In God we trust, all others must pay cash. Changing times and todays dynamic business environment may take this famous American saying a step further: or swipe their mobile phones.

While it may be too far fetched to say that mobile payments will replace cash, it nevertheless has the ability to bring in two-dimensional changestime and place shifts, changing every aspect of business.

The anecdotal debate on PC penetration versus mobile phone penetration in India and how the mobile phone penetration has far outnumbered the other holds the key to some of the most defining future trends. And, among the most significant of these trends is the growing financial empowerment of mobile phones, including the ability to make payments through the mobile.

Mobile payment forms a big part of what RBI is now talking aboutfinancial inclusion. From financial inclusion, and banking the unbanked to paying for movie tickets, mobile payments hold great promise. But this industry is grappling with issues like seamless cooperation among various stakeholders, clarity on regulations, and security loopholes. And, the evolution from nascence to mainstream adoption will depend on the resolution of these key issues and the development of services that target the countrys mainstream population.

Paying for movie tickets and pizza over the mobile is just the tip of the iceberg. It will require services like micro financing and remittance, etc over the mobile to scratch the surface of the market.

VCs Like Them
Mobile payments may not be the next big thing, but going by the number of mobile payment technology start-ups that have cropped up in the last 2-3 years and the way they are attracting funds, mobile payment is surely among the favorites on venture capitalists list. Cases in point are PayMate ($5 mn funding from Sherpalo Ventures and KPCB), JiGrahak ($2.2 mn funding from Helion Venture) and mChek (undisclosed funding from Draper Fisher Jurvetson and Rajesh Jain).

In October 2007, Obopay India (which formally launched its operations in January 2008) raised $10 mn funding, of which $5 mn is from the UK-based private equity fund Promethean Investments. Earlier, in July 2007, the US-based parent company, Obopay, had raised $29 mn in its third round of venture capital funding. Earlier, it had raised $10 mn in the first round and $7 mn in the second round. This means a total of $46 mn in venture capital (VC) since March 2006.

If market predictions are to be believed, the VC momentum is likely to remain upbeat in 2008. As per the findings of a poll conducted by VentureWoods, an Indian VC networking site, investment in consumer businesses revolving around mobile advertising and payments businesses, among others, will gain momentum. M-commerce, along with e-commerce, has been rated as the third hottest area for tech start-ups in 2008.

Market Drivers
According to Romal Shetty, executive director, KPMG, the obvious driver for this market would be the growing mobile market. By virtue of the fact that there are over 233 mn mobile phone subscribers in the country, its not much of a surprise that mobile phones are increasingly being looked upon as a medium to touch a sizeable chunk of the countrys population.

Further, mobile penetration is rapidly expanding at all levelsrural and urban. It is estimated that the Indian mobile subscriber market will reach around 450 mn by 2010. This, by any standards, is a huge and dynamic market.

Added to this is yet another market driverthe huge base of the countrys unbanked population. This opens up a huge potential market waiting to be tapped through alternative means of banking like the mobile. And mobile payment forms an integral part of many m-banking transactions.

The Reserve Bank of India had recently said that it would actively look into promoting alternative means of bankingespecially mobile bankingin an attempt to reach out to the huge unbanked population. It had further mentioned that efforts should be made to promote remittances through the mobile phone like its being done in the Philippines and Mexico.

Giving yet another perspective to this, Sanjay Swamy, CEO, mChek, points out that there is a strong need for mobile payments in India, given the poor infrastructure which makes simple payment scenarios cumbersome. This will manifest as convenience for the people on top of the pyramid and as an essential service for the people at the bottom of the pyramid (as infrastructure availability for the poor/rural customers will be below average).

According to Aditya Menon, executive director, Obopay, among the future drivers could be an expanding migrant population with limited access to financial services.

Mobile phones provide a globally unique addressable ID. To understand how that could enable disruptive payment solutions, one has to look at how PayPal disrupted the online payment market using the Internet and the email. If PayPal could be extended offline plus online, Internet plus mobile access and email plus mobile number, then you could see cheaper, easier and more secure payments emerge as the benefits of mobile payments, says Sanjay Bhargava, chairman, Eko.

Mobile Payments have significant benefits for the entire ecosystem. For banks, the benefits include increased adoption/usage of credit or debit cards, lower customer acquisition and operating costs, and increased customer satisfaction. Booz Allen estimates that banks could reduce cash logistics costs by 10% through the use of cashless payment transactions.

