Evolution of mobile payment

Tags: Banking

The launch of e-wallets by several non-banking entities reflects the big opportunity for mobile payment in the prepaid instruments segment

Mobile phones have been a rapidly evolving channel for various payment systems, some bank-led and some agnostic of banks involving mobile operators.

According to annual report by the Reserve Bank of India (RBI) on payment system trends in 2011-12, transactions pertaining to prepaid instruments (PPIs) to the tune of Rs 6,200 crore took place during 2011-12, and in the same period, mobile banking transactions to the tune of around Rs 1,820 crore were effected. These were outside of the national electronic clearing system that primarily covers internet-based funds transfer.

Mobile payments, in addition to credit cards, debit cards and other prepaid instruments, have accelerated the non-cash payments growth. PPIs registered a 67 per cent growth in value terms during 2011-12 and constituted 36.3 per cent of total card segment in the country. As of March, 39 banks, including the Department of Post and 20 non-bank entities, were authorised to issue PPIs by RBI.

System experts say the launch of e-wallets by non-banking entities reflects the big opportunity for mobile wallets in the PPI segment. To encourage use of mobile phones as a payment channel, the Indian policy environment has adopted a bank-led payment model.

As of March, 49 banks with a customer base of 13 million, provided mobile banking services in India. During 2011-12, 25.6 million mobile banking transactions valued at Rs 1,820 crore took place, registering a growth of around 200 per cent over the previous year, according to RBI’s Vision Document (2009-12) for the Indian payment and settlement system.

The growing popularity of mobile banking facility, particularly for small-value transactions, prompted RBI to raise the limit for end-to-end encryption from Rs 1,000 to Rs 5,000 and remove the transaction limit of Rs 50,000 per customer per day during 2011-12.

For fund transfer through the 24x7 electronic funds transfer system – Interbank Mobile payment Service (IMPS) – the National Payment Corporation of India (NPCI) is attempting an unstructured supplementary services data (USSD) across mobile network operators.

Though the system is good, the transaction volumes are low. The USSD platform is menu-driven and can be invoked by dialing a number and allows banking transactions even with low-cost handsets.

The central bank has provided the policy framework for collaboration between banks and mobile network operators, and this model piloted in India is expected to boost mobile payments under the ambit of financial inclusion.

To give impetus, the limit of mobile wallets, which was Rs 5,000 earlier, was brought on a par with other PPIs by raising it to Rs 50,000 recently. The domestic fund transfer scheme was also rationalised to enable person-to-person fund transfer.

The threshold limit of transactions for mobile banking transactions without end-to-end encryption was raised from Rs 1,000 to Rs 5,000. Also, the Rs 50,000 limit per transaction has been done away, and the banks have been permitted to fix the limits based on their own risk perception.

Though the value and volume of mobile transactions are increasing on a month-on-month basis, the growth rate is low when compared with the number of bank accounts and the mobile subscriber base of more than 800 million. This indicates that banks are yet to fully exploit this channel even for their existing customers.

Among other issues, stakeholders have flagged the issues relating to ownership of a customer, control of transactions and developing an appropriate revenue sharing model.

Before India, many countries have experimented with mobile-based remittance services for reaching the unbanked population. M-Pesa in Kenya, Tigo Cash in Paraguay, Pago Movi in Peru, Nipper in Mexico and Oi in Brazil are some international examples.

Mobile wallets: Mobile wallets are e-money products that can be used for purchase of goods and services. They are PPIs that reside on mobile phones. Mobile wallets could also be used for funds transfers.

Ten entities have been authorised to issue mobile wallets; of them, one is a subsidiary of a leading telecom player. Several others are in the pipeline with three to four of them being leading telecom players, said RBI deputy governor Khan in a presentation on issues and challenges in customising mobile banking in India in October.

In Indian context, money transfers through mobile wallets (up to Rs 50,000 at present) leveraging the national electronic fund transfer (NEFT) platform of RBI are being promoted by a few telecom companies and hold a promise for facilitating money remittances.

This month, Vodafone India, through a 100 per cent subsidiary, and ICICI Bank announced m-pesa, a money transfer, mobile payment and m-commerce service in West Bengal, Bihar and Jharkhand. The mobile money account will be from ICICI Bank, while Vodafone would issue the mobile wallet.

M-pesa will allow cash deposits and withdrawal from designated outlets, money transfer to mobile phones in India, purchase of mobile and DTH recharge and utility bill payments, among others. A network of authorised agents will also come into play, particularly in remote areas.

Meanwhile, Calpian’s Indian subsidiary, Money-On-Mobile, a mobile payment service provider that offers prepaid and electronic payment instruments to mobile phone subscribers for purchasing goods and services, is currently supported by over 110,000 retail locations and accessed by approximately 17.8 million unique users since April.

Shashank Joshi, Money-on-Mobile on-site Indian manager, said Money-on-Mobile operated independent of consumer’s mobile operator or bank. “Any mobile subscriber can avail services through SMS or mobile application-based platform,” he said.

According to him, there is a 10 per cent growth in the number of users on a month-on-month basis for the past 18 months. “People look at mobile wallet services as something similar to mobile banking. Both are different. A wallet service does not tie a bank account with it,” he said, adding that 1 to 4 per cent commission from merchants is the major revenue source for it. It does not charge the end users anything.

Mostly, m-wallet now is used for mobile and DTH recharges, paying utility bills, gas and more. In the next six months, it will launch more services — ticketing, shopping, merchandise and coffee kiosks, he said, adding the limit for m-wallet is Rs 5,000 per day (Rs 50,000 for mobile banking).

Telecom operator Airtel too, recently launched its m-wallet service, Airtel Money, for its subscribers.

With Airtel Money one can pay for mobile and DTH recharges of all operators, postpaid and fixed line bills, electricity, gas, insurance, movie tickets, restaurants, spas, shopping, online shopping, among others, depending on the variant of the account. The spending, sending and receiving limits differ with the variant. Airtel tied up with Axis Bank for its offerings in select states.

Earlier, an Assocham-Deloitte study in June 2011 said that mobile wallets for electronic payments through smart phones are set to grow fast with nearly 100 per cent mobile penetration in the next four years and a booming retail market with annual transactions worth Rs 18,50,000 crore.

Mobile phones have grown from a very small base to overtake even television viewership. Even the penetration of personal computers has been mainly restricted to urban India, making the installed base minimal at 95 million, said the study.

Challenges, however, remain. The point of settlement terminals in India remain low at 419 per million inhabitants, compared with 1,700 in China, 17,020 in the United States and 24,611 in Brazil. Even organised retail is just about 5 per cent of the total market and transactions continue to be low due to a widely distributed retail industry.

krishnamohan@mydigitalfc.com

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