Mobile Payments in India

New frontiers of growth

Aprill 2011
www.deloitte.com/in
2
India is pre-dominantly a cash economy
with greater than 65% of all retail
transactions being conducted in cash.
With the growing middle-class and
their increasing disposable incomes, this
presents a huge opportunity for
non-cash methods of payment. All the
current non-cash payment modes viz.
credit cards, debit cards, multiple
mobile payment solutions, appeal to
only a small section of the ecosystem.
While the ubiquitous mobile is surely
the most promising channel, the need
of the hour is to develop an innovative
mobile payment system which is
customized to the Indian ecosystem
requirements and has a mass appeal.
Mobile Payments in India - New frontiers of growth 3
Contents
Message from ASSOCHAM 4
Message from Deloitte 5
Introduction
Non-Cash Retail Payments: Current Scenario
Non-Cash Retail Payments: Time for Innovation 13
The Road Ahead 18
Acknowledgements
Notes
Message from Businessworld 6
About ASSOCHAM and INFOCOM 7
8
10
20
21
4
Message from ASSOCHAM
The Indian economy has been on a fast track of growth.
This rapid growth, besides the 8.5% GDP has seen other
interesting numbers as well. India has been the fastest
growing mobile market with more than 720 million
subscribers. There is a rat race among the operators to
retain customers with innovative applications and Value
Added Services. The telecom players desperately want to
own the mobile wallet of the 300 million + middle class
who have the purchasing power.
Mobile money provides an opportunity for nancial
inclusion to the unbanked section which lies closer to the
base of the pyramid. Majority of the rural population and
a part of even the urban class who live in the informal
nancial sector relies on cash to conduct all nancial
transactions. This ratio of cash transactions is as high as
65% of total transactions. As such they lack access to
credit, insurance and savings. On the other hand, cash
transactions are untraceable, unrecorded and lead to
parallel economy. Annually, GoI loses a lot of revenue
due to non tax payment. Mobile money is a transparent
mode of money transfer and will help in reducing parallel
economy to a great extent, giving additional revenue to
the GoI.
This wave of mobile money momentum, if facilitated by
regulation and right business model, will revolutionize
the payment system, from coke to railway tickets.
Japan has proved that smart phones are not necessarily
the only devices needed for mobile payment. Kenyas
mobile money system is another good case study. More
so because Kenyas 61% population is unbanked.
Mobile payment is a must for India to retain its growth,
where most do not have a bank account but have a
mobile phone.
ASSOCHAM also known as the countrys Knowledge
Chamber has always been at the forefront for
promotion of new technologies for benet of the
industry yet remaining technology neutral.
ASSOCHAM is committed to moving forward with such
rapid changes in technology and its uses, consistent with
our goal of Making Inclusive Transformation Happen.
ASSOCHAM rmly believes that digital inclusion could
take the path of high growth to all sections of the
society and it is the mobile that will empower the
common man in the hinterland and far ung areas in the
country.
Mobile phones are certainly the solution for bridging the
digital divide and therefore, are the perfect medium for
delivering a variety of services to the common man.
In this regard, ASSOCHAM has partnered with Deloitte in
bringing out a report on 'Mobile Payments in India' with
an objective of identifying key elements and parameters
that could facilitate an optimum ecosystem to support
entrepreneurship.
I am also pleased to inform you that ASSOCHAM along
with Deloitte has brought out a comprehensive study
on Mobile Value Added Services (MVAS) - A Vehicle to
Usher in Inclusive Growth and Bridge the Digital Divide
for Telecom Regulatory Authority of India along with
inputs from various concerned Ministries, Department
and the Industry, which was well received.
I would like to acknowledge the efforts made by
ASSOCHAM and the Deloitte team in making this report
more meaningful.
Sujata Dev,
Co-Chairperson (M&E),
ASSOCHAM
D. S. Rawat,
Secretary General,
ASSOCHAM
Mobile Payments in India New frontiers of growth 5
Message from Deloitte
India, the second fastest growing economy in the
world, has a large and growing middle class today. In
spite of this growth, cash continues to dominate our
retail transactions. Both the penetration and usage of
the non-cash modes viz. credit cards, debit cards, the
multiple mobile payment solutions, have been well short
of the potential posed by cash transactions in India.
