A recent Boston Consulting Group (BCG) report titled ‘Weathering the Storm: Global Payments 2009’ indicates that while the payments segment has been a reliable revenue generator for banks, its momentum is slowing. The key to success will now depend on achieving the highest levels of efficiency on the retail side of the banking business. It advises European policymakers to focus on “setting up industry standards for electronic and mobile payments to bring about desired efficiencies”.
India is a step ahead of Europe and North America in this. Three industry guidelines are already in place, de jure or de facto, not by design but due to the pulls and pushes of the market. These are (a) The Mobile Banking Guidelines (b) The Prepaid Instruments Guidelines and (c) The Mobile Banking for Financial Inclusion. These ought to provide the cornerstones in the country for mobile payments and banking. In October 2008, 19 banks were cleared to provide some kind of mobile payment services to their customers. These are by no means perfect but it would be presumptuous in today’s systemic risk mitigation world to expect a great leap forward.
Of course, the real proof of the pudding — the business model for stakeholders — will lie in how fast service providers, customers and regulators adapt and drive the new alternate electronic channel for five key uses: Mobile recharge, bill payments, ticketing, financial services (banking, money transfer, etc), and shopping. Savvy marketers know only too well that ‘tipping points’ emerge from customer segments whose specific needs are addressed in an unquestionably superior way by the new product or service. A case in point are the initiatives taken by low-cost carriers (LCC) and railways (IRCTC) in the last few years to allow booking of tickets over the internet and via use of over the counter pre-paid instruments. This led to customers adopting both e-commerce and prepaid instruments on a wide enough scale for them to be accepted as mainstream and legitimate channels.
For mobile payments I expect the tipping point to be the ‘remote’ mobile recharge. With 85 per cent of mobile subscribers being prepaid with a monthly spend of over $1 billion it is the low-hanging watermelon! One just needs to hark back to a few years ago when to do a recharge one had to physically go and pick up a plastic scratch card of a chosen operator and enter the number and send it of to the myriads of short codes of operators to chota recharge your phone. No more. Today, the entire distributor-retailer channel is in electronic mode.
The second low-hanging fruit lies at the other end of the socio-economic scale — financial services such as mobile money transfer (MMT). Clearly, while most wage earners carry mobiles, not all of them will have a bank account or even want to step inside a bank. The reach of the mobile phone today offers a ubiquitous, low-cost point of service (PoS) for all forms of financial inclusion (basic banking/credit/financial facilities, etc) by reducing the distance between the depositor /beneficiary and service point to a few km at the most rather than the 15-20 km that is the norm.
It is a fact that even after 60 years of independence the informal economy is predominant and that half the below poverty lines (BPL) households still have no credit access. This will continue unless something radically different is done. The financial system (Banks, NBFCs, MFIs, etc) along with the communications infrastructure providers and solution providers will inevitably have to collaborate to build a mobile financial service ecosystem and business model for the unbanked and excluded.
As a result of this collaboration, efficient payment facilitating systems will emerge to allow small value person-to-person (P2P) to be made across the Indian heartland, bringing in over a period of time accountability and a larger proportion of transactions under the ‘formal’ electronic channel ambit. This will be the inflexion point for a rapid mass electronic payment backbone, one that leverages the mobile infrastructure.
This concept is on the lines of what the Report of Committee on Financial Sector Reform (CSFR), chaired by Raghuram Rajan, terms as a National Electronic Financial Inclusion System (NEFIS) — an electronic backbone that would link the unbanked to a bank account, and bank account to a mobile. With “millions of outlets accepting such cash-in/cash-out payments the transaction cost would drop to a few paisa”! It is no wonder then that the same BCG report ends by saying: “The payments opportunity in the Asia-Pacific region, as in Latin America, begins with the large number of financially excluded consumers — those who do not have bank accounts. Mobile phones can thus play a game-changing role in emerging Asia-Pacific markets for distributing financial services in general — and payments specifically”.
The third factor is how consumers behave, that is, how fast customers adopt this service. Other than money transfer and recharge the other benefits — ticketing, bill payments and shopping — would on the face of it tend to appeal predominantly to the urban, credit card carrying and internet and e-commerce savvy people. These segments are definitely the early adopters and samplers. A recent AC Nielsen survey on mobile payments confirms this preliminary trend in mobile payments use.
The salient findings indicate that urban users are typically in the age group 21-40, belong to Socio-Economic Category A/B of whom 93 per cent are graduates/post graduates; 72 per cent being salaried; and 57 per cent of first time users having used a mobile payment service within the last six months. What do they use it for, how and why? Predominantly, it is for bill payments, mainly mobile bills, and closely followed by movie tickets, air ticket and online shopping. The average ticket size across all categories of transactions is Rs 2,614, with 59 per cent of the usage being at least once within a month. Of the people who used it and discontinued the service 62 per cent felt the low speed of the network service was a bother. Of the people who use it 83 per cent of the people did so because it saved time, and was easy to use.
So when the head of Barclays Card, an institution which practically ‘invented’ the plastic (back in 1966), says “In time you won't have to carry a plastic credit card around with you if you don't want to...” then you know that the days of lugging around a physical plastic of well-known global brands are numbered. Of course he was referring to people substituting the physical card for the ubiquitous mobile!
The author is co-founder of PayMate, a mobile payments solutions provider
