGIPR_1200.PDF (accessed date: October 18th 2015)
6
http://www.financialexpress.com/article/personal-finance/e-wallets-money-on-the-move/28571/ (accessed date: October 14th 2015)

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can use this money to purchase other products from the same company. Supam Maheshwari, Chief
Executive Officer, FirstCry said that the amount in the closed wallet is liability in the books of company,
and company earns no interest on this amount.7 The amount is transferred to revenue once customer
makes the purchase. The approval of RBI is not required to initiate this kind of wallet.
Semi-closed Wallet: According to RBI, companies holding this kind of instruments have a contract
with merchants and companies which offer products and services (financial as well). Thus, when customer
loads money in to the wallet it could be used at selected locations. MobiKwik, PayU and Paytm are
some example of these kinds of wallets. The facility of cash withdrawal and redemption by the customer
is also not available in this wallet. These kinds of wallets are usually used to do transactions like instant

Authorised for educator review use only by Muzammal Sobban, Bahria University Islamabad Campus. Expiry date 9-Mar-2018
money transfers, utility bills payment, booking tickets for movie and travel.
Open Wallets: There is no restriction on cash withdrawal and redemption in this kind of wallets. It is
an account offered by the banks where customer can load amount to be used for purchasing goods,

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availing all kinds of services at merchant locations or Point Of Sale terminals (POS), and withdraw
money at ATMs. According to RBI, only banks can issue these kinds of wallets. Customers can also
transfer money from these wallets to their accounts if not in use. This instrument is efficient and easier
than fund transfer to other locations. Some companies tie up with banks to offer this type of wallets
like Vodafone offers M-Pesa, an open wallet by tying up with ICICI Bank.8
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Advantages of e-wallet
There are many benefits of having an e-wallet, for instance, it enables customers to travel with no cash and
guards money against any theft. Carrying the change will no more bother customers if they are transacting
with e-wallet. Even a small amount of money (like some companies could allow to transfer up to INR10)
could be transferred. It is one-tap payment solution, which requires only a click rather than other instruments
like debit card, credit card where a customer has to provide many details in every transaction. Also, the
process of payment is very time consuming with other such instruments. With other financial instruments
like credit card or net banking customers have to share the sensitive bank data to merchants end, which is
exposed to financial risk. However, in case of e-wallet customer will not have to share their bank details the
payment will be done by the wallet. There are many customers who do not want to disclose their financial
details, for them e-wallet is good alternate. E-wallets offer the facility of transferring the money instantly
without the requirement of having a bank account. Currently, many e-wallet companies are offering huge
discounts and cash back offers to increase the customer base. Therefore, for consumers these instruments are
very easy, convenient, and efficient way to transact.

Limitations of e-wallets
Only mobile-savvy individuals can use this instrument. Also the infrastructural requirements like mobile
coverage with high speed internet connection are the major challenge in expansion of theses instrument.
One cannot use e-wallets for high value transactions, as there is a limit on the amount of deposit and usage

7
http://www.financialexpress.com/article/personal-finance/e-wallets-money-on-the-move/28571/ (accessed date: October 14th 2015)
8
http://www.icicibank.com/aboutus/article.page?identifier=news-icici-bank-and-vodafone-india-launch-mpesa-20131812144522456
(accessed date: October 20th 2015)

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for example the one of the account of Airtel money (Express account) offers the limit of INR10,000 per
month.9 The dependency on mobile for payments can be problematic in case of poor battery of mobile.
Lastly, the amount once loaded in semi-wallet cannot be withdrawn.

Operating Process
E-wallet is another instrument for those individuals who do not have any bank account, credit card or do
not prefer to use credit card, net banking, or online payments. In next few months, e-wallet industry will see
a drastic change in the way the consumers pay for the goods or services they avail. This new payment system
is entirely different from the payment system that was prevailing from last so many years (Exhibit III). RBI

Authorised for educator review use only by Muzammal Sobban, Bahria University Islamabad Campus. Expiry date 9-Mar-2018
has set the limit of holding and spending the money up to INR10, 000 in a month for e-wallets and can
start transaction only by disclosing the e-mail ID and mobile number. Customer can load the money up to
INR50, 000 by providing Know Your Customer (KYC) documents, However there is no such limit for e-
wallets of the banks.10

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Exhibit III: Operating Process

Sign in with your Look for the Create a new


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email id e-wallet option wallet for yourself


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When buying something from


Transfer money to the account
the site, use your
using online transfer, or your
e-wallet to redeem as much
debit card/credit card
cash as required

In case your balance in the e-wallet falls short,


the balance payment can be done using
traditional payment options

Source: Tasmayee Laha Roy, What you must know about an E-wallet?, The Economic Times, http://articles.economictimes.indiatimes.com/2013-06-14/
news/39976342_1_e-wallet-facility-airtel-money-flipkart, June 14th 2013

