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Using ‘Bank to Wallet’ Nudge Framework to boost e-wallet revenue

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Cash was a popular medium of transaction across the globe until Covid-19 hit. Since Covid-19, exchanging cash has been considered unsanitary and a risky surface for transmission, propelling consumers towards digital payment channels like mobile wallets. 

In 2019, the mobile wallet market size was valued at over $1.043 trillion, with up to 30 percent adoption across the globe. As of 2020, adoption has soared to nearly 55 percent, with predictions that adoption will reach 75 percent by 2025. In 2020, three markets in the APAC region – Hong Kong, Singapore, and China – topped the globe in online wallet adoption. However, despite this spiraling trend, there are certain demographics and markets where adoption lags. Some of the leading concerns around this are related to security and technology infancy, investment, and deployment issues. 

About e-wallets

A mobile wallet allows consumers to do a variety of transactions like exchange money, shop, and pay for recharges through a smartphone or handheld device from any location at any time. Once a mobile wallet has been set up, it is fairly easy to use, providing customers with convenience, affordability, and faster payment mechanisms. 

There are three types of e-wallets.

  1. A particular company issues a closed wallet to a consumer for the sole purpose of purchasing goods or services from that company only. It acts as a safety mechanism for refunds, earning and redeeming loyalty points, etc. Consumers cannot withdraw money from such wallets. 
  2. A semi-closed wallet helps users purchase goods and services from companies that have a contract with a specific mobile wallet provider. This can include banks, merchants, eCommerce platforms, and more. Here again, cash cannot be redeemed, but the mobile wallets can be recharged at will. 
  3. An open wallet is one that is flexible in its use across different point-of-sale kiosks, banks, and online platforms. These also support cash withdrawals at ATMs. Such wallets can only be issued by banks or by private companies in collaboration with banks. 

Challenges of low adoption of e-wallets

Financial inclusion is a key driver of mobile adoption, particularly in developing markets. Those without access to bank accounts can still set up mobile wallets, top these up through cash recharges, and use that to transact or transfer money. But other factors come into play, such as the need for robust digital infrastructure, customer education, and financial literacy. 

For example, even though the Indian market is competitive with many new mobile wallet providers burgeoning across the country, adoption rates are only modest. There are several reasons for this. One study shows that 60 percent of merchants report not using any digital payments. Most of these are potential users having the necessary documents but hesitate to onboard digital wallets due to perceptions about security and tax liabilities. 

On the other hand, customers often hesitate because they may not know how to use the technology and are unsure of security protocols, even with emerging technologies like tokenization, mobile payments are inherently secure. In some cases, customers may need to be convinced about the ease of use of mobile wallets before being incentivized to adopt them. Even among customers that are onboarded onto e-wallets, usage is not always consistent.

Consistent usage of mobile wallets is imperative for telecom and e-wallet providers. One of the ways by which e-wallet providers generate revenue is by depositing the non-transacted funds lying in user wallets (on the telecom network) into an Escrow account. These deposits then accrue some amount of interest, depending on agreements between the payment company and the bank. Another way the e-wallet industry generates revenue is through commissions charged for various services provided to the users. Thus, for the providers of e-wallets, engaging customers to recharge their wallets and use these consistently is critical to sustaining a key revenue stream. 

The Nudge Theory for e-wallet adoption 

'Nudge' is a concept in behavioral sciences whereby choice architects leverage indirect suggestion and positive reinforcement methods to influence behavior and decision making. Conceptualized by Richard Thaler and Cass Sunstein, a nudge is defined as "any aspect of the choice architecture that alters people's behavior in a predictable way without forbidding any option or significantly changing their economic incentives."

A look at the journey of mobile wallet adoption is an interesting case study in the use of nudges.

Case study: Subex's 'Bank to Wallet' Nudge Framework 

On analyzing the network activity for one of its e-wallet customers, Subex discovered that many consumers preferred traditional banks as transaction facilitators. Fewer mobile wallet recharges meant lower revenue for the telecom provider. Subex fashioned a Nudge Framework that categorized customers into different segments based on their past mobile wallet behavior to boost engagement and use of mobile wallets. 

Four main customer segments were identified:

  • Those not holding a bank account
  • Those having a bank account but who have not used e-wallet before
  • Inactive users with e-wallet accounts
  • Active users of e-wallet accounts

A four-step 'Bank to Wallet' Nudge framework was created to encourage greater adoption among the customer base. The aim was to effect an incremental movement of customers from banking transactions to e-wallet transactions, thereby boosting revenue inflow. The main actions or goals were to:  

  • Open and link bank accounts – Customers without a bank account or who have not updated their bank account or added money into their mobile wallet from the bank were nudged to open or update a bank account to use e-wallet services. The analysis showed that nearly 65 percent of the customer base either did not have a bank account or had not linked it with their e-wallets.
  • Educate customers – Customers who have a bank account but have not added money into their e-wallet were educated on security protocols and data privacy. They were also given easy instructions on adding money into their wallets and the various convenient avenues to use the e-wallet
  • Revive inactive customers – Subex conducted a what-if analysis to segment these customers into high-value and low-value customers, who were then nudged with tailored rewards, offers, and cashback to encourage interest in resuming mobile wallet transactions. The analysis indicated that a 5 percent uptake within these sub-segments could generate US $530,000 in annual revenue.
  • Increase activity of existing users – Here again, a what-if analysis was conducted to segment customers and encourage their progression towards high-value recharges and frequent use. Nearly 79 percent of customers were marked as high-value customers. A 5 percent uptake across this segment was projected to increase revenue by US $28.8 million.

Thus, instead of forcing customers to use e-wallets directly, the approach of the Nudge Framework helped encourage customers to prefer mobile wallet transactions. This helped the e-wallet provider benefit from higher transactions in the network, improved business KPIs, and, ultimately, higher revenues. 

Aman, analytics professional, Subex

Aman is an analytics professional with around 2 years of experience. He has primarily worked in Fintech and Telecom sector and is currently part of the analytics team in Subex where he is engaged with Mobile Wallet sector.