Abstract –This article is focused on two recent changes in the mobile payments industry. First being an attempt to derive a positive outcome from the recent revolutionary steps taken by the Reserve Bank of India, and secondly, how these will put pressure, impact, or attract eagle eyes from its neighbors who also follow the same thought process.
Times have changed, and with change comes opportunity. Over the past few years, the face of financial payments in most developing countries has undergone a radical change, and now it’s India’s turn to transform the payment space through initiatives where tickets are issued to non-bankers to start a journey by diversifying from a bank model to a mobile network operator (MNO) or mobile financial services provider (MFS)-dominated model.
Introduction – Cash is THE KING
This change will bring financial inclusion to the most marginalized citizens and will greatly improve efficiencies in the payment industry. As a result, banks will have great difficulty competing with MNOs and MFS providers. This is risky as well for a market like India, where cash is the king and people proudly put stickers at their payment counters reading “Even God Pays Cash Here.”.
The financial situation is dire, as we were informed of yet another bank going bust a few days ago. Investments can go down as well as up, and nobody knows the date. But, with governments realizing that digital currencies are the currency of the future and exchanges springing up across the world, it would be a brave man to bet on the demise of block-chain-backed digital currencies. The Ministry of Innovation is now in play mode and is ready to roll.
Relationship – Cash and Payments
Accessibility is a critical success factor for any service. Informal institutions providing financial services to members of the community rely on easy accessibility to banking services, whereas banks have traditionally relied on a wide branch network of fully branded brick-and-mortar banking halls with all the necessary staffing and security systems. India has lots of exciting times ahead where it will see transformations in lives, businesses, and many more along this line.
With floods of options led by the RBI for private players in India and soon international players like Apple Pay, Android Pay, and Samsung Pay, soon to be challenged by Microsoft and others. The confusion is such that digital currencies just might be the way that retailers, large and small, will have to go, with or without choice.
If you are a big data enthusiast in the payments industry, a financial technologist ramping up (or scratching your head), or even an industry reviewer with business analytics and strategy goals, it is important to spend some serious time deeply understanding the architecture of key systems to appreciate this evolution.
Understanding the architectural components and subtleties would also help you choose and apply the appropriate technology for your use case, payment methods, or acceptance methods. In my odyssey over the past few years, some real-life experience in payments and literature on innovations in this area have helped me become a better educated MFS professional.
My goal here is not to share only literature or my own assumptions with conclusions (which would be very unfair and lacking in logic), but to also use the opportunity to put some sanity into the labyrinth of open source systems.
CashLess or LessCash
When was the last time the Indian payment market, whether in the banking or non-banking domain, did something for the first time? I guess I can’t remember the answer. Now, after this wonderful step from the RBI of issuing payment bank licenses to non-banking companies (yes, many more are coming in soon on the same line), the Indian finance ministry mulls a 1% income tax rebate for credit or debit card payments.
India is experiencing disruption in financial services, or one can say it is going to experience the Indian Independence Movement of 1857, whichever is the case, the Indian payment market is surely going to see a big revolution. The RBI did a splendid job by granting 11 licenses for payment banks. The payment bank is a great piece of innovation from the RBI and is an excellent example of a step taken into reality and the future. Accepting the change itself is a commendable job.
The Indian payment market is cash-dominated, and people just love cash; in some cases, they even love to sleep over cash (some pump cash into their mattresses or cushions). Change is coming, and without saying it, change also brings many opportunities and challenges.
As of date, the Indian market has a big menu or table full of so many exciting items like new licenses, smart phones, Aadhar identification, IMPS, e-sign, payment banks, etc. All the changes coming in require drastic changes in regulations, technologies, design, and market trends, and the biggest one is subscriber behavior or mindset.
Do you remember what WhatsApp did in 2009? Brace up for the same now. This will turn India into a cashless society, or more of a digital cash society. On the impact side, one can anticipate positive outcomes.
- Expand the financial sector’s reach by leveraging mobile media.