Interest Income
E-wallets issuing companies must comply with the capital requirements as per guidelines by the RBI. Banks
and Non-Bank Finance Companies (NBFC) are permitted to issue e-wallets, as they meet the capital adequacy
requirement, other companies should have minimum net owned funds of INR10 lakh.11
According to RBI guidelines, the companies issuing e-wallets have to maintain an escrow account with any
scheduled commercial bank, where they are permitted to maintain the outstanding balance. The companies
do not get any interest income on such balances for the first year by the banks, however as an exception these

9
https://www.airtel.in/personal/money/limits (accessed date: October 18th 2015)
10
http://www.ibef.org/news/rbi-to-raise-spending-limit-on-ewallets (accessed date: October 28th 2015)
11
https://rbidocs.rbi.org.in/rdocs/Content/PDFs/DGIPR_1200.PDF (accessed date: October 18th 2015)

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companies can have agreement with the bank to have an escrow account where a core portion of the amount
is maintained and the rest amount is parked in separate account. The interest is payable to this separate
account. This escrow account and the separate accounts are linked to meet the payment requirements of the
customers. The interest rate varies from 4-6% of the average balance of a year12, but the huge corpus give
companies a good interest income. Upasana Taku, Co-Founder, MobiKwik Systems Pvt. Ltd., said that the
amount of interest may be more in semi-closed wallets that is even higher than 6% on the average balance.
In case of the open wallet the money is managed by the bank, and wallet companies manage the infrastructure.
Banks could not provide loan against this kind of deposits.
Generally, the companies do not give interest to the customer. Also, no monetary benefits are offered to

Authorised for educator review use only by Muzammal Sobban, Bahria University Islamabad Campus. Expiry date 9-Mar-2018
merchants from the companies. Some companies charge for the registration for the first time. Airtel Money
charges INR50 as registration amount for the Power Account.13 Cash loading charges vary from company
to company. For example, Paytm does not charge any amount from the customer for-loading money in the

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wallet, transferring of money from wallet to wallet, or for making any purchases from merchants website.14
Many companies offer cash back to the customers for usage of wallets for the transaction .Theses companies
provide various offers like discounts on shopping, recharge on mobile, etc.
Below are two illustrations of ICICI banks pocket and Paytm, which follow two different models. ICICI
Pocket is an open e-wallet whereas Paytm is semi-closed.
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Illustration 1: ICICI Banks Pocket


ICICI Bank-the largest private sector bank in India, launched an app-based open e-wallet named Pockets
on 10th February, 2015.15 The bank calls itself as digital bank as it has all the features that any bank, including
payment banks can have.16 Customers can load the wallet from any bank account through debit card or net
banking and can use it immediately for various purposes without any documentation. This wallet can be
used on mobile by anyone including non ICICI Bank customers, by downloading the app from Google
Playstore. The bank offers a physical card as well with the virtual wallet. The wallet can be used to transfer
money to any email id, mobile number, Facebook friends, app, website, and bank account. The users can
use it to pay utility bills, recharge mobiles, book movie tickets, order food, gifts etc. A zero balance account
is offered by the bank on request within twenty-four hours on completing the Know-Your-Customer (KYC)
documents; customers can earn interest on their idle money in this account.17

12
http://www.livemint.com/Money/PekoXk4lbantahMKOKoh9L/What-happens-to-money-in-ewallets.html (accessed date: October
2nd 2015)
13
http://www.airtel.in/personal/money/charges (accessed date: October 20th 2015)
14
https://paytm.com/faq?option=paytm-wallet (accessed date: October 28th 2015)
15
http://timesofindia.indiatimes.com/business/india-business/ICICI-Bank-introduces-digital-wallet-app-Pockets/articleshow/
46193259.cms (accessed date: October 24th 2015)
16
http://www.thehindubusinessline.com/money-and-banking/icici-bank-launches-ewallet-pockets-for-mobile-money-transfers/
article6878593.ece (accessed date: October 24th 2015)
17
http://www.icicibank.com/managed-assets/docs/about-us/2015/ICICI-Bank-launches-pockets-indias-first-digital-bank-on-a-mobile-
phone.pdf (accessed date October 25th 2015)

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Ms. Chanda Kochhar, Managing Director & CEO, ICICI Bank said that in ICICI bank almost 50% of all
retail transactions are done through mobile and internet channels. The bank has seen 200% rise in mobile
banking with recorded transactions of INR7,400 crore through its mobile platform between April to October
2014.18 Thus, an app based mobile wallet could be more convenient option than other payment options
over the internet and this way the pocket comes in existence. The bank is pioneer in taking initiatives in
digitalization, as the bank is first in India to launch an app on twitter, which enables the customer to transfer
money through their twitter account.
Target customer: Till October, 2015 Pocket has been downloaded by over two million users and
70% of the total downloads are by non ICICI Bank customers.19 The bank is using different channels

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like print, digital, and television for creating the awareness for Pocket and trying to focus on attracting
the youth who dont have account with the bank. The bank has 3.5 million fans following on
Facebook, which is highest for any bank in India.20

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Security Function: Security concerns are a strong barrier for online transactions, however to address
this concern the bank claims to develop their app with robust security features and thus, ensuring the
safe banking experience. The app uses 128 bit encryption which is best to secure the information.21
The features include only one registration for a unique mobile number, and asking mandatory
authentication with user id and password for every login.
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The bank has presence in 18 countries including India. According to annual report 2014-2015, the number
of Employees bank has is 66,327.The bank won the overall award of the Best Technology Bank of the
Year. The bank won the overall award of the Best Technology Bank of the Year by the Indian Banks
Association (IBA) at the IBA Banking Technology.

