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Mobile Financial Services in India - a catalyst for financial inclusion

incentives, plans are to reach 600 million by 2014, led by UIDAI Chairman Nandan Nilekani.

Key points
India is on track to leverage mobile bankbased model at scale but, will trajectory equal that of M-PESA Kenya? Domestic card scheme RuPay now in use by 4 banks will this impact digital wallets such as Visas? Foreign companies restricted from launching prepaid products and mobile wallet how does this impact new market entrants such as Google wallet?

Using this UID, no-frills accounts can be opened and accessed via mobile and biometrics. Low value transactions can whizz across new payment highways - the purpose built REMIT hub and the INFAST no-frills accounts store.

Mobile conquers income barrier

Indias recent stellar growth rates helped it outstrip many Western economies. One success story has been access to mobile communication across all segments. Growing at 40% per quarter, and already at 850 million subscribers, market penetration is still just 49% and skewed toward urban areas. From their success in India, mobile operators have grown into dominant global players; the Airtel group is now one of the largest in the world by mobile connections.

Figure 1: Top five mobile operators in India

Who can offer services?

Since 2007 under the PSS act, and furthered in 2009, non-banks are permitted to operate payment systems such as issue of prepaid payment instruments. Non-banks can be business correspondents, open accounts and manage Cash In-Cash Out supported by micro-ATMs connected to the REMIT hub. In December 2010 amendments were made to recognise Aadhaar for KYC. RBI recently further permitted banks to issue prepaid instruments to corporates for employees. However an RBI circular of August 4, 2011 restricts bank issue of prepaid instruments such as smart cards, magnetic stripe cards and mobile wallets to corporates listed in a stock exchange in India.

Mobile Money in India

In a country of over 1.2 billion people, only around 100,000 of 600,000 villages had banking services as of March 2011. With just 80,000 ATMs and around 610,000 POS wellcrafted mobile money services could see traction as never witnessed before. Mobile is seen as a key channel for extending financial services to the 145 million households (50% of the population) now facing financial exclusion. One year after the IMG Report, 30 million residents already have the unique identity number (UID) Aadhaar (support). By issuing these free and providing

Segments and Services

Government welfare pay-outs to unbanked residents can vastly benefit from mobile money. However in a country with 90% cash

payment, Companies, Banks and higher income individuals can also move to non-cash to pay newly included individuals. Another move to non-cash is the rapid development of the card segment, with 18 million outstanding credit cards and 228 million debit cards. The prepaid card market in India no doubt influenced Visas digital wallet strategy announced in May this year. However, fast taking shape is the domestic card scheme RuPay already in use by 4 banks. Certainly Indias coveted position as world leading receiver of remittances (See Figure 2) puts inbound remittance high on any agenda.

After a slow start, Mobile Banking is also growing. Only 5% of mobile subscribers are claimed to be registered for mobile banking, of which 0.5% are active users. Recent drivers are: Banks advised to make payments only through electronic transfers and not cheques from 1st September 2011 RFID tags recommended for Electronic Toll Collection (ETC) on national highways Metro transport projects gearing up for contactless payments Bank technology upgrades to address convergence of payments with key importance to Internet and mobile channels

What is next?
As the customer increasingly asserts choice, were likely to see a host of value added services emerging around the mobile device, and mobile payments can never be far behind! The Google Wallet is a strong example and like the 4-minute mile, records are made to be broken. Conditions seem right for the emergence of home-grown Paypal contenders, just as we saw a slew of new entrants like in the UK market. Author: Charmaine Oak

Figure 2: Remittances to and from India in US$ billions

Online payment, by card or digital wallet is another rapidly growing market. Electronic bill payment also ticks many boxes in terms of saving time and offering a real solution to the consumer and biller alike. However use of Paypal has been discouraged through more than one recent move.

Specialist consultants in Global Digital Money

State of play
Mobile Payments has strongly taken off since 2010 when Bharti Airtel received a license to use their Semi-Closed Wallet. In January 2011 Airtel Money launched, claiming to be Indias first mobile operator led wallet service.

Practice Lead Digital Money