India is vastly different from the West in terms of our
demographics, our retail industry (very distributed, large
% of unorganized retail, signicant presence in rural
India), our shopping / paying culture (low ticket, high
volume transactions), etc. We believe that the products
(credit cards, debit cards, etc.) which have done well in
the developed countries, appeal to a small section of
the ecosystem in India, hence may not be the complete
solution for a country like ours.
The mobile is arguably an ideal mode for capturing this
signicant gap. An innovative solution, which meets
the requirements of the ecosystem players - consumers,
merchants, banks, and has a mass appeal, has the
capability to capture the large USD 410 billion retail
market in India.
While it would be exciting to witness the changing
modes of payment in retail transactions in India in future,
there is little doubt that the current payment modes in
our market-place leave a large void. Players, who work
towards lling this gap, keeping in mind the peculiarities
of the Indian market, could carve out a high-value
proposition for themselves and the ecosystem.
Sachin Sondhi
Senior Director and Leader,
Strategy & Operations
Consulting, Deloitte
The growth seen by the Indian mobile telephony sector
over the last decade has been truly phenomenal. Mobile,
as a device, has become pervasive in all the dimensions
of our day-to-day life, even surpassing television that so
far has been the king in terms of its reach and inuence
on the masses.
In a cash economy like India, where over 65% of all
retail transactions are conducted in cash, there is a huge
potential for transitioning towards effective non-cash
payment instruments. The future of non-cash payments
in India is closely linked to the evolving regulatory
framework and innovative payment solutions that
would come to the forefront. In a recent amendment
announced in November 2010, the Reserve Bank of
India allowed usage of semi-closed instruments for bill
payments, ticketing requirements as well as issuance of
semi-closed instruments by banks through key agents.
The real potential of non-cash transactions can be
unleashed only when key stakeholders involved in
the development of the mobile payments ecosystem
together take concerted steps in this direction. This
report presents our view on the current scenario of
non-cash payments in India and showcases how India
is a fundamentally different market from most other
developed and developing countries. Hence, the solution
needed for a unique nation such as ours also needs to be
one that is innovative, yet simple, safe and scalable.
Sandip Biswas
Director, Technology,
Media and
Telecommunications
Practice, Strategy &
Operations Consulting,
Deloitte
6
One of the biggest problems faced by the poor
people of India is that they have to do all their
transactions in cash. Most of them do not have
any other options. A large number of them do
not have bank accounts. This is partly because
of choice some of them to not trust banks. But
many of them also do not have access to banks
because they are migrant workers and often
cannot meet the know your customer norms
of banks. Even if they have a banking account,
they are mostly ineligible for credit or debit cards
because of their low incomes. And because
cheques are not accepted for most retail transac-
tions, even the poor who have bank accounts
invariably have to do all their dealings in cash.
Is there any viable alternative to cash for the
poor in India? The mobile phone as a means for
carrying out transactions has often been touted
as the best option. The reason is that mobile
phone usage has really taken off. Mobile pen-
etration far surpasses those of almost any other media.
Even people in low-income professions drivers, maids,
plumbers, electricians etc invariably have a personal
mobile phone. The combination of ultra low calling
charges and basic and inexpensive mobile handsets
has seen mobile phone ownership and usage become
ubiquitous.
The problem is that while a lot of different companies
have tried out different mobile transaction systems and
models, none of them have taken off in a big way. There
are many hurdles that need to be surmounted before
mobile phones as a means of monetary transactions can
become widespread. Regulations, technology and stan-
dardisation of systems are just some of these hurdles.
It is in this context that this report by Deloitte becomes
so important. This report looks into all the issues that
are blocking the usage of mobile phones as a means
of monetary transactions in detail. And it looks at what
needs to be done.
Prosenjit Datta
Editor,
Businessworld
Message From Businessworld
MobiIe Payments in lndia *:L;GDCI>:GHD;<GDLI= 7
About ASSOCHAM
About INFOCOM
INFOCOM, a Businessworld initiative from the house of ABP
was initiated in 2002 as a forum that would demonstrate Indias
quest to be the IT superpower, and has today turned into a
forceful and dynamic event that sets the pace for development
in the Information and Communication Technology (ICT) sector,
bringing potential partners together and helping the industry
connect with associates and customers. INFOCOM is the largest
congregation of ICT professionals, buyers-sellers, corporate lead-
ers, academics, visionaries, and policymakers in India.
