A Cashless Odyssey

The mobile payment (M-payment) segment is yet to pick pace in India but, of awareness and apprehensions about security remain major hurdles to its adoption. But certainly, it has a bright future. Mobile payments would not remain as an alternate channel, with its easy usability it wouldn't be a surprise if it becomes a primary channel.

According to a recent report by Knowledgefaber, the mobile payment market in India is estimated to grow from $86 mn in 2011 to $1.15 bn in 2016 at a CAGR of 68%. Currently, there is lack of adequate banking infrastructure, low internet and PC penetration which would further fuel the growth of the M-payments market. The large unbanked population (nearly 41%) and lack of payment options for micro-transactions are the key drivers for mobile payment in India. And it is anticipated to witness robust growth.

Technology is a key enabler in this game. There are tremendous business opportunities emerging out of various payment technologies like prepaid, m-payment, and others in an emerging economy like India. Let us take a quick peep into the present status of m-payment journey, methods of payment and business models, and regulatory aspects in India.

Indian Scenario

As per the Knowledgefaber's report, the mobile banking market size in India is $338 mn in FY12. Among the banks who have rolled out m-payment solutions, the State Bank of India topped with a market share of 51% in FY12, followed by ICICI bank with 33%, and Citi bank at 8%. HDFC and Axis Bank grabbed just 3% and 2% market share, respectively in FY12, while other banks had 4% market share.

The report pointed out that there were 90 mn m-payment transactions with an average transaction size of $0.95 in 2011 in India. While in China, there were 340 mn m-payment transactions with an average transaction size of $1.10 in China, in Kenya there were 700 mn transactions and the average transactions size stood at $35 last year. Brazil accounted for 110 m-payment transactions with $2 average transaction size.

The Reserve Bank of India (RBI) brings a silver lining to mobile payment segment through the favorable regulatory initiatives as it has relaxed m-payments transaction limit to `50,000 per person per day. And mobile operators, kirana stores, and corporates are allowed to act as business correspondents.

According to Amit Goel, CEO, Knowledgefaber, “M-payment has exponential opportunites as there is huge scope for mobile PoS in proximity payments due to high demand for PoS and ATM acceptance points. In 2010, SBI planned to install 0.6 mn PoS terminals over the next 5 years with focus on rural areas. Public transport payments and toll tax payments can also be done using mobile payments representing an untapped market in India.”

Business Models

The key business models in the market include bank centric models, collaborative model led by either mobile operators or banks, peer-to-peer model based on SMS/USSD or application, and the operator centric model where the operator takes the entire onus of service, acquisition of customers, and efficient mobile networks.

Referring to merits and demerits of each of these business models, Amit Goel, CEO of Knowledgefaber states, “Bank centric model ensures clarity of roles across value chains, it is less disruptive, speedy, and highly secured, the flip side is that the banks are exposed to higher risks, they lack core competency of provisioning m-payment applications. Collaborative model brings with it the core competency, additional revenue for banks, customer loyalty for operators and it also offers a choice of preferred bank/operator for customers. However it has to handle the complex revenue sharing model as there will be more capital expenditure for NFC deployment and may result in limited revenue. So, customers ought to install bank specific application on mobile devices.”

He further adds, “The merits of peer-to-peer (P2P) model is that it is attractive for merchants looking for cost reduction, offers revenue stream for banks, mobile operators and service providers. There would be tremendous cross-selling opportunities and cross-border remittances. The demerits of P2P model include the high entry cost for P2P service providers, limited visibility to transactions for banks and difficulty in managing disputes with customers. Operator-centric model gives an advantage for operators to leverage existing infrastructure, they can control revenue stream control, customer loyalty, and it also ensures increased efficiency and convenience for customers and merchants. The concerns of this model are risk, privacy and fraud, additional billing and customer service requirements for operators, lack of merchant relationship between merchants and operators.”

According to Haragopal Mangipudi, global head, Finacle, Infosys, “Collaborative model works better, there are 3 key main players—one is the players like us who build, own, and operate platform, onus on banks and telcos lie on getting touch points and customers to subscribers to it. Finacle mobile banking/ m-wallet solutions work on a variety of mobile devices, platforms, and access modes. It seamlessly integrates with disparate host systems to bring unique cross-channel synergies. Finacle mobile banking solution offers an essential combination that helps banks in delivering banking services to global customer segments ranging from the mass affluent to the under-banked.”

Methods

The most popular forms of m-payment methods in India include message and internet based payments, application based payments, contactless payment, and mobile card reader based payments. Message and internet based payment are primarily usinig SMS or web based remote m-payment methods. Security concerns in SMS based m-payments and increase in adoption of smartphones have led to the increase in adoption of internet based m-payments.

Application based m-payments include m-wallets and it is linked to debit or credit card, prepaid account or bank account and this mode is on the rise. Contactless payments is one of the proximity m-payment methods and is primarily based on NFC technology. NFC technology is still in its nascent stage in India, but the trial of transactions based on NFC technology has started to pick pace in rail ticketing, retail outlets, etc. Many banks, mobile network operators, vendors and independent companies are already implementing this technology and undertaking trial runs across the country. But there is a need of RBI norms for NFC payments and more PoS terminals accepting NFC payments. Card reader based mobile payment devices convert mobile devices to debit or credit card readers and offer affordable point-of-sale solutions.

“Mobile payment has great future due to the lack of infrastructure. The small value transaction is lot more economical and it is going to be compelling. Promotions, loyalty points or gift coupons are difficult to redeem but if it is loaded on mobile, it becomes much easier to encash it. As a key technology enabler we are very bullish on mobile payment segment in India. We have launched 5 offerings in the past 12-18 months-Finacle digital commerce, Finacle e-banking version 11, Finacle mobile banking solution 2.0, Finacle analyz and Finacle lite,” states Haragopal Mangipudi, global head, Finacle, Infosys.

“Prepaid cards and loyalty cards are gaining momentum in India with organizations like Raymonds, Shoppers Stop, and Puma embracing it,” states Kumar Sudarshan, founder and director, QwikCilver Solutions.

To leverage m-payment opportunities, the industry ought to focus on creating awareness regarding standardization for mobile wallet payments, hindering interoperability across banks and mobile operators in India, enhancing merchant acceptance capability for m-payments, creating official IDs, and fulfillment of KYC norms and customer transaction ability for m-payments.