A viable business model for over the counter mobile payments (OTC) in India

Abstract

Over-the-counter mobile payment is a basic service involving an electronic money transaction between two peers (human or machine), enabled through mobile phones. Currently in India, over the counter payments are made by customers using various financial instruments such as cash, credit and debit cards, coupons such as Sodexho etc. However these payment methods, except cash, are only available to a minority of India s population. It is estimated that, of the 1.2 billion people in India, fewer than 250 million currently have bank accounts (Cognet, 2010). In 2009-10, the number of credit cards and debit cards (OutlookIndia.com) in India was 18.3 million and 181.4 million respectively. Given this scenario and the fact that mobile penetration is high in India, the disruptive mobile technologies will provide a great opportunity that can be used to serve this section of the country. Our study is aimed at understanding customer and merchant adoption of the over the counter mobile payments, understanding various proposed and existing business models for mobile payments and suggest a viable business model that will work in India. For the sake of this study we have conducted a survey to understand the customer adoption and interviewed merchants to understand merchant adoption. The customer survey was mainly targeted at the potential early adaptors namely the IT professionals and Students. Majority of the respondents belonged to the age group of 26-35. With regards to the unbanked population, we have completed a literature review and suggested a viable model based on the literature review. For the merchant interview, we categorized the merchants in the following categories ? Mom and Pop Stores that do not accept electronic payment systems and primarily transact using Cash ? Mom and Pop Stores that accept some kind of electronic payment systems. Retail chains and super markets. From the customer survey, the following were observed ? About 79% of the respondents preferred electronic mode of payments ? 64% of them carried a smart or feature phone ? About 70% of the respondents have heard about the mobile payments but only about 10% of them have used it ? 42% of the respondents did not think that mobile payments are secure ? 50% of them said that they will use mobile payments if it is enabled in their neighbourhood stores. ? 2/3rd (66%) of respondents are not willing to pay for this service The Merchant interview revealed the following ? Merchants believe in providing what customers need. ? They want to ensure that they do not lose the customers. If customers want CC/DC payment, they want to provide if competition is also providing for it. ? 80% of the merchants view payment systems as customer service. ? Merchants are willing to pay a fee for the mobile payment service but do not want to pay a Transaction Discount Rate (TDR) more than what they are paying currently for the credit/debit card service. ? 50% of merchants interviewed had heard about the mobile payment system ? 60% of interviewed merchants mentioned that they are ready to accept mobile payments if their customers ask for it and if it is cheaper than the credit/debit cards Based on the customer survey and merchant interview outcomes, the following key conclusions can be made: ? Both customers and merchants need to be educated about the mobile payment system through relevant communications and a pilot ? Mobile payments will stay if the customers adopt it and thus we have to find a way to incentivize the customers to do so ? It must be cost effective for the merchants for them to adopt it.All the other stakeholders in the ecosystem namely the Mobile Payment Service Providers (MPSP), Banks, Telecom Service providers (TSP) should be shown the value of the mobile payment systems. Currently mobile payment companies in India like mChek are using the existing credit card/Debit card ecosystem to complete the mobile payment transactions. They have an application that resides on the customer s mobile phone. The credit card or debit card information is registered with this application and when a mobile payment transaction is initiated by the customer, it is routed through the credit card/debit card ecosystem that currently exists. In our proposed business model, which is detailed in this report, we are proposing to use the IMPS platform that is provided by NPCI for mobile payments. The mobile payments system so created will be independent of credit/debit cards which will enable even the non-credit card holders to use this service. It can also be noted that we are not considering a semi-closed wallet as viable due to the RBI regulations that exists today.