INFOCOM runs on the format of a Conference and Exhibition
and closely works with all stakeholders to create a powerful
platform that endeavours to synergize and aid this process
of change and transformation in India and abroad. It brings
together some of the best global minds in hardware, software,
telecom together with the experts on the business side from
various industry verticals and policy makers to brainstorm, showcase, network,
build brands and prepare for the best that is yet to come. At INFOCOM it
has been our constant endeavour to provide various platforms in the form of
conferences, exhibitions, roundtable discussions, leadership awards, knowledge
workshops etc in order to project the potential of the Indian ICT industry as an
engine of economic growth to the nation and beyond.
About INFOCOM log on www.indiainfocom.com
The Associated Chambers of Commerce and Industry of India
(ASSOCHAM), Indias premier apex chamber covers a member-
ship of over 300,000 companies and professionals across the
country. It was established in 1920 by promoter chambers
(Bombay Chamber of Commerce & Industry, Cochin Chamber
of Commerce & Industry, India, Merchants Chamber, Mumbai ,
The Madras Chamber of Commerce & Industry, PHD Chamber
of Commerce & Industry) representing all regions of India.
As an apex industry body, ASSOCHAM represents the interests
of industry and trade, interfaces with Government on policy
issues and interacts with counterpart international organiza-
tions to promote bilateral economic issues. ASSOCHAM is
represented on all national & local bodies and is, thus, able to
pro-actively convey industry viewpoints, as also communicate
and debate issues relating to public private partnerships for
economic development.
ASSOCHAM members represent the following sectors:
z Trade (National and International)
z Industry (Domestic and Industrial)
z Professionals (e.g. CAs, lawyers, consultants)
z Trade and Industry Associations and other Chambers of
Commerce
ASSOCHAM operates through 90 Expert Committees that provide an interactive
platform to Members for interaction and id formulating Policy recommenda-
tions so as to facilitate Economic, Industrial and Social Growth.
These encompass areas such as: Domestic & International Trade, Commerce,
Industry, Services, Agriculture, Education, Food Processing, IT & BPO, Economic
Affairs, TQM, Energy, Environment, Capital Market, Banking & Finance, Direct &
Indirect Taxation, WTO & IPR, Infrastructure, Pharma, Health, Biotechnology &
Nanotechnology, Tourism and Telecom.
Leading Corporates like Aditya Birla Management Corporation Ltd., Boeing,
DLF, IBM, Reliance Communications, Reliance Industries, TATA, Northrop
Grumman, Cable & Wireless, Warbusrg Pincus, SREI Infocom, Ernst & Young,
Huawei telecommunications, ZTE telecom, Qualcomm, Centurion Bank of
Punjab Limited, Diageo India Pvt. Ltd., DSP Merrill Lynch, Geojit Financial
Services Ltd., GMR Infrastructure Ltd., ITC Limited, Jet Airways (India) Private
Limited, Kotak Mahindra Asset Management Co. Ltd, Microsoft, Spice
Communications Pvt. Ltd., Videocon Ltd., Vodafone are some of the Esteemed
Members of ASSOCHAM.
About ASSOCHAM please log on www.assocham.org
Introduction
India: A growing, but cash economy; holds a
signicant opportunity
The Indian economy has shown strong growth in
recent years, making it a USD 1.3 Trillion economy. It is
expected to grow at a rate of 8.9% in future
1
, making
it the second fastest growing economy in the world,
after China. This growth has enabled India to create
a large middle class consisting about 62% of its total
households (Refer Figure 1). The large middle class base
in India is driving consumption, fueled by their increasing
disposable incomes.
However, India remains predominantly a cash
economy due to high prevalence of cash in day-to-day
transactions. The retail industry, which has transactions
up to USD 410 billion per year
2
is predominantly
cash based. Cash continues to be the only mode of
transactions for the 40% unbanked population in the
country. Overall, 67% of transactions are carried out in
cash, while only 33% are done through electronic means
(Refer Figure 2).
Within electronic payments, while credit and debit cards
form 57% of transactions by number, they transact
only 13% by value (Refer Figures 3 and 4). The largest
electronic payments by value are through electronic
funds transfers (NEFT or RTGS) which are predominantly
peer-to-peer (P2P) transactions. These would not be
used for retail payments, and the same can be said for
Electronic Clearing System (ECS) payments. Hence, the
usage of electronic payments in retail transactions
(payments to retail outlets) is even lower, presenting
a huge opportunity for players providing non-cash
payment alternatives for retail payments.
1 According to Q32010
estimates
2 ATK Global Retail study, 2010
Figure 1: Distribution of Indian households (based
on annual household incomes)
High income (>Rs 1.8 lakh p.a.)
