India’s move towards a cashless economy is causing tension between the country’s established banks and Alibaba’s mobile wallet called Paytm. Banks underestimated the appeal of Paytm because they assumed that people would question the security of mobile wallets or be reluctant to trust an untried technology with their money. Banks did not consider that most people are attracted to the convenience of mobile wallets both as customers and merchants. Paytm does not require merchants to pay high transaction fees like credit card companies do, making mobile wallets more lucrative.
Paytm’s users are predominantly young people (25- 35), so their preferences will affect the future of credit cards and banks. If the incoming working-age individuals radically shift the way they store and spend money, banks need to adapt.
One could argue that people in rural parts of India won’t switch to mobile wallets because of poor infrastructure and poverty. However, people in these areas are not likely to have credit cards either. They are at a disadvantage due to the move towards a cashless economy. India will have to take steps to improve data and internet in these areas regardless. With changes needed, banks would do well to partner with fintech firms in order to stay relevant in India.
https://www.bloomberg.com/gadfly/articles/2017-02-21/indian-banks-misread-the-fintech-threat