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Citbank 2015
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Innovative solutions to digitize payments in India
Aabhas Aeran Manjot Singh Saini Mukesh Ranjan Team Name: Forerunners XLRI, Jamshedpur
Cash Trends
Characteristics of Rural market
Rural Character
istics
Informal channels preferred
Low value
transactionsLess
comfortable with digital
transactions
Inadequate digital infrastruc
ture
Low literacy levels Identification of root causes for low adoption of Digital payment solutions
•Non-acceptance of E-payments•Lack of awareness•Low utilization, not pull product
0 1000 2000 3000 4000 5000 6000 7000 8000 90000
0.5
1
1.5
2
2.5
3Fruits and vegetables
Milk and milk products
Processed foods
Durable goods
Clothing and footwear
Personal care toiletries and Sundries
Tobacco
Market Size: INR Billions
Non
-cas
h Ex
pend
iture
per
-ce
ntag
e of
tota
l in
Urba
n re
-gi
ons
Opportunities for improvement
•low volume transactions•Use for Elders and women•Security and scalability
Demand side challenges Supply side challenges Key requirements
•Restricted to G2P market•Absence of wide agent networks •Technology adoption barriers
Cashless solutions are much less in high value sectors of Fruits and vegetables and processed food
Industry Trends and Adoption Challenges
Only 3.6% of households make cashless transactions. The share of Urban region is 11% while rural figure is 0.43%
The top 5 items with the highest non-cash component are rent( 11%) Electricity, clothing and footwear, Education, Beverages
Cashless penetration is greater in services sector than in physical goods
Industry wise Penetration
Sources: Cash Trends-Road to less-cash, Research report by VISA and IMAI Industry Data: Euro monitor, IBEF reportsAppendix 1 for data
Offline Mobile Payment Solutions-C2C and C2B Transactions
What is mobile payment?- Payment services under financial regulation via a
mobile device.- Being adopted all over the world in different forms- Existing forms as mobile money, m-wallet, m-paisa
etc.
Why will this work ?- The reach of mobile >>> other other digital mediums
An integrated mobile and Bank account - Real time interlinking of the bank and mobile accounts based on customers/retailers choice- Day to day transactions via mobile - The B2B or other higher amount transactions via internet banking or credit/debit cards.
Benefits
Benefits
Mobile Wallet
Bank linked Component Directly linked to Bank via 3rd
mobile operators
Cash like Component (with upper limits)
Same as Cash (Digital Cash)No 3rd party involvement
during transaction
Payment Options• Net banking• NFC
Payment Options• NFC• Bluetooth• SMS Payment• M-Payments
Instant Money Transfer
Sense of Owner-
ship
Money Flow using Cash like component
of wallet
Money Transfer from bank account to bank linked component of mobile wallet via 3rd party (mobile operator)
Internal transfer from bank component to cash component of wallet by customer as per his choice
Payment to store from cash like component of wallet and recharging it using bank linked component from bank account
Existing models
Mobile WalletSMS paymentsDirect mobile billing
NFCNet Banking Card Payment
Simultaneous Linking & Delinking of Mobile & Bank Accounts
Easy Recharge Cards – Inclusion of children, women, less educated and old people
Solution Proposed
Mechanism
Key Benefits
Challenges and Risks
Back ground
Moving towards cashless society will be difficult unless solutions for all the user segments will exist simultaneously.
Only 1 or 2 members in a family are cardholders
The rest mainly transact in cash for daily expenses
Easy recharge cards ( similar to metro cards) of low value(Rs. 500-2000) to be issued by banks. These cards can be recharged online or on recharge shops.
A modern form of pocket money ,would help in inculcating cashless mindset
Involved in low value transactions for daily shopping, where debit/credit are inappropriate
Good spending power. Cards would reduce the risk of losing money
Earn and spend in small amount. Do not want to link bank accounts with mobile or use cards
Bank issues easy recharge
cards at nominal charges
Recharges it online or at retail shops and gives to family users
Payment at POS at retail shops. Would work with normal Debit/credit swipe machines or easy to use touch and pay machines
Online or physical relinquishment of cards with money transferred to bank account
Infrastructure requirement
Bank Accounts The final user does not needs to have a bank account. Even if one of his relatives has, cards can be used by him on issuance
Installation of card readers or touch and pay solutions at low value shops.(Grocery stores, Mom and pop retail outlets)
Loss of cards•Can be linked to a pass-code generated by the card issuer•Less quantum of loss since low value with an upper limit
Recharge Points Can be online or facility can be provided at retail outlets by providing cash or Bank account No with a OTP password
Finding opportunities in B2B space
Share Estimates of B2B Spend Value
Source for graph: Bank for International Settlements Data, MasterCard Advisor Estimates(Data)Appendix 1 for a comparison of B2B with P2P
B2B payments Environment-Where does cash comes into picture
Cash accounts for only 4% (global scale) of B2B transactions, while check payments for more than 23%. This shows that the usage of cash in B2B segment is very less
Drawbacks of Existing System
Solution
Success Factors
Small sized Contractors, Vendors or other partners
Business The employees of contractors, vendors
While the B2B transactions for small sized partners are cashless(mainly checks), the final payments done by these contractors(or partners ) to their employees are mostly in cash
Cash-less (through online accounts or checks)
Mainly in cash
Business Small sized partnersEmployees of Contractors
The business splits the amount transferred into 2 parts
Only account transferable-No cash
Cashable part Can be withdrawn by contractors
Transferred to Aadhar linked bank accounts of employees
Cashless
Corruption
Low utilization of Bank
accounts
Cash Promotion
The contractors tend to charge more money from Businesses or Government organizations, but pay less to employeesThe contract employees mainly belong to low income group. Since they receive their final income in cash(which is meager), it leads to less utilization of their bank accounts
It renders the financial inclusion initiatives ineffectual, since cashless products are not pull products
Banks: Effectual enablement of such functionality
Business: Maintain appropriate proportion of account transferable and cashable partEmployees: Awareness among the employees to receive payment in bank accounts
Regulatory Challenges & Reforms
Mobile
Money
Account
Bank Account
• Cancellation of 3% transaction cost on electronic payments
• Rebate on Sales Tax for retail merchants.• Waiver of charges, convenience fees and
even tax breaks for consumers using cards/mobile money to pay for utilities.