Middle income (Rs 40,000 - 1.8 lakh p.a.)
Low income (<Rs 40,000 p.a.)
Source : NCAER
2001 - 02
35%
18%
62%
20%
7%
58%
2009 - 10
Electronic
33%
Debit cards
24%
Credit cards
33%
Funds transfer
(NEFT/RTGS)
9%
ECS
34%
Cash
67%
Figure 2: Percentage of transactions in India by
volume (2009-10)
Figure 3: Distribution of electronic payments by
volume in India (2009-10)
Figure 4: Distribution of electronic payments by
value in India (2009-10)
Source: RBI
Source: RBI
Source: RBI
Funds transfer
(NEFT/RTGS)
60%
Debit cards
4%
Credit
cards
9%
ECS
27%
8
Mobile Payments in India New frontiers of growth 7
Indias cash economy presents signicant
problems, such as:
lreud he number of counterfe|t notes found
in India are around 3 to 6 per million
3
. The actual
number of fake notes could be much higher in the
country. Such counterfeit currency is used to fund
illegal activities, and adds to the black money circu-
lating in the economy
Cost to the economy he number of notes |n
circulation in the Indian economy is about 49 billion,
increasing at a rate of about 10% per year
3
. Printing
notes, distributing notes, destruction of old notes
and replacing them with new notes, carries a huge
cost to the economy
lnconven|ence of cerry|ng cesh Cerry|ng |erge
amounts of cash is inconvenient and carries the risk
of being stolen
ender|ng exect emount of cesh lrov|d|ng the
exact amount of change in any transaction is incon-
venient for the consumer and the merchant
Thus, increasing the percentage of non-cash mode of
payment, not only provides a signicant opportunity
from a business perspective, but also holds signicant
benets to the country from economic and social
perspectives.
In this paper, we attempt to explore the ways in which
this large opportunity can be tapped. In the following
sections we identify the current non-cash retail payment
methods, identify the associated key challenges, and
dene potential ways to overcome these challenges.
3 RBI: Report of the High
Level Group on Systems and
Procedures for Currency
Distribution, 2009
With increasing adoption of technology by Indian
banks, electronic payment modes have started gaining
importance. Credit cards, debit cards and multiple
mobile payment products are the various modes of
non-cash retail payment system that exists today.
Credit and Debit Cards
Number of credit cards in circulation in India has started
to decline since 2008, while the number of debit cards
continues to rise. Though the usage of credit as well
as debit cards have increased in the past decade, card
penetration remains low, with debit cards at 13%
(about 173 million) and credit cards at 2% (about
23 million) (Refer Figure 5). Despite the presence of
non-cash payment modes, it is noteworthy that cash still
remains the king.
Indias efforts to move away from cash-based
transactions have been greatly inuenced from some
developed nations. For instance, the use of credit
card as a payment instrument originated and is very
popular in the United States. Use of a smart card that
corroborates the users identity for each transaction
began in France. Globally, cards remain the preferred
non-cash payment medium by volume; with over 40%
payments in most markets and close to 60% globally
being made by cards. India adopted these payment
methods from such countries over the last three
decades. India, however, has seen extremely low debit
and credit card penetration.
We believe that India is fundamentally a very different
market from the other countries where payment by
cards has been successful:
Our retail industry is widely distributed: Organized
retail penetration in India at about 5% in 2009
(Refer Figure 6), is signicantly low as compared to
other developed and developing markets. While it is
expected to grow with increasing urbanisation and
incomes, it would continue to be on the lower side
(Refer Figure 7)
Ticket size of our transactions is low: Due to the
widely distributed, pre-dominantly unorganized
retail industry, ticket size of the transactions in India
continues to be low
Pre-dominantly rural populace: About 70% of
the Indian populace continues to live in rural India
Non-Cash Retail Payments:
Current Scenario
200
150
100
50
0
17
50
23
23
75
28
102
137
173
25
Credit cards Debit cards
Source : Reserve Bank of India, IAMAI, Cellent
2006 2007 2008 2009 2010
C
r
e
d
i
t
/
D
e
b
i
t

c
a
r
d

u
s
e
r
s


(
i
n

m
i
l
l
i
o
n
s
)
Figure 5: Credit and Debit Card Users in India
Source: PL research
2004 2009 2010 2015 P 2020 P
3%
5% 7%
12%
21%
Figure 7: Organized retail penetration in India
Figure 6: Organized retail penetration across select
countries (2009)
United States
Taiwan
Malaysia
Thailand
Indonesia
China
India
5%
20%
30%
40%
55%
81%
85%
Source: Technopak, PL research
10
Mobile Payments in India New frontiers of growth
In the rural parts of the country, the distribution of
retail outlets is even wider, with the ticket size for the
transactions being even lower
The above characteristics of the Indian marketplace
make the card business for the ecosystem very costly
and difcult to sustain in India.
