This is my first post here. First of all, thanks for Alok for creating such a nice platform.
There are two types of e-commerce transactions on Internet. First, the consumer who makes the transaction on his behalf or family or for a friend and secondly an agent (ICT kiosks, Internet Cafes, etc) who completes the transaction on behalf of his customer.
Indian e-commerce industry minus IRCTC is almost like industry is still in infancy stage. So it is clear that insights from IRCTC would help us in understanding the e-commerce trends. Fortunately, every month, IRCTC publishes actual statistics on transactions with complete details on its website.
If you observe statistics of any month, at first you would wonder that cash card transactions are like one-third of total transactions (rest are credit or debit or netbanking). And in fact you find, cash card transactions growth rate is much higher than all other modes of payment. Then you would start feeling like, you have never heard of them anyone using it, but then how come such large number of transactions?
I used be working as IT Security consultant for payment card industry (now I work on rural services) and so I would like to you give you a detailed story behind this wonder. Business model of any cash-card company (ITZ Cash, Done Card, iCashcard) would give the reason behind it.
Platform: It is two sided. Cash-card companies just tie-up with numerous merchants/service providers (like telecom or ticketing etc). And later they start acquiring agents to use their technology platform. Typically these agents are: ICT Kiosks owners or Cyber cafes or computer education centers or the latest PCO/STD 2.0 etc.
Target Audience: Who all can’t goto a website and/or can’t pay through credit or debit card for remote payments. India has less than 50 million regular users of Internet and large number of people are outside of the formal banking channels. That gives you the reason for much higher number of transactions on cash-card mode. This indicates, those agents become the middlemen between the remote customer and the service provider.
Commission: Most times, cash-card companies get discount from the service providers (usually 3% to 5%), a portion of which would be passed to their agents (for example air ticketing works in this manner!). Otherwise, customer is charged (for example, IRCTC don’t give any commission to cash-card guys and so, agents would charge customers on top of the ticket cost).
Other revenues: Of course there could be a small percentage of direct consumers who would use the cash-card on web. But that is not what makes significant cash-flow for a cash-card company.
Future: So it is obvious that cash-card transactions would become much higher than credit or debit card transactions when cash card companies can acquire much more agents (in particular rural areas) along with more service providers (such as electricity/water distribution companies).
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Now comes the biggest disclosure: In fact, strength of any payment card system lies with the following three points.
- They must tie up with as many merchants as possible.
- Technology/process that makes the consumer to use the card for payment.
- Card distribution should be efficient.
Now, how are the famous credit card companies (VISA or MasterCard) placed in the above points. Firstly, they are accepted with innumerous merchants. Secondly, consumer can use the card at merchant outlet or online or telephone or SMS or etc. Thirdly, Banks issue credit/debit cards to the consumers on behalf of VISA/Mastercard. Now coming to the costs of this ecosystem of digital payments is usually less than 5% of the value of the transactions (VISA, Banks, Merchants share this 5%). As the Mobile payments is getting matured, this value is getting closer to 3%.
Of course, companies involved in this payment ecosystem also have additional revenue through other value added services such as interest charged to the customer by providing them credit, etc.
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Nice post Malapati.
Mobile Payment companies should be (some of them are) addressing scenarios that need the ‘mobile’ way of payment.
Its good to see how IRCTC has made a mark in the Indian online world.
I am sure there are many other ‘pain-areas’ that can make a similar mark.
The current and would-be mobile payment cos. need to find areas that necessitate the use of mobile payment…else they will have killer apps that is either in search of a pain-area or just an additional instrument for payment.
@Anuj,
Now, there are very few direct-consumers who transact using cash-cards. I don’t have actual number but it is more or less, insignificant.
Let me give another insight here: Types of cash-cards.
Cashcard is just a stored value card. But then there are multiple ways of doing this.
1. Typical companies such as ITZ Cash or DoneCard or iCashCard or Oxicash or Payworld are the first type and I considered them while writing the original post.
2. Closed cash cards, meaning they can’t be used at other merchant locations. Examples include, all prepaid options of telecom companies, redBus, etc
3. ZipCash is the first company which has focused more on consumer segment side. Consumer purchases the cash-card from a retail shop and stores the value on his mobile and later he uses at any merchant outlet or over Internet. Later on it works like a mobile-payment company. However, there is a lot of inefficiency here. Extra costs: manufacturing the card, distribution, retail agent commission, are present just like our itz cash. Efficient way could have been tie-up with all telecom operators and store the value. In future, I think ZipCash or someone would do this.
If in case, number of direct-consumers using the cashcard are increasing, then cashcard-companies would somehow keep a relation with such customers and would offer them to shift to formal channels such credit/debit cards.
Coming to future of regular mobile payment companies, they will reduce the cost of manufacturing the physical card, in that sense, they bring clear value addition.
Again, its all in the game of who has maximum merchants tie-up and how efficiently they reach consumer!!
@Saurabh,
Thanks for inputs. Reply as follows.
1. Trust is the biggest issue when you, as a consumer, keep your money upfront. And so, this is one of the reason why cashcards are not popular in consumer segment. To win the trust of a consumer, Cashcard companies need to brand themselves. However, no Indian cashcard company has enough funds at this point of time for branding. Moreover, when I was in my previous company, ControlCase, have talked to ITZCash and DoneCard to go for Security certification (PCI-DSS, which every credit card or debit card processor should go through, as per VISA, Mastercard, AMEX). Also at that point of time, ITZCash was even just funded. But both of them were not interested.
I think, at this point of time, Cashcard companies business model is purely an agent model (brick and mortar game). Possibly, later point of time they would go for consumer segment.
2. You are right. It is like this. VISA or MasterCard or a cash card company would love to get 1% or 2% of every transaction between any two parties in the whole world (grand goal, and they are all in that way).
Cashcard companies are not looking at VAS at least for now. One source of revenue, though insignificant, is that if they have consumers who would buy the cashcard and use it on web, there will be left-over cash. This left-over is like sometimes 10 rs to 20 rs or even much more, which may not be sufficient for any purchase on web or due to consumer’s absent mindedness.
Hi Malapati,
Interesting post.
But have couple of observations.
1. The payment service needs to win that trust. For cash cards, they can be prepaid or postpaid and in both cases we will have to trust the company with our money. How can these companies create that trust element?
2. I dont think they will have to depend on VAS for revenues. Reasons being that this is a volumes game. Even for Visa and Mastercard, they make about one percent of the money but the sheer number of transactions make it a huge business. The company to be able to crack this would get all the money.
Thanks for the post.
Regards,
SG
Did anyone think about the option that how many people have bank accounts with cash card vs who are eligible for a credit card.
My humble assumption would be that very few people in India will apply or be eligible for credit card but have cash card from their bank (or any other source). For anyone who has stood in railways line for tickets, its far easy to do the same online, hence the explanation. Will these people convert to more such transactions online could be anyone’s guess.
So whats in the future, looks like cash card is going to grow and more people will be eligible for credit. What does it mean… online transactions are going to grow, whether through cash or credit.. thats what we care for .. is it?
This also lead to a relevant question.. what will happen to all these mobile payment companies.. will it be a successful model? Only time will tell.
Best,
Anuj