Report on Indian Mobile Payments

With more than 900 million mobile subscribers, India has a burgeoning desire for internet on mobile, and the same should be expected for payments and commerce on mobile. Although mobile payments have been available in India since 2010, only a small fraction of the mobile users make payments through mobile devices. Companies such as mChek and Beam Money who were early innovators in the space have already closed down.

Earlier mobile transactions involved typing out complicated SMS messages for making payments. Furthermore, the whole process of payment was dependent on the telecom network. However, with increased smartphone penetration, app and wallet based payment solutions, the problem of dependence on network operators and the complexity in sending SMS to enable payments have been addressed. According to a recent report by GrowthPraxis, the market for mobile enabled payments in India has grown more than 15 times to reach its current size of US$ 1.4 billion by the end of FY’15 from US$ 90 million at the end of FY’12.

There are clearly some encouraging signs even underneath the macro numbers. While the foundation of technology enablers and building blocks get stronger, there is also a better appreciation today of the similarities and differences of the Indian ecosystem relative to other markets that have faced similar growth challenges.

A careful analysis of the report by GrowthPraxis indicated that mobile payments in India are predominantly used for remote payments. Payment services offered by mobile payment companies are currently in the realm of conventional net banking. Utility bill payments currently hold a share of 34% of the mobile payments value, while prepaid top-ups and domestic remittance hold 30% and 26% respectively. Ease of merchant acquisition is expected to enable the prepaid top ups market, to grow the fastest at a rate of 38% followed by P2P remittances when it comes to mobile payments. On the other hand, the issue of merchant on-boarding might inhibit the growth of m-shopping, which is broader than what is typically offered as m-payments.

However, the penetration of mobile in proximity payments is currently negligible with less than 2% flowing into it. The fundamental issue with proximity payments is the lack of necessary infrastructure for mobile payment acceptance. The total number of POS terminals in India is less than 700,000 which equates to 5.4% penetration. To add to this concern, more than 13 million retail establishments are fragmented across the country with almost little capability and incentive to acquire POS terminals. Another key challenge in implementing proximity mobile payments in India is the apparent lack of readiness of various players to interoperate in order to adopt the technology at scale. Mobile payment service providers and banks need to work together to create a seamless ecosystem for the technology to work efficiently. On the solutions side, none of the incumbents’ mobile payment companies are currently set up for the mass market. All players solve specific problems with limited geographical reach. The partnership model which is presently taking off in other developed economies is still yet to gain traction in India.

The future of mobile payments in India depends largely on the payments bank license which is to be provided by RBI. Both telecom operators and third party payments service providers have applied for the license. Companies like Paytm, essentially technology companies operating in the transaction space, do not have physical retail networks, particularly in rural areas, where a large section of the currently unbanked population resides. On the contrary, telecom operators can at least make use of their network indirectly (RBI does not allow telecom companies to use their network for payments bank) for last mile connectivity. However, those with payments bank license will be able to allow cash withdrawals through a wallet which would solve a portion of the problem.  International remittance which is currently not allowed for non banks can be offered through payments banks’ wallets which will be an additional revenue stream. Although payment banks will allow cash withdrawal, international remittances etc., the proliferation of mainstream proximity mobile payments in India still seems to be a distant dream.

Of course, it can be argued whether India really needs proximity payments, or if other methods might prove to be more effective, both from an operational perspective as well as a practical consumer habit perspective. There is also a case to be made for harnessing the positives: capabilities such as IMPS (for real time payments), the progressive posture of the Reserve Bank of India, the re-energized early stage ecosystem, etc.

Indeed, all these factors are seeding and feeding an active startup scene in payments and commerce in India, and the future looks more promising than ever.

 

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Table of Contents

  1. Executive Summary
  2. Mobile Payments Evolution in India
  3. Mobile Wallets Market in India
  4. Mobile Wallets Market Segmentation
  5. Mobile Wallets Market Growth
  6. Mobile Wallet Transactions – Volume and Value
  7. Mobile Wallet Company Landscape
  8. Mobile Wallets Market Share Analysis
  9. Business Model of Vodafone and Airtel Money
  10. Proximity Payments in India
  11. NFC Payments in India
  12. NFC Deployments in India
  13. Mobile Banking Landscape in India
  14. Mobile Banking Market Share Analysis
  15. IMPS