Today, RBI took another incremental step in defining Mobile Payments in India. The bank has published draft guidelines for Mobile Payments – “Mobile Payments in India – Operative Guidelines for Banks†. It’s encouraging that steps are taken in recognizing the industry and putting standards around it. However; it seems like a cautious approach. My observations:
RBI has defined Mobile Payments as
• Exchange of Information on mobile – Balance Enquiry, Statements etc
• Payments done involving mobile
RBI has acknowledged Banks as an important partner (since banks are liable for KYC norms) in offering mobile services and therefore, such services are restricted to KYC/AML compliant instruments – Bank Accounts, Credit/Debit Cards
Implications:This would bring services like eWallet / mWallet / Store value cards under RBI scanner and I see a regulatory risk in such businesses
The bank has recognized the long term goal of mobile payments to enable Peer to Peer (or Peer to Business) money transfer. However; RBI has also limited this scope to bank accounts.
Implications:Going back to my above point; I think businesses like Paypal might not pass regulatory hurdle in India. All operators & service providers have to partner with banks to enable payments involving mobile. I also don’t see any hope for relaxing this in future.
RBI has also raised the entry barriers for new entrants. Banks have to take board approval for offering such services to their customers. It would mean longer sales cycle – good for existing players but bad for new ones.
We have been following payment space from last some time and it looks interesting to us. I have also seen some case studies in geographies similar to India. In my opinion, two top most success factors in this industry would be:
• A strong use case to drive user adoption – In all success case studies, I have seen there is one use case which compels customer to try mobile payments. It can be mobile recharge, peer-to-peer money transfer, ticketing for mass transit system etc etc
• It would need active involvement of banks and mobile operators. While banks provide the backend payment infrastructure (& regulatory issues around payments); operators are best partners to acquire customers.
If you want to read technologies related to Mobile Payments in India, find them here
I would be happy to discuss and understand what new payment start ups are doing in Mobile Payments
- Onion Rs65/kg, Petrol Rs65/litre, Beer Rs65! - January 19, 2011
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We are a start-up in Cochin working on biometric mobile payment solutions. And our plan was to integrate fingerprint and mobile for secure transactions via two factor authentication.
But now, we are thinking of another route, since passing the RBI regulations will be a high risk now given the sole point that we
are a new player in this market.
Our plan is to offer a payment gateway for all segment of people, and since it is an alternative for the credit card systems, the product as a whole will be, I hope, accepted with open hands.
But to overcome the RBI regulations, now we are trying to partner with an existing mobile payment service provider who already have tie-ups and approval from the banks. So that means, we wont be handling the cash or collecting money from the customers, rather we
merely act as a the one linking the customers to the mobile payment service provider.
Given the strict rules and regulations, how feasible do you think the current plan is? Any suggestions are welcome. Thank you.
This is highly discussed topic on Mobile Monday Mumbai, will forward them and may have more discussion. !
-Raxit Sheth
Mobile VAS could see some light thro this initiative, I guess. Given that going mobile is a high priority for Telcos and banks, MSP (Mobile Service Providers) start-ups in this space will have to distinguish through innovation that reduces complexity, transaction costs and if possible enable multi-lingual command processing (especially if you target the bottom of the pyramid, unbanked segment). Sheer size of the Indian market will soon tempt other payment gateways like paypal to quickly form alliances with banks that will be only too happy to accommodate eying the incremental free “float” that it will generate (now the cost of funds have gone up after successive rate hikes by RBI). Banks also have robust payment processing systems already in place and so have no additional costs to incur.
But how much will this unshackle the M-VAS startups from the stranglehold of TELCOS?
I do see telcos and banks benefiting from this more than MSP startups. Firstly, Telcos have free access to user call patterns and location data that could be of great value to advertisers that relay `push’ ads and value added coupons. They get to bill and keep ad revenues. Banks anyway have longstanding customer relationship and goodwill.
The problem is only for the MSP, orphaned as usual. They have to deal with storage/retrieval of payment confirmation in case of a future dispute, that telcos and banks will readily disown and hold the MSP exclusively responsible. It means higher operating costs. The MSP is already looking like a midget dwarfed by the mighty Telco and mightier banks.
Then they have transaction costs. Since the money is in the custody of banks, MSP is only authorized to direct debits and credits as customer instructs. The moment he sees a debit towards transaction cost, he will switch out. More so because this is just another payment mechanism in addition to credit cards, cash and cheque that exist today.
Startups getting into this space will have two main tasks to deal with (a) how to survive with zero subscription revenues; (b) how to split revenues (ads – what else) with telcos, banks and make sure they get to kick some back for themselves.
So couple of points on this:
1.) RBI always has issues on someone other than bank collecting money from public. Examples: NBFCs were banned from collecting money from public after many scams by runaway chit funds. Recent example is issues around Sahara subsidiary
2.) However; RBI was never sure the extent of problem and the risks around it on newer medium like Internet and Mobile. So businesses of stored value card flourished. But I am not sure how it will pan out in future since the bank has started putting its arm around digital medium
3.) Stored value card for a specific purpose is allowed so recharge card for your mobile top up is allowed. Note: It’s also a stored value card and operator is depositing money from the public for an ongoing service rendered in future.
So definitely there is a risk in payment businesses without bank as a partner.
Back in early 2005, after nearly 6 months of preparation, developing a working prototype, partnering with SMS and IVR based service vendors, I thought it would be nice to get RBI’s opinion, before getting a team and an investor. Model I had was independent of Bank and Mobile service providers.
During 3 hour meeting with RBI officials in Bangalore office, all I got to hear is that, to implement, either I have to be a Bank, or convince a bank to be a partner in this. Their point was, as a company, I cannot collect money from public to pay on behalf of a person to someone. In effect, the shot me down. I even went out to purchase those prepaid cards [hint: They are still available for purchase] which was doing exactly what I intended to do for mobiles, and showed it to them. All they could say was, we are just watchdogs, and only act upon complaints from established companies.
I even asked them why can’t they put it up out in the public, that to do this, they have to be so and so and have partners with so and so else RBI will come after them once they are up and running, so that at least people getting ideas around mobile payments know about it. This was the time when the mobile payment was nascent. They said they have to check RBI guidelines, and cannot do what I asked for.
Now with many mobile payment services are on the prowl, RBI is taking real action which was words that time. Even today, itzCash survives and so is so many other mobile payment services.