Mobile phones, with over 75 per cent penetration, have a larger footprint than banking, which reaches only about 60 per cent of Indians. India already has an inter-bank mobile payment (IMP) system which has been operating for over two years. There are also many empanelled mobile payment companies. In July 2013, (the latest month for which data is available), there were over 700,000 IMP transactions amounting to about '410 crore, with an average transaction size of '5,100. Sadly, it was the RBI itself which placed several regulatory constraints on "m-commerce", which have hindered the easy development of this channel. For one, every mobile monetary transaction requires two-factor authentication, which makes it cumbersome. This varies from the international best-practice of one-time registration on a payment gateway, making subsequent transactions easier. Also, India does not allow cash withdrawals, unlike elsewhere. Hence, it is easier to make mobile transactions through an overseas payment gateway like the Apple iStore or Google Play, than the Indian equivalent. Africans in contrast, have entirely fungible pre-paid mobiles, making it possible to pay a grocer or taxi driver via mobile without either party possessing a bank account or credit card.
Technical solutions to enable such end-to-end fungibility, while maintaining regulatory standards, privacy and security, are known and easy to implement. As Dr Rajan said, mobile connections can be tied to Aadhaar and thereby, to bank accounts and credit cards. Given the stringent Know-Your-Customer norms for mobile connectivity, further authentication should be minimal. Delivering data via encrypted SMS across different handsets is again well within the capacity of banks and telecom companies. There will be haggling over commissions payable. But that is for the banks, credit card issuers, telecom services and mobile payment solution providers to work out. There is also no obvious reason why insurance, fixed deposits, mutual funds, para-banking and other financial products cannot piggy-back this channel. If hurdles are removed, a host of small informal transactions will become cashless and easier to track. The integration of the formal and informal economy will lead to a better understanding of the velocity of money. It would also enable more accurate assessment of the actual dimensions of the black economy.
In sum, the RBI putting its weight behind m-commerce is a welcome development, since this could indeed be a game-changer in many ways. The devil will be in the details of the technical delivery system and the regulatory overview. The structure must be designed to guarantee uptake by those in the most dire need for access to the formal financial system. Given that, the sooner the roll-out, the better.