Illustration 2: Paytm
Paytm is the largest growing e-wallet payment system in India, having more than 100 million subscriber
base. It is a subsidiary brand of Indias mobile Internet firm - One97 Communications. Paytm is an acronym
for Pay Through Mobile. Initially, it was offering the facility of mobile recharge and utility bill payments,
but today it has become Indians one of the largest e-commerce market place. It is processing more than 60
million orders per month. The company is launched in 2010 by Vijay Shekhar Sharma, however it offered
wallet in the year 2014. The company headquarter is in Noida. The company is valued at INR9,000 crore22
and is amongst top four high-value startups in India.23 All Android, iOS, and Windows Mobile, supports

18
http://www.business-standard.com/article/pti-stories/bank-in-your-pocket-icici-launches-mobile-based-product-115021001569_1.html
(accessed date: October 24th 2015)
19
http://www.pressreader.com/india/business-standard/20151006/282063390789038/TextView (accessed date: October 24th 2015)
20
http://www.icicibank.com/managed-assets/docs/investor/annual-reports/2015/ICICI-Bank-Annual-report-FY2015.pdf (accessed date:
October 25th 2015)
21
http://www.ckwop.me.uk/What-does-128-bit-cryptography-really-mean.html (accessed date: October 25th 2015)
22
http://www.newindianexpress.com/magazine/Paytm-Fun-And-Friendly/2015/08/15/article2972789.ece (accessed date: November 13th
2015)
23
http://www.deccanherald.com/content/497097/paytm-eyes-travel-segment.html (accessed date: November 13th 2015)

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its app. Recently, Paytm got the license to set up payment bank. The company has 2000 employees and
planning to add 4500 soon across different verticles.24
Revenue Model: It works on market place model; it brings buyer and sellers come together to make the
transaction. Paytm earns revenue from different activities, like-
Advance Payment Model: Basically the interest income received through escrow account. The customer
loads money into the wallet but does not use it completely at the same time. The company earns interest
on the money parked in the wallet until paid to the merchant
Advertising Revenue Model: The Company earns revenue by advertising other products and services on

Authorised for educator review use only by Muzammal Sobban, Bahria University Islamabad Campus. Expiry date 9-Mar-2018
the website and app
Subscription Revenue Model: The company started online merchant services in June 2014, where
buyer and sellers come together to make the transaction. It is charging subscription money from the

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sellers of products, services on its website and app, currently it lists more than 8.5 million products
online and plans to scale it to 100 million by year-end.25 More than eighty thousands sellers are
offering their products through Paytm, and it plans to increase this number to 10 million by the end
of next year26
Transaction Revenue Model: Charging customer when they transfer money from wallet to bank
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Investors in Paytm: Paytm has received strategic funding of $625 million from Chinese e-commerce company
Alibaba and SAIF Partners. It also got funded from individual investors like Ratan Tata (undisclosed amount).
Marketing Strategies: The company is using multiple channels like print media, social media etc to create
awareness, and attract customers. To counter the fierce competition company is coming up with various
offers like cash back, discount coupons, discounts, interest on parked money, etc. It has planned to use
INR500 crore as marketing budget. To catch up with young masses of India, Paytm has taken title sponsorship
rights from Board of Control for Cricket in India (BCCI) for international and domestic series for tenure of
four years. It sponsored eighth season of Indian Premier League (IPL-2015) with around INR50 crore.
The e-wallets are changing the way people transact. India is witnessing the leapfrogging phenomenon, as
number of people are directly using mobile for transaction rather than using laptop. In the current scenario
banks are shifting towards market place model, where they offer products and services directly at one place,
whereas companies like Airtel, and Paytm are moving towards banking model. The future of online transaction
system is way to go and e-wallet is going to play a pivotal role in this phenomenon.

24
https://paytm.com/blog/scaling-up-paytm-plans-to-add-over-1-lakh-sellers-4500-employees-by-2015/ (accessed date: November 15th
2015)
25
http://www.newindianexpress.com/magazine/Paytm-Fun-And-Friendly/2015/08/15/article2972789.ece (accessed date: November 13th
2015)
26
http://www.deccanherald.com/content/497097/paytm-eyes-travel-segment.html (accessed date: November 13th 2015)

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ECOMM-1-0004 | I Can Live Without Money, But I Cannot Live Without E-Wallet: Comparing Business Models of E-Wallet

Assignment Questions
I. Which business model would best suit a new e-wallet company?
II. What are the criteria to decide the market segment via segmentation, targeting and positioning of e-
wallet?
III. Discuss the norms ensure sustainability and counter challenges of e-wallet, if it is a fad or innovation.
IV. List the measures that can increase the customer base to include the non-tech savvy segment of users to
use this new technology.

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