Thirty-odd years ago, as a child, this writer used to puzzle over the concept of a money order: how did an old lady in a Tamil Nadu village get the money that her son paid up at a post office in Uttar Pradesh?
Does someone take the money all the way to her, 3,000-odd kilometers away? Did they tell someone else to do it for them? Did they travel by air or by train? Sundry questions made the process appear most mysterious.
A similar mystery was the concept of banking. Mention this to today’s urban youth --- including one’s own kids --- and they would have a good laugh. For them, money transfer means a couple of swipes on their smartphone, as many advertisements extol on the idiot box.
Banking, money transfer, shopping — online and offline, bill payment, paying for movie tickets --- name it, and there is a mobile payment gateway for it. So what is this mobile money all about?
What you can do with mobile money
Currently, this service is primarily used for Domestic Money Remittance (where the customer moves cash to a bank account using a digital wallet), payment of utility bills, recharges, settling post-pay bills, travel ticket bookings etc. But there are many other avenues where mobile money can be used, which may include merchant payments (both online and offline).
Who offers mobile money
Airtel launched mobile money in association with Axis Bank in March 2012. Vodafone offers similar service under its M-pesa with ICICI Bank. Tata Teleservices has an independent service called m-RUPEE. With more than 900 million subscribers, telecom service providers see mobile money as the next big business opportunity.
Mobile banking and RBI regulations
The Reserve Bank of India (RBI) stipulates that operators can help deliver financial services by offering two types of mobile wallets: prepaid and full-access.
Prepaid Payment Instrument (PPI) accounts can be set up by cellular operators themselves for their customers, and do not require to have commercial banks behind them. However, these have limited use. They do not support cash withdrawal, and can only be used for loading cash and making some payments (such as utility bills).
For mobile wallets that have ‘cash-out’ functionality, the cellular subscribers need to submit to the full “Know Your Customer” (KYC) process of the operator’s partner bank (for instance, Axis Bank in the case of Airtel subscribers), as prescribed by the RBI.
They would need to present their ID and paperwork for the bank application, and the approval comes after due processing time. These “full KYC” wallets can only be opened, and utilised, at operators’ retailers who have been given “Business Correspondent” (BC) status by the Reserve Bank of India. Tata Teleservices’ m-RUPEE however can be accessed across banks
How telcos make money
For the telecom operator, revenue accrues from the transaction cost that the customer is charged, for money remittance services. The cost varies on the basis of the ticket size for remittance transactions, and the merchant service fee that the merchant bank agrees to pay for transactions done by the customer using this instrument.
This is not dependent on the telecom consumer, as it is an independent service, said Pradeep Sampath, chief operating officer, MMPL, a 100% subsidiary company of Tata Teleservices.
Prospects for growth
According to a GSMA report, about 67% of retail spending in India is carried out in cash. It feels that mobile money services could potentially replace cash transactions and enable micro transactions to proliferate. Millions of people would be able to store, send and spend money at low transaction costs using their mobiles.
“The need for financial inclusion, the slow growth of rural banking, disbursement of social benefits and domestic remittances along with micro insurance regulations offer a big opportunity for mobile money in India,” said Murad Nathani, a principal in the financial services practice of consulting firm Bain & Company.