Comparison of the returns per PoS Terminal (Refer
Figures 9 and10), both by volume and value, show how
cumbersome it is for the Indian ecosystem to meet
the associated costs: cost of the PoS terminal, cost of
issuing the cards, etc. Value of payment transactions
at PoS terminals remains extremely low in India at INR
71 thousand crores as compared to INR 848 thousand
crores in Brazil and INR 4,522 thousand crores in China.
On an average, the debit and credit cards together
account for only two card transactions per day per PoS
terminal in India, which is close to half as compared to
China and one-eighth as compared to UK.
This low feasibility of the PoS terminals in India,
explains the abysmally low penetration of PoS terminals
(Refer Figure 8). The penetration of PoS terminals in
India remains low at 419 terminals per million inhabit-
ants in 2009, as compared to about 1,700 in China,
over 17,000 in United States and United Kingdom and
about 25,000 in Brazil.
Figure 8: Number of PoS terminals per
million inhabitants, 2009
Figure 9: Value of payment transactions
at PoS terminals located in the country
in 2009 (INR thousand crores)
Figure 10: Number of PoS transactions
per terminal located in the country in
2009
Brazil
United
Kingdom
United
States
Japan
China
India 419
1,707
13,515
17,020
19,083
24,611 Brazil
United
Kingdom
United
States
Japan
China
India
4,522
71
848
2,782
n/a n/a
n/a
n/a
Brazil
United
Kingdom
United
States
Japan
China
India 793
1,538
6,688
1,079
Source: Bank for International Settlements Source: Bank for International Settlements Source: Bank for International Settlements
11
12
In addition, certain key concerns of the ecosystem with respect to usage of cards, further inhibit rate of adoption of
credit /debit cards in India (Refer Table 1).
Table 1: Concerns in using Credit and Debit Cards
Concern Merchant Customer
Hidden costs lrocess|ng fee per trensect|on cherged by
credit card companies, eroding merchants
prot margin
Some cred|t cerd process|ng rms e|so
charge application fee, startup fee, activation
fee, statement fee, monthly minimum fee,
payment gateway fee, charge back fee and
termination fee from the merchant
Late fee payment charges and high interest rates
levied by credit card companies
Limited usage Unreasonable pricing of cards acts as disincentive
for small and medium merchants with lesser
pricing power due to low volumes, to transition
to card based payment
Usage limited primarily to large vendors /
merchants that have PoS terminals installed and
accept debit and credit cards
Privacy and Security concerns Not applicable Need to revee| persone|
information at multiple sites while using debit
or credit cards for online transactions
Loss of cerds thet ere not encrypted w|th e
pin, leads to insecurity about card usage,
bringing down the adoption rate of credit and
debit cards by conservative users
National Payments Corporation of India (NPCI) has intro-
duced Rupay, Indias rst indigenous payment gateway.
While introduction of the state-backed Rupay may take
care of some of the concerns listed above, the cost of
the PoS terminal, the cost of issuing the cards, consumer
security concerns, etc. may continue to be the road-
blocks for mass penetration and usage.
Mobile payment instruments
Another mode of non-cash payments in India are the
mobile payment instruments. Various modes of mobile
wallets such as prepaid, direct debit, as well as postpaid
exist in the market today. Recent amendments to RBI
guidelines have allowed non-banks to issue mobile
based semi-closed instruments, while also extending
their usage to bill payments and ticketing. Most of these
mobile payments instruments have been trying to nd
traction, but concerns exist, inhibiting their widespread
adoption. Some key concerns are:
lr|vecy. Most of the so|ut|ons requ|re phone number,
credit card or other personal information to be
shared. Some of them expose bank accounts as well
L|m|ted lenetret|on. he penetret|on of ex|st|ng
pre-paid solutions is by and large restricted to few
meor c|t|es the sem| urben end rure| mer|et
remains primarily untapped
C|osed Lcosystems. Most of the so|ut|ons requ|re
purchase of pre-paid vouchers necessitating a distri-
bution network for loading the mobile wallet. Also,
in most solutions, the wallet can be used for only
specic type of payments
The non-cash retail payment modes in India face
signicant challenges and do not have a mass
appeal. Therefore, to reap the untapped potential
of non-cash payments ecosystem that exists today,
India needs a unique and innovative payment
solution one that is simple to adopt and is capable
of signicantly bringing down the barriers for
uptake of non-cash retail payment in India.
