What Are Mobile Wallets?
Mobile wallets have become the latest startup sensation. Companies like PayTm have the first mover advantage in this space. However, other companies like MobiKwik, Phone Pe, M-Pesa etc. are quickly moving into this space. It is surprising that an area of business which did not even exist a few years ago is now on the cusp of cutthroat competition. The consumer understanding about these wallets is also very less. In India, when Prime Minister Modi demonetized 86% of currency by value, mobile wallets became an instant hit.
In this article, we will understand about the different kinds of mobile wallets there are. Also, we will try to have a closer look at the value proposition that they have to offer:
Types of Wallets
Although the entire market seems to be proliferated by mobile wallets, not all of them are the same. There are three distinct kinds of wallets on the market. Lets understand them one by one.
How Wallet Companies Earn Money?
The business model of mobile wallet companies is fairly simple. They earn interest on the money that people leave interest free in their wallets. Since companies like PayTm can provide bulk deposits to banks, they negotiate special rates which are very close to what fixed deposit rates are offered. Wallet companies almost never pay any interest to the customers. They do offer some cash back promotions. However, these promotions are always temporary and can be rolled back. They are designed to induce the customers to get into the habit of using the wallet in their day to day lives. Similarly, wallet companies do not provide any advantage to the merchants that accept their services. They simply use the money lying in peoples wallets to make deposits in the bank and pocket the entire interest income. Since the charges to maintain the infrastructure remain roughly the same, the more users that a mobile wallet is able to add, the more money it stands to make!
To sum it up, mobile wallets are an innovative way for individuals to manage money. At the same time, they have the potential to rapidly scale up and become profitable multinational corporations.
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