For telecom operators, the benefits include increased customer retention, customer satisfaction, more efficient revenue collection, and new revenue streams through m-commerce.

For merchants, fraud-free transactions and faster access to customers, improved collection, and increased business opportunity by giving access to the 233 mn-plus mobile users are some of the benefits.

Whats on Offer?
Mobile phones are ultimately a medium. And, just like credit and debit cards, can be used on other mediums like the Internet. We feel that a mobile payment solution is complementary to current mediums like the Internet, says Menon.

Mobile payments can be used in government paymentssmall amounts like payments for RTI requests can be done through the mobile instantly, pension, micro-finance, loan disbursements, merchants can use this medium to pay CST, payment of utility bills, purchasing railways and airline tickets, movie tickets, inter-bank and intra-bank transfers, remittances, etc. There can also be some niche applications like the one provided by Itz Cash, which has mobile payment solutions for donations for Siddhi Vinayak Temple. There are infinite uses of mobile payments. Eventually, we would see a use wherever there is a cash payment.

According to Kaustav Ghosh, country manager (India), Sybase 365, in India, paying by the mobile for rail and air tickets, movie tickets, buying pizza, etc will be need-based and need-driven, while the bigger piece will come from areas like microfinance, paying suppliers, and remittances.

Its still in early stages and nobody has got the perfect model which takes care of all the parties involvedbanks, regulators, operators, and consumers Vijay Shukla, country head, ValueFirst Messaging	There is a strong need for mobile payments in India, given the poor infrastructure which makes simple payment scenarios cumbersome Sanjay Swamy, CEO, mChek

From the business perspective, the use of mobile payments for micro financing and paying the supplier will be a killer application. In India, there are lots of small and medium sized traders and they transact in a loose cash. A very critical perspective here is safety of money. Micro financing through mobile payments can provide the answer to this.

In India, these learnings are more important than buying pizza over the mobile phone. One will need to replicate the Grameen Bank on the mobile. That is highly sustainable, and that is where the major chunk lies. When it starts to bother a large number of people, then it becomes important, explains Ghosh.

For mobile payments to attain a critical mass in India, it will need to open up a whole new world of empowerment to people. Services like remittances, micro-financing, and micro-transfers using mobile payments will hold the key to its uptake in India and attaining a critical mass.

Building the Ecosystem
The mobile payment scenario requires an entire ecosystem to be in place, which includes numerous stakeholders. The key stakeholders involved are the mobile payment technology providers (like PayMate, Obopay, JiGrahak, mChek, Eko, etc), banks, mobile network operators, merchants and in some cases a service provider like ValueFirst.

In India, various stakeholders are presently in different stages of evolution and adoption of mobile payments. But at least the major players among all the parties involved have already initiated something or have plans on the anvil in this space. Major banks like HDFC, ICICI, Citibank, Corporation Bank, etc and telecom operators like Airtel are already in the fray.

Payment Options
Vendors like JiGrahak and mChek are presently taking the credit card route. Take for example, Airtel bill payment by mCheka customer can use the mobile phone to pay in 20-30 seconds anytime, anywhere. With mChek, the customer has to do a one-time registration of the credit card with the mobile phone. Subsequently, there is no need to carry/give card details. The customer just needs to enter the mChekPIN (created during registration) to approve a transaction.

Apart from Airtel, mChek has already roped in FutureBazaar, ICICI Prudential Life Insurance, SifyMall, Yatra, and Indiatimes.com as its merchant partners. However, in the future, mChek plans to work with debit cards also.PayMate, which has taken up both the credit and debit card routes, has a merchant base of over 2,500 online portals, leading voice portals and some key retail chains.

Obopay, which formally launched its operations in India in January, intends to tap the market through the debit route, instead of the credit card route. The company has tied up with six banks in India and the services started rolling out in February. One will need to register with their respective banks and a PIN will be generated for mobile payment. Based on the requirement, one can either download the required software or interact over short messaging service or an interactive voice response. The customer may be charged a nominal fee by the bank for this service.

Apart from the debit card and credit card routes, other types of mobile payment options are prepaid cards and through banks (inter-bank and intra-bank money transfers).