Mobile Payments in India New frontiers of growth 13
Mobile: The Right Vehicle
In a country of over one billion people, there is no doubt that the mobile phone has touched the highest number
of lives in India to date. Within a few years, mobile phones have grown from a very small base to overtake even TV
viewership in India (Refer Figure 11). Even the penetration of PCs has been mainly restricted to urban India, making
the installed base very miniscule at 95 million (Refer Figure 12). Currently the number of mobile phones subscribers
stands at 600 million+, growing at a CAGR of 60% (Refer Figure 13). The mobile phone penetration stands to touch
100% by the year 2015 (Refer Figure 14).
Non-Cash Retail Payments:
Time for Innovation
A combination of nearly 100% mobile penetra-
tion in India and spiralling mobile customer base
makes mobile phones the perfect medium to enable
non-cash retail transactions in India.
Critical Success Factors
Any mobile phone solution for non-cash retail trans-
actions needs to have certain basic characteristics to
succeed, such as:
Mess Reech. he so|ut|on must be edopted by sme||
traders, delivery agents etc. for whom transaction
volumes or values are low for supporting credit card
and similar non-cash payment mechanisms
Secure. Must be comp||ent w|th Rbl gu|de||nes for
end-to-end encryption, fraud protection, etc.
Serv|ce lrov|der /gnost|c. So|ut|on must not be
linked to a particular service provider
Conven|ent/Lesy. leyment through mob||e phones
must be convenient, easy, and faster compared to
cash and other non-cash payment mechanisms
Low setup costs d t|me. Lffort requ|red end the cost
of set-up has to be much lower compared to
traditional PoS
No/||tt|e requ|rement of edd|t|one| |nfrestructure.
Ecosystem required should be primarily set-up based
on the existing wireless telecom infrastructure and
Source:TRAI
Figure 14: Mobile phone penetration in India
2010
584
730
888
999
1093
1250
49%
60%
72%
80%
86%
97%
2011 E 2012 E 2013 E 2014 E 2015 E
Figure 11: Number of TV
Viewers in India
Figure 12: Number of PC
users in India
Figure 13: Number of mobile phone
subscribers in India
Note: India had approximately 670 million mobile phone subscribers in August 10
Source: TAM, IAMAI Report, Economic Times, TRAI, IAMAI-IMRB Survey
Number of TV Viewers
in India (million)
Number of PC Users
in India (million)
Number of Mobile Phone
Subscribers in India (million)
CAGR = 4% CAGR = 17% CAGR = 60%
600
500
400
300
200
100
0
415
2005 2006 2007 2008 2009 2010
431
444
466
480
500
600
500
400
300
200
100
0
42
2005 2006 2007 2008 2009 2010
50
63 73
87
95
600
500
400
300
200
100
0
52
2005 2006 2007 2008 2009 2010
90
165
261
392
584
14
the current mobile phones used by customers and
merchants
Compet|t|ve pr|c|ng w|th ex|st|ng methods. lr|c|ng
needs to be competitive with other non-cash
payment mechanisms
Given the specic conditions and critical success factors
required for the success of mobile payments in India,
there is a need for a customized mobile payment
solution which does not just ape the West or is
extremely inuenced from any other country based on
its intial success outside India.
Multiple models of mobile payments that can be
adopted are prepaid instruments where the balance is
credited before the purchase by a top-up transaction,
direct debit where the bank account is directly debited
for the purchase, and the post-paid wallet where it is
either linked to a credit card or a mobile account and
the cutomer has to pay for the purchase at the time of
settlement with the credit provider.
A comparison of these three mobile payment modes
indicates that the prepaid option is the best suited for
Indian conditions (Refer Table 2)
A solution which meets the above critical success factors
has the potential for succeeding as an effective mobile
payment instrument in India.
