With Bollywood Lost, Banks Can't Stop Mobile Juggernaut

(Bloomberg Gadfly) -- Smug in the belief that their own payment apps would be enough to take on the threat from mobile, India's banks underestimated the risk to their lucrative cards business. A recent Bernstein survey has some sobering news for them: They may have already lost Bollywood, and they can't hope to win the neighborhood grocer.

Almost 30 percent of tickets in the movie-crazy nation are likely to be purchased via mobile phones. That's more than credit or debit cards or cash, the survey released Monday shows. Mobile is also winning in utilities, and is ahead of plastic in how people pay for taxi rides. The only major payments categories that banks still dominate are shopping malls and air tickets. But for how long?

With 89 percent of respondents using at least one mobile wallet, and every sixth person toggling between as many as three, banks' grip on payments will only slip further.

The no. 1 challenger is homegrown Paytm, which is funded by Alibaba Group Holding Ltd. and SoftBank Group Corp., and favored by 93 percent of users. (Banks' digital wallets account for a meager 8 percent share). Five-month-old Google Tez is also doing extremely well, already at 26 percent penetration.

Facebook Inc.'s WhatsApp launched the beta version of its own payments app in India as the YouGov-Bernstein survey was being conducted. So the next few quarters could see dramatic shifts in market shares. More importantly, though, the country will witness a rapid expansion in mobile-usage scenarios.

Grocery is where banks could never dislodge cash with plastic. However, with generous rewards, and tailor-made discount coupons, mobile could sway consumers. Once a sufficient number of them switch, small merchants who are reluctant to absorb hefty card infrastructure and transaction fees may be persuaded to accept cheaper QR code-based payments. By January, Paytm was already reaching about 7 million merchants, out of a total target base of 40 million small- and medium-sized retailers.

This trend of using phones to pay for everything from movie and train tickets to groceries is important because "as mobile-payment players go mainstream, they're likely to attempt capturing payments across the value chain," the study, led by Bernstein's Gautam Chhugani and Gaurav Jangale, concludes. By May, Paytm wants to have 50 million deposit holders -- more than the largest non-state-owned bank -- for a savings account with wealth-management features.

The survey, which only captures spending and payment patterns in urban India, is tilted toward those who have secure jobs and make at least 20,000 rupees ($300) a month. People who earn less than that aren't of much use to traditional lenders. But Paytm could profitably offer them the flexibility to park their small surpluses in, say, 1 gram of gold at no cost. With falling data charges and rising smartphone penetration, mobile has a good shot at dethroning king cash across the country.

The banks' only hope is that the regulator will continue to favor them over tech upstarts. However, with shocking governance lapses -- including a multiyear $2 billion fraud at state-owned Punjab National Bank -- even that assumption needs to be tested.

The scam, involving a billionaire uncle-nephew jeweler duo, is bound to have a movie made about it. And when people pay to watch it, they'll be using their mobile wallets, not bank cards. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

To contact the author of this story: Andy Mukherjee in Hong Kong at amukherjee@bloomberg.net.

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net.

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