These different payment options are geared up either toward P2P (peer-to-peer) or P2M (peer-to-merchant) systems. Inter- and intra-bank transfers, remittances, etc are examples of P2P transactions, while paying for movie tickets, rail/air tickets, restaurants, utility bills, etc are areas of P2M transactions.

According to Shetty, P2P seems like the early entry point of success, as users are likely to favor transferring money quickly through this route. The trust factor and security aspects may not hinder such transactions as much as merchant transactions. Menon is of the opinion that both P2P and P2M will need to evolve hand-in-hand in order to be accepted by consumers and merchants alike.

In general, technologies use SMS, Voice (IVR), WAP/GPRS, Unstructured Supplementary Service Data (USSD), smart cards or Smart SIMs. Other areas are bar codes and NFCs. Presently, voice (IVR), SMS, and WAP/GPRS are the most widely used modes for making mobile payments.

The SMS will initiate the movement of money from the users account to a receiver, who could be a merchant or any other person related to the user. The bank uses the PIN to authenticate the transaction and process the transfer.

Gains and Pains
Seamless coordination and cooperation among all stakeholders is one of the biggest challenges faced by the mobile payments industry today.

As per Booz Allen and Hamilton, increased cooperation among the key stakeholders is the only way to make mobile payments work. Clarity in terms of business models and sharing of liabilities is going to be critical in determining seamless coordination among different players. Right now, there are lots of gaps and the business models are in the process of evolution. According to Vijay Shukla, country head, ValueFirst Messaging, Its still in early stages and nobody has got the perfect model which takes care of all the parties involvedbanks, regulators, operators, and consumers.

However, there are few business models that companies are already talking about and experimenting with. According to Shetty, the business model will be very similar to the credit card processing companies such as transactions clearing houses.

The revenue model will be largely structured on the number of transactions processed and a small percentage of the transaction value as a service charge. Menon believes in a revenue sharing model, where the fee is shared among the players based on three factorscustomer origin, risk, and marketing spend.

Bhargava, however, concludes that when many stakeholders are involved, getting them all to agree can be a challenge. His suggestionPeople cannot be in a hurry to make revenue and they must first get critical mass and then monetize it. Players should also do what they are good at. Banks should take deposits and manage risk, telecom gateways and operators should provide connectivity, and innovative startups should provide solutions. Business models that make the consumer pay zero and get revenue from merchants/billers or advertising are likely to win.

Presently, there is also a lack of clarity on the issue of liabilities for each party involved. In the event of the persisting confusion around who is responsible for what and to what extent, and what are the penalties involved, the mobile payments market faces a major stumbling block. At the end, it will boil down to who is liable to the consumer and who is liable to what extent. This is a gap that needs to be addressed. The relevant laws of the land need to speed up with the technology challenge, explains Ghosh.

Determining Success
To succeed, mobile payment will need to attract consumers through cost and/or convenience proposition. According to Shetty, cost per transaction, security, convenience of use, and reach of the merchant network would be critical factors in the development of this industry.

In terms of costs, Indian consumers are extremely cost sensitive; therefore, any pricing concerns have to be addressed immediately. In terms of reach, merchant network reach, especially at the lower end of the market, would drive a large number of mobile users to adopt this service.

The advantages of using a mobile for a debit/credit card user are not obvious unless the mobile enables use at more point-of-sale locations. This is where the convenience proposition comes in. According to Bhargava, to gain traction and be inclusive, mobile payments need to work with banks or stored value accounts, and it should become very easy to open an account. For Menon, in order for a mobile payment system to be a success in India, it needs to be cross carrier, cross bank, cross platform, and mobile device agnostic.

Shukla points out that the challenge is that the telecom operator wants to offer mobile payments as a differentiator, and as a result they go the way of making it exclusive to them, whereas the consumer wants operator-independent services.

Over the next 2-3 years, the convergence of the banking industry with the telecommunication industry will be crucial for the survival and growth of the mobile payments industry.

A large part of Indian banking accounts are held with PSU banks, which are still in the process of automating their systems largely due to the insistence of the Central Bank. It would be a considerable task to entice PSU banks into entering mobile payment systems and this would take some regulatory push and shove to open banking systems to mobile payment systems, explains Shetty.

Ultimately, awareness among consumers and merchants about the service and safety of using these services are critical. This will need to be supplemented by regulatory support, innovative killer app that is ubiquitous and addresses risk adequately.

Shipra Malhotra
shipram@cybermedia.co.in

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