Prepaid Direct Debit Postpaid
Description Pre-loaded with desired
amount
Linked to bank a/c for real-
time debit
Linked to credit card or mobile a/c
Benets + Avoids exposure of bank
a/c or credit card information
+ Credit check etc not
required
+ No recharge activity
required
+ No recharge activity required
Drawbacks Recherge ect|v|ty requ|red Lxposure of fu|| ben| e/c Cred|t r|s| borne by ben|/
operator
Table 2: Comparison of different modes of mobile payments
Mobile Payments in India New frontiers of growth 15
IMPS A Public Sector Initiative
The Interbank Mobile Payment System (IMPS) has been
developed by the National Payments Corporation of
India (NPCI) to expand the scope of mobile payments
to all sectors of the population. IMPS offers an instant,
24X7, interbank electronic fund transfer service through
mobile phones.
To enable the transfer of money, both the sender and
the receiver of payment have to link their bank accounts
with their phone numbers through their respective
banks. The sender has to register for mobile banking
service with her/his bank. Upon registration, the bank
will provide a link to the mobile banking software which
needs to be installed in the mobile phone to enable
payments. Both the sender and the receiver will receive
a Mobile Money Identier (MMID) while the sender will
also receive a Mobile PIN (MPIN) for authentication of
transactions.
While transacting, the sender has to input the MPIN,
receivers mobile number and MMID, and the amount
of funds to transfer. IMPS will authenticate the sender,
check the receivers mobile number and MMID, and
transfer the funds to the receivers account in real-time.
Both the sender and the receiver receive messages
notifying them about the success or failure of the trans-
action. Another mode of payment that can be used is
via the SMS.
2. S/w download and
activation
IMPS
Sender Receiver
4. Sent to IMPS, sender's a/c
debited, receivers a/c credited.
Conrmation msg sent
5. Receives
conrmation
message of funds
credited
1b. Request for
registration,
receives MMID
1a. Request for
registration, receives
MMID and MPIN
3. Enters Amount, MPIN,
receivers mobile number
and MMID
6. Delivery of goods
Figure 15: Steps of the IMPS solution
While IMPS is currently focused on Person-to-person payments and money transfer, it can be extended to retail
payments.
16
A Sample Solution from the Private Sector
eMudhra, a rm based out of Bangalore, has come up
with one such solution, which meets the current chal-
lenges of the ecosystem, at least at a conceptual level.
This prepaid solution is modelled on the credit card
model, featuring the lead bank, the acquirer bank, and
the issuer bank. The lead bank will be the entity running
the payment eco-system and solution platform. The lead
bank also controls customers and merchants informa-
tion; and manages the enrollment of other consortium
members |ssuer ben|s, end ecqu|rer ben|s. he |ssuer
bank will market the product to the customers and
approve their enrollment. The acquirer bank will market
the product to merchants and also enroll them, sign
legal contracts, and provide current account facilities.
2. S/w download and
activation via SMS
Payment Platform Provider
Customer
Retail Physical Shop/
Delivery personnel
7a. Conrmation of debit
& new balance sent via
Secure SMS
6. Barcode data
(Amount, ID etc)
sent as secure
SMS/ GPRS
7b. Approval
Conrmation of
payment via GPRS/
Secure SMS
1. Request for registration:
Mobile #, limit
3. Enters Amount.
Dynamic Barcode
generated in mobile
phone
8. Delivery of goods
4. Shows barcode
5. Scans using mobile and
s/w authenticates barcode
Figure 16: Steps of a model solution from the private sector
The three bank types are actually roles that any entity
can play. For example, a lead bank can also take the role
of an issuer bank which means it can also market the
product to its customers. Or any single bank can take
all the three roles, maintaining a tight control over the
whole ecosystem.
This prepaid solution will enable customers to do
top-ups, similar to mobile talk-time recharges and to
credit money to their mobile wallets. This amount can
be as high or as low as the customer desires, based on
his or her purchasing behaviour, and risk perception in
case of loss of the mobile phone. This solution helps
avoid exposing the customers entire bank account
limiting the damage caused in case of theft of the
mobile phone. Also it gives the customer full control
over the balance in his mobile payment account, which
can be kept zero if the account is not going to be used
for long periods of time.
Mobile Payments in India New frontiers of growth 15
Registration Payment Recharge
This will be a one time activity
and needs to be done by both the
customer and the merchant. After
presenting a registration request
to their banks, and authenticating
themselves, a link will be sent
containing the mobile application
to be installed on their devices.
