Mobile payments potentials and challenges

My recent discussion with group of friends on revision of m-wallet guidelines by RBI

made me write this post. It was revealed to me that most often people confuse
mobile banking (access to banking account through mobile) and m-wallet (offered
by the likes of airtel money, paytm and m-pesa) . Luckily some of the carriers
(Airtel and Vodafone) had advertised well for me to set the premise for the mobile
based Pre-Paid instrument (PPI) as the central banker in India would prefer to call it.
M-wallet ecosystem (like our physical currency ecosystem) is well advance in Kenya
and many African nations where the mobile money is considered safer and easier.
Electronic money has reduced operational costs in the supply chain by eliminating
cash management issues and associated risk of being stolen. In India m-wallet is
seen as a way for the essential financial inclusion and to reach the masses faster
than traditional routes for subsidies and supports. The electronic nature of
transactions ensure the safety and confidence of the benefits reaching the needy.
The m-wallet ecosystem in India is still not efficient as it works by Push marketing
from the m-wallet organizations and cash management is done at the wallet
provider end. This fails to solve the cash management problem and passes it to the
m-wallet providers who hope for an ecosystem to develop where physical cash-in
would be eliminated. All use cases for m-wallet like the migrant workers, Supply
chain cash management and Loan repayment model focus on having a place to
cash-in. This passes the burden of cash management to the merchants and mwallet operators. The concept of an m-wallet ecosystem is not established.
What prompted this post is the recent trend in mobile transactions using PPI
accompanied with a significant policy guideline on Pre-Paid instrument Mass transit
systems (PPI-MTS) by RBI. Both of them seemed to mark the end of early cocoon
phase in the life of mobile wallets and mark the significant beginning of other.
Trend in Transaction
The m-wallet transactions volumes and values published by RBI indicate a clear
growth trend till Feb 2015. Data indicates that people make trial transaction which
pull down the value per transaction and as they gain confidence the value per
transaction goes up. The overall value per transaction is hovering around Rs 300.
This is significant as median transaction could be higher considering high volume
low value transactions made by newly on boarded PPI users. March and April show a
significant surge in the number of transactions and the value per transaction
dropped down to Rs.178.
The trend is an indication of higher number of individuals following the technology
and moving towards the tipping point where the ecosystem for the technology is in
place as more and more people use the technology. One could discard it as the
sales effort, However the surge in volume of transactions is phenomenal with a
month on month growth averaging 75% (in the past two months) compared to the
earlier values of lesser than 15% (in the past one year). The drop in value is an
indicator of newer transactions as much more people are exploring the new system
making minimum value transactions to check the feasibility and security. I have

added the trend graphs for volume and value of m-wallet transctions for readers
reference. (Data source: RBI data on payment indicators)
If this trend sustains I am sure that in two years RBI might cut back the budget on
printing paper currency.

14

80

12

70
60

10

50

Volume - Millions

40
6

30

20

2
0
Nov-13

Value Billions

10

Jun-14

Dec-14

0
Jul-15

RBI Guidelines
On 28th May 2015 RBI amended payment system guidelines with a new category
Pre-Paid Instruments for Mass transit systems (PPI-MTS). This targets very high
volume low value transaction urban users. The policy brings technology closer to
the user, and with constant usage hopes to develop the habit of e-currency/mcurrency. The Policy allows the MTS operators to issue and operate such payment
wallets providing m-wallet companies another big client on their list.
This could be a landmark policy by the Central bank in its efforts to bring into
account most transactions and reduce usage of physical currency. A way to bring
financial inclusion to the bottom of Pyramid. It is a welcome move as it enables the
establishment of an ecosystem where the payment instrument is used and an
easier way for the users to cash-in.

Need of the hour

Though the RBI has to be applauded for its efforts in the direction of financial
inclusion through m-wallets, what is not seen is the interaction between the central
banker and the technology development organizations. The Roadmap of m-wallet
technology should be in sync with the RBI roadmap for the payment system. A
collaboration of the central bank with all technology providers in this area is

essential as it eliminates the gap in policy implementation time and availability of

technology.
Currently most of the transaction on m-wallets are miniscule and the overall value is
less but it is worth the effort to observe the patterns and deploy predictive analytics
associated with such high volume low value transactions. Infrastructure for
monitoring should be built simultaneously by the owner operators as a single failure
when there are over a billion transactions will affect badly the reliability of the
system among the users.
The USSD interface, though the most reliable and secure mode for transactions has
significant drawbacks as it is difficult for the rural folks to key in data for each
transaction. Technology has to be innovative to make this mode user friendly and
match the needs of lesser literate masses for whom it is meant to be.
Well Miles to go before it beeps.