The use of the ubiquitous mobile phone for financial services is akin to e-payments on steroids.
After the Reserve Bank of India came out with its mobile banking guidelines in October 2008, more than 32 banks have been given clearance for some form of mobile banking/payment service or the other to be offered to their customers. The annual value of transactions using the mobile banking channel is in the region of Rs 150 crore for about 2-3 million transactions (source: Banknet). But let us put this in some perspective: it has taken more than two decades for credit card penetration to hit just about 3 per cent of the population, or about 30 million people!
Since it does take time to actually get a service to the market in any meaningful way, it is early days yet for this new alternative channel. But a litmus test indicates four things:
Run rate
While experience so far of mobile banking is that the run rate for mobile transactions has grown six times, pure banking,i.e. customer-related transactions, in Nepal and India has grown 10 times — the latter growing at more than 100 per cent a month! With additional policy fillips being given to financial inclusion, I foresee a further 100 per cent growth by mid-2010 by us. It must be noted that although the base is obviously low since this is a recent market space, and volumes are, therefore, relatively low, the growth factor has been remarkable. Nonetheless, by the middle of this year, the monthly run rate for all types of mobile-related transactions will exceed that of any well-established top travel portal in the mature travel market space (a few hundred thousands).
As a benchmark, look at State Bank of India which has the largest number of active customers. It hopes to hit a million customers shortly. And with about 10,000 transactions a day this is proving to be an integral part of its strategy — and for that matter of every bank — to move a large part of its hygiene-banking transactions to electronic channels.
Risk
At the end of the day, any financial product is about three key attributes: trust, faith and benefit; and this is reflected in perceptions and actual riskiness of using this channel. Our experience indicates that the chargeback rate has been zero since February 2009 — a far cry from standard norms which apply to credit card transactions. The repudiation risk on a mobile is one-tenth of what it is on the Internet and probably many times lesser than on the other instruments. So, clearly, the overall perception of risk of using a mobile is matched by its actual performance.
Reputation
The fact is that brand perception is important for any financial product or service, and reputation is key to consumer connect. To facilitate reuse, the brand must leverage the felt benefit and must have some element of innovation to justify its use and velocity of usage. This is validated by the fact that in an AC Nielsen study done in 2009, PayMate was a preferred brand with about 40 per cent of market share and was ahead of other players in the generic category. This was done when we had a dozen banks in our ecosystem and in the early days of the post-regulation guidelines. Today, there are over 30 banks within our ecosystem!
Regulation
Regulation is often seen as a bane for any market space. Regulation tends to follow market creation, and with 20:20 hindsight, everyone claims to have got it right. When dealing with innovations around technology, this more often than not creates new market spaces, like the World Wide Web, Google, Twitter, Facebook or the latest eavesdropping gizmos — the law always plays catch-up but even then remains ambiguous.
The advent of mobile payments is no exception. It is not on account of any forward-looking framework but due to innovation and risk-taking abilities of small domestic firms. They spotted the opportunity inherent in using the ubiquitous mobile for financial services — and put their money where their mouth was. What guidelines and directives do is to subsequently attempt to create an enabling environment, not by a complicated jump-through-as-many-hoops approach. Other than mobile banking guidelines, there have been other facilitating measures, such as prepaid guidelines, directives and permissions related to security, definition of merchant cash, transaction limits, etc. Arguably, these have given a fillip to mobile payments.
Several more policy and operational dispensations are needed — and are in the pipeline — to create the proverbial hockey stick growth (a la mobile recharge). But the intuitive appeal, ease of use and the facility of basic logistical dispensation by telcos to enable mobile recharge (top-ups) have created the lucrative top-up market, which is more than 80 per cent of all telecom revenues. Mobile financial services have the potential of setting off a similar trend.
In summary, it is clear that the success of this electronic channel will depend on the 4 R’s, and one expects this channel to exceed the Internet banking channel as the preferred option in a period far shorter than that taken for credit card and Internet banking.
While e-commerce and payments are limited to computer users with Internet connection and bank account, m-payments can use technologies as simple as SMS and interactive voice response (IVR) among other things. With mobile penetration 10 times that of computer and expected to become 1 billion by 2014 (the overall cards market is growing at a 30 per cent compound annual growth rate), it won’t be long before India becomes a very large player in the m-commerce (mobile-commerce) space. This is why many people see m-commerce as being akin to e-commerce on steroids!
The author is co-founder, PayMate