- Domestic remittances and interpayment bank transfers will reduce the time to send and receive funds and payments to almost zero.
- Ease of use for financial services via various interfaces like IVR, USSD, SMS, and smart apps
- expand the set of services to a larger sector of society.
- Solution Providers (Service Providers) for Prompt Payment of Bills, Enabling Better Cash Flow
- Acquire a large number of customers for their solutions or services.
As they say, there will always be southward runners when you are walking toward the north. The more you grow, the more they run southward; the more they try to go south, the more you will be pushed off towards the north. In reality, most innovation haters are stuck in a poisonous mental prison of jealousy and self-doubt that blinds them to their own potential. (Nothing against anyone who has read something on some blogs;
I guess I should not have done that before completing this write-up.) Microsoft Payments, also known as MS Pay, is going to join Apple, Android, and Samsung in the payment war. Windows 10 for phones supports host card emulation; licensing makes it official. And now, within the same paragraph, we can correlate the first and later parts to make context out of the same, pointing to a new wave of payment that will bring excellent change and good things to life and people’s jobs.
The issuance of 11 payment banking licenses is evidence that the Indian payment market has taken the first major step towards freedom from cash. Aditya Birla Nuvo Ltd., Airtel M Commerce Services Ltd. (part of India’s largest MNO, Bharti Airtel Ltd.), Cholamandalam Distribution Services Ltd., the Department of Posts, FINO PayTech Ltd., the National Securities Depository Ltd. (NSDL), Reliance Industries Ltd. (RIL), Tech Mahindra Ltd., and Vodafone m-pesa Ltd. (part of Vodafone India Ltd.)
Since the RBI does not want corporates in banking, they are going for the next big thing that’s available: payment bank licenses. The reasons why payment banking will revolutionize the money movement are many. Consider the areas they will touch and how their mere presence will impact everyone.
The new category of banks, which will be proven “to be disruptive,”, will provide basic savings, deposit, payment, and remittance services to people without access to the formal banking system. Finally, India will also see financial inclusion in the real sense.
The savings groups will operate by using an existing or upcoming mobile wallet developed for basic or smart phones. It will bring ice cream eating simple processes like the use of existing or upcoming mobile wallets, Automatic book-keeping and message service, Group savings will be another disruptive move that will be very effective and safe in the name of Chit-Fund (a kind of savings group). The payment banks will target financially excluded customers like people in diaspora, low-income households, and informal small-scale businesses.
Payment banks are currently restricted from the business of lending, so they will be shielded from the risks that conventional banks are exposed to. In the long run, I would like to see services like microcredit, microinsurance, funeral cover, accident insurance, etc. coming in. Over the course of time, there is a big opportunity to build a credit rating system for ratings and learning behavior, which will then enable extra benefits and services to attract more and more subscribers.
While mobile payment announcements from various smartphone makers are growing in frequency, there are still too many unknown and doubtful thoughts that such services will drive much interest in buying the smartphones that support them. The time has now come for banks and other entities with an interest in financial service provision to step up as one team, exploit technology, and leverage existing MNO infrastructure to acquire customers, enrich use cases, lower costs, and increase revenues.
Some Key Questions still remains unanswered though1) Which route to go as crux of this discussion?
2) What are your views on same?
3) What are the implications of this radical change?
4) Is it going to change the Indian world (very likely), be a significant “win”, be a nice hack, or simply serve as a road sign indicating that this path is “unknown”? Which system is useful and needed for the business considering the market in which you operate and synchronized with your strategies and goals? Your views and comments are welcome.
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Conclusion –If the Earth starts rotating 30 times faster, that does not mean it will start bringing you salaries 30 times a month or every day. In a nutshell, such changes are good and always bring benefits for society, but we need to be patient enough before we start milking the cow. What are the implications of mobile-based payments and solutions? Is it going to change the world, be a significant “win” or be a nice hack? Proximity-based, mobile app, SMS or USSD, cloud, or hosted mobile payments can be supported globally and will give financial institutions and partners greater choice in offering consumers secure ways to pay with smartphones.
