In-App Wallets - is everyone missing the point?
Everyone and his/her grandmother has a view on digital wallets and what they can or cannot do. It means different things to different people, and means different things depending on where in the world you are. Wallets are extremely powerful ecosystem enablers. They help create and maintain those sticky features that all app developers dream about. Over the past few years, so many examples of how strategically important they are have come up, and perhaps insights into some past and potential future examples will help to cement this view.
From useless, to dominance- PayTM
When PayTM started up as one of India's first wallet plays, they struggled to find a real use case in such a cash-dominated country. Most people did not have smartphones of any kind, and those that did, either had credit cards or did not do any e-commerce spending through their smartphones. People used PayTM for really basic services like cellular recharge. India was still very much a PC/web-based online economy. PayTM even had their own app selling TVs and smartphones at throw away prices to further encourage usage of their wallets. But then, in my view, they got very, very lucky.
Uber launched their India services in August 2013; first in Bangalore and then to other major metros. Uber at the time did not accept cash payments, and most early users connected with their credit cards. Uber, being Uber, processed all payments directly to the Netherlands, and landed themselves in a proverbial soup with the Indian tax authorities. The concession that was reached was that they needed to have a localised two factor authentication (2FA) solution for loading funds to pay for rides taken in India. The only sizeable player capable of serving this need for them was PayTM. Uber inadvertantly became a king-maker (If intentional, they would have taken a stake for sure). It allowed for a basic stored value solution, where Uber riders could top up this 3rd party wallet and use it to pay for Uber rides. The usage across the country spiked, PayTM's backend for the first few months struggle to keep pace. PayTM climbed to a $5b valuation by 2015, triggered significantly by their partnership with Uber. Uber gave their wallet a certain clout and function that was lacking. They shifted to supporting merchant services, all within their closed-loop wallet ecosystem.
The second substantial bit of good fortune seen by PayTM was the Indian debacle known as Demonetisation. It forced people who never needed, wanted, nor used a bank account, let alone a digital wallet, to begin to use this tech as a means to access and use their money. Sure, the "a rising tide lifts all boats", but PayTM was already a crude oil tanker, and they were somehow the best prepared and able to adapt and sieze upon the physical currency crunch that followed over the year ahead. Their wallet subscription exploded to over 200m, and today, PayTM is valued at $10b and evolving into a next generation digital bank.
The battle for SEA - how a wallet killed off a giant
Coincidently, Uber features in this example as well. Their dominance and relevance in the ride-sharing space continued as they entered new markets. The one that halted them was Singapore and South East Asia. Local players like Grab probably felt the task to beat out a global giant like Uber was a David vs. Goliath battle. What in my view saved the day for Grab however, was their use of an in-app wallet.
It seemed like something so simple, not really a game-changer. Add a wallet service into your platform, let people load a balance with their debit and credit cards (easy given card penetration in Singapore) and throw your discounts on ride-sharing to users of the wallet as their primary payment method. As a like-for-like comparison, a discount is a discount. Uber did the same thing, and actually burnt less cash to retain the same rider and driver numbers. But then Grab began to evolve their wallet. Users could now send money to other Grab wallets. They could use GrabPay at merchant locations, and that meant a fledgling ecosystem was forming. $2 Starbucks when you pay with GrabPay, and so on. Ride-sharing became a secondary offering almost. GrabPay was able to seed itself into the day-to-day lives of Singaporeans. When you are already storing funds on your Grab Wallet, why not use them for a trip... In 2018, Uber threw in the towel and exited SEA after taking a share in Grab. A seemingly meek consolation prize for losing an entire slice of the world, and the future partnerships and complementary services and offerings that could have been developed over the years. The battle will now heat up, as Go-Jek, Indonesia's reigning ecosystem app (with their in-app wallet GoPay), expands regionally, and will take on Grab in a majority of markets they operate in.
Introducing America to what China and SEA already known - The future is cashless, and mobile
The most successful wallet in the US today is Venmo. Bought by PayPal for $800m, they are the frontrunner in moving American consumers towards a stronger and more widespread Peer-to-Peer world. But this is nothing new to the rest of the world. Actually, it has been around for a decade plus.
China's strong push towards cashless transactions was in part due to the vastness of the country, and the high degree of counterfeit currency. This was also in part what India's demonetisation was meant to deal with - allowing the governments to accurately track transactions which in turn could be appropriately taxed. It has been highly successful for China, while in India, it could realistically be called a well-rounded failure. Even with the massive boost in digital wallets in India immediately following the November announcement, month on month wallet balances and activity has shrunk since then. Spending habits are like muscle memory, and will only change if the technology provided is a real evolution, and not just a bandaid for a cut that was intentionally made.
In SEA, places like Indonesia and the Philippines are embracing cashless payments as they bridge the gap between all members of society, regardless of whether they live in major cities, or on one of hundreds of islands, or have a bank account. In-app wallets will bridge and blur the gap between where people store their funds, and where they spend them. Even banks and insurance companies are slowly coming around to recognising the importance of these additional features in their own apps, or apps they partner with. Selling insurance, micro-loans, and repayments become much simpler when people can access and interact with these products from anywhere.
Income generation and the digital economy - The future yet unseen
We live in a world where data, content and opinions are shared through global apps and global users instantly, seamlessly, with little friction or cost. Just consider the apps in your smartphone today - Instagram, LinkedIn, Facebook, YouTube, , Tinder, ESPN. All these apps provide and
share massive amounts of content, much of it user generated (UGC). But for all those billions of 'share's, 'likes' and 'comments' that happen globally on a daily basis, how many users are able to earn real money from this content? With most celebrities posting brand-related content, the transactional relationship and deal is being formed outside of these platforms. A brand approaches a digital media agency, they approach the talent's agent, who then gets the celebrity to snap the photo or hug their favourite brand-CEO in a post.
There is a sea-change that we see coming, and it will come like a wave that nobody can yet imagine. 16 year olds still living with their parents, on an allowance, might have 20,000 followers from around the world. Now, why can't that kid earn real money from her posts and engagements across social media? Receiving funds from people in Dollars, Euros, Filipino Pesos, Indonesian Rupiah and so on...
As people create their own personal brands, and become more conscious of the quality and substance of content they put online, the ability for them to earn from their content is the next wave we will see for the global digital economy. A shift in behaviour will be seen as people stop viewing the number of followers they have as social-equity, and instead go back to business basics and focus on how much they earn from the followers they already have.
In-app wallets have such wide-reaching implications on the world around us, that we could be at this all day and not come close to a completed list - Independent musicians earning a dollar directly from followers for an early sneak peak of an acoustic track on YouTube; paying a senior executive $5 on LinkedIn for invaluable career advice; buying a girl a drink at a bar through a dating app; CNN paying a 17 year old boy $10 for photos and a narrative as conflict breaks out in a corner of Syria, a day before they could possibly get their regular press team out to the location. The gig economy means so much more than what people currently believe today. It is not restricted to the myopic view that most in the West have. It is what will impact over 70% of the world's population that live on less than $10 a day, more than anyone else in the developed world. Consider people who do not need to be economically displaced and instead can earn money to feed their families from the villages they may have called home for generations.
It is all about removing friction! A carpet weaver in Rajasthan, North India, sells his carpet to a wholesaler for 2,000 Rupees, and it may finally be sold to a lady in Munich for 2,000 Euros. Bringing those two worlds together - would not only enrich the life of the weaver where he earns much more for his craft, but create great value for money for the buyer. All of this is possible when the world of payments becomes seamlessly embedded in the smartphones we use on a daily basis.
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