Tax Rebates
• Increasing collaboration of IMPS with all the banks so as to enable real time transfer of funds.
• Improved Infrastructure for Internet banking• Withdrawal of currency notes or high denomination notes
of over Rs 100.
Increased Coverage of IMPS
Interest on value stored in an e-wallet
Increase in POS machines
• Charge on high value cash transactions and cash on delivery
A part of digital wallets can be linked to bank accounts so as to enable the customers to earn the interest.
• For electronic payments to become the modus operandi, increasing the number of PoS terminals is a prerequisite.
• Self-checkout can be encouraged to promote the usage of electronic transactions.eg. NCR self checkout machines in Walmart stores
• Customer Verification can be burdensome, costly and dissuades mobile operators from expanding.
• The KYC procedures for SIM card, Bank Account ( Jan Dhan Yojana) to be similar & sufficient to activate a new e-wallet.
• KYC procedures to be filled one time and linked to Aadhar Card. RBI has authorized Aadhaar-enabled electronic KYC (e-KYC)
Harmonizing the KYC requirements of RBI and TRAI
• The switching of sim cards and hence of wallet service
providers can withhold a customer from taking up
mobile payments for his day-to-day transactions.
• A fastened procedure enabling 2 day max
transferability must be set up for transfer.
• Removal of discrepancy between P2P transaction limits for fully KYC’d mobile
money accounts by non-bank BCs (Rs 5,000/transaction & Rs 25,000/month)
and fully KYC’d accounts by bank BCs (Rs 49,999/transaction & Rs
1,50,000/month).
• No differentiation between the different kinds of service providers for a
similar service but the differentiation can be on the basis of service.
Harmonizing transactions between mobile money accounts & bank accounts
Pre-approval requirement for wallet-to-wallet interoperability
Mobile Money
Account
Bank Account
Technological Solutions: Global
Individual bank accounts used through bank-managed branchless
channels. CAIXA (Brazil) XacBank (Mongolia)
Individual bank accounts accessed through
nonbank networks/technological
platforms EKO (SBI India)
SMART (Philippines)
Bank issued electronic value distributed by
nonbank to customers. Orange Money (Cote D’Ivoire, Senegal and
Mali)
Nonbank issued electronic value holding matching value in bank
Safaricom (M-Pesa Kenya)
Globe (GCASH Philippines)
Banks Involvement in Branchless Banking Models
• Telesom Somaliland has migrated cash-based P2P customers into digital channels by offering digital payment transactions for free.
• Telenor Pakistan has recently eliminated its digital transaction fees as well.
• In most Swedish cities, public buses don't accept cash - tickets
are prepaid or purchased with a cell phone text message.
• The churches in Sweden installed card readers to make it
easier for worshippers to make offerings.
.
• UK: City buses have stopped accepting cash as a valid payment
rather a "Oyster Card" or a prepaid ticket is accepted.
• Amsterdams’s parking meters have banned the use of cash
Digital Currency
• Since 2013, Canada has stopped minting & distributing pennies.
• Digital cash initiative based on an integrated circuit called MintChip lets people make small transactions by exchanging information from those chips via their smartphones
• M-PESA allows microfinance-loan repayments to be made by phone, reducing the costs associated with handling cash and thus making possible lower interest rates.
• M-PESA has been extended to offer loans and savings products, and can also be used to disburse salaries or pay bills
• Bitcoin–is a decentralized public ledger of debits and credits that no one person or company owns or controls. It lets people transfer money without a bank. Write simple, enforceable contracts without a lawyer.
• MIT Media Lab has launch of the Digital Currency initiative.
• Belgium & France have disallowed any cash transactions over 3000
Euro.
• “Sixdots” mobile app allows users to set up digital payments wallets
supported by Belgian banks and the mobile operator Proximus.
APPENDIX
Comparison of B2B and P2P
P2P B2B
Bill is optional Invoice nearly always required
Immediate payment Credit period may be provided
Payment of one bill at a time Payment of multiple invoices at a time
Complete payments Can be partial
Payment description not required
Payment description required
Invoice
Timing
One-many
Payments
Data
Appendix 1
Source: http://traxpay.com/2014/02/delighting-and-de-risking-b2b-transactions-for-the-digital-age
Industry Industry Size(INR billions)
Non-cash expenditure percentage of total in Urban region
Fruits and vegetables 8527 0.36
Milk and milk products 603 0.54
Processed foods 2247 0.27
Durable goods 5293 1.4
Clothing and footwear 3390 2.65
Personal care toiletries and Sundries
732 1.24
Tobacco 620 0.5
Source: Non-Cash Expenditure were obtained from Road to less-cash, Research report by VISA and IMAIIndustry data was obtained from Euromonitor. Cases were industry size was available in terms of only units, suitable assumptions were made to arrive at the industry size in INR