Once this is installed, a mobile
account will be created, and they
will be asked to choose a PIN
to restrict access to the mobile
application
When the user wants to pay, he or
she will access the mobile payment
application by entering the PIN and
the required amount to be paid. The
customers device will then generate
a unique bar-code which can be read
by the merchants mobile phone
through its camera. The code will
have details about the customer, the
amount to be transferred, time of
transfer, place, etc. These details will
be sent by the merchants mobile
phone in an encrypted fashion to a
central server from where the funds
will be debited from the customers
prepaid account and credited to the
merchants account. Conrmation
messages will be sent to both the
customer and the merchant
Customers can credit their prepaid
account by transferring funds from
a bank account, or through their
credit/ debit cards. This process can
be done online from any internet
enabled terminal, or by visiting any of
the bank branches or ATMs
This mobile payment process is divided into three distinct modes which are outlined below:
We believe the above solutions overcome many of the inadequacies currently encountered in other non-cash
payment systems. Such solutions need a tightly knit vast ecosystem to ensure large penetration and usage.
The Road Ahead
18
Given that mobile payments is the future of non-cash payment mechanisms in India, adequate steps need to be
taken to tap this vast opportunity. This wave of mobile money momentum, if facilitated by regulation and right
business model, has the potential to revolutionize the payment system. Stakeholders involved in the development
of the mobile payments ecosystem are the regulatory authorities (RBI), network operators, nancial institutions, and
technology providers.
RBI has already taken multiple steps in this regard by issuing guidelines for pre-paid instruments in the country (Refer
Figure 17). The regulator has allowed non-banks to issue mobile payment instruments to the end users. The daily
limits set for mobile transactions have also been increased in the latest amendment to the guidelines.
A plethora of technologies for mobile payments are available in the market from domestic and foreign players. With
the growing support of the regulator and availability of technology, it is advisable for other stakeholders to focus on
innovating mobile payment solutions, which are customized to the Indian market and have a mass appeal.
Nov 2008 Jan 2009 Apr 2009 Aug 2009 Nov 2010
Approach
paper
issued
Draft
guidelines
released
Guidelines on prepaid
instruments issued
Amendment 1
Other Persons (non-
banks/NBFCs) permitted
to issue m- based semi-
closed instruments s.t .
Cap at ` 5K
No purchase/loading
against airtime
No P2P value transfer
Authorization from RBI
needed
Semi -closed instruments
usage allowed for bill
payments and ticketing
Banks permitted to issue
semi -closed instruments through
agents
Cap for sale/reload by cash
set at ` 5K
Limit for ticketing and bill
payments would be ` 10K
Issue of co - branded
instruments allowed
Amendment 2
Can be used for
purchase of goods &
services
Only banks offering
m-banking can launch
m-based instruments
Cap for issue/reload set
at ` 50K per customer
Comments received from
Figure 17: RBI guidelines on pre-paid instruments
banks, existing issuers
- -
-
-
-
-

-
-
Mobile Payments in India New frontiers of growth
Players who identify this opportunity,
and leverage available technologies and
regulations to carve out mobile retail
payment solutions that are suitable to
the Indian marketplace are set to
emerge leaders in this space, leaving
others behind.
19
Acknowledgements
Sachin Sondhi
Senior Director and Leader
Strategy & Operations Consulting
Mobile: +91 96195 98972
Email: [email protected]
Sandip Biswas
Director
Strategy & Operations Consulting
Mobile: +91 99300 09225
Email: [email protected]
Shantanu Upadhyay
Senior Manager
Strategy & Operations Consulting
Mobile: +91 85270 03666
Email: [email protected]
Kakul Sinha
Manager
Strategy & Operations Consulting
Mobile: +91-99205-22778
Email: [email protected]
Gunjan Gupta
Manager
Strategy & Operations Consulting
Mobile: +91 99200 31190
Email: [email protected]
Anupriya Nayyar
Senior Consultant
Strategy & Operations Consulting
Mobile: +91 98208 25275
Email: [email protected]
Sachin Shirwalkar
Consultant
Strategy & Operations Consulting
Mobile: +91 88986 54623
Email: [email protected]
During the course of writing the paper, frequent discussions were conducted with eMudhra Consumer Services Ltd,
a technology enabled consumer solutions provider. We would like to thank them for their inputs and knowledge
shared with us on this subject.
ASSOCHAM contacts
D.S. Rawat
Secretary General
ASSOCHAM
Tel: 011-46550555
Email: [email protected]
Ajay Sharma
Director
ASSOCHAM
Tel: 011-46550555
Email: [email protected]
20
Mobile Payments in India New frontiers of growth
Notes
21
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