Innovative solutions to digitize payments in India

Aabhas Aeran

Manjot Singh Saini

Team Name: Forerunners
XLRI, Jamshedpur

Mukesh Ranjan

Industry Trends and Adoption Challenges

Cash Trends

Industry wise Penetration

Only

Characteristics of Rural market

Fruits a nd veg e ta ble s

Mi lk a nd mi lk products
Pro ces s e d f oo ds

Oppo rtunitie s for improve me nt

Dura ble goo ds

Non-cash Expenditure percentage of total in Urban

regions
C lo thi
ng a nd f oo twea r
Pe rs o na l ca re
toi le tr ie s a nd
S undr ie s
To ba cco

Cashless solutions are much less in high value sectors of Fruits and
vegetables and processed food
Market Size: INR Billions

Identification of root causes for low adoption of Digital payment solutions

Demand side challenges

Supply side challenges

Key requirements

Restricted to G2P
low volume
market
transactions
Absence of wide agent
Use for Elders and
networks
women
Technology adoption
Security and
barriers
scalability
Sources: Cash Trends-Road to less-cash, Research report by VISA and IMAI
Industry Data: Euro monitor, IBEF reports
Appendix 1 for data

Non-acceptance of Epayments
Lack of awareness
Low utilization, not pull
product

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, mwallet, m-paisa etc.
Why will this work ?
- The reach of mobile >>> other other
digital mediums

Existing models

SMS payments
Direct mobile
billing

Mobile
Wallet

Net Banking

Card
Payment

NFC

Simultaneous Linking & Delinking of Mobile &

Bank Accounts
Bank linked
Payment Options
Component
Net banking
Directly linked to Bank
NFC
via 3rd mobile operators

Benefits
Instant
Money
Transfe
r

Benefits
Mobile
Wallet

Payment Options
NFC
Bluetooth
SMS Payment
M-Payments

Cash like
Component
(with upper limits)
Same as Cash
(Digital Cash)
No 3rd party

Sense
of
Ownership

Money Transfer from bank account to bank linked

component of mobile wallet via 3rd party (mobile
operator)

Money Flow
using Cash like
component of
wallet
Payment to store from cash like component of
wallet and recharging it using bank linked
component from bank account

Internal
transfer
from
bank
compone
nt to
cash
compone
nt of
wallet by
customer
as per his
choice

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

Easy Recharge Cards Inclusion of children, women, less educated and old people
Key Benefits

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
Solution Proposed
Easy recharge cards ( similar to metro cards) of low value(Rs. 5002000) 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

Mechanism

Recharges it
online or at
retail shops
and gives to
family users

Online or physical
relinquishment of
cards with money
transferred to bank
account

Bank issues
easy
recharge
cards at
nominal
charges
Payment at POS
at retail shops.
Would work with
normal
Debit/credit
swipe machines
or easy to use
touch and pay

Bank
Accounts
Infrastructur
e
requirement
Loss of cards
Recharge
Points

Earn and
spend in
small
amount. Do
not want to
link bank
accounts with
mobile or use
cards

Involved in
low value
Good
transactions
spending
for daily
power. Cards
shopping,
would reduce
where
the risk of
debit/credit
losing money
are
inappropriate
Challenges and Risks
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
Canpop
be linked
to a pass-code generated by the
and
retail outlets)
card issuer
Less quantum of loss since low value with an
Can
belimit
online or facility can be provided at retail
upper
outlets by providing cash or Bank account No with
a OTP password

Finding opportunities in B2B space

Share Estimates of B2B Spend Value

Drawbacks of Existing System

Corruption
Low
utilization of
Bank
accounts
Cash
Promotion

The contractors tend to charge more money from

Businesses or Government organizations, but pay
less
to employees
The contract
employees mainly belong to low
income group. Since they receive their final
income in cash(which is meager), it leads to less
utilization
offinancial
their bankinclusion
accounts initiatives
It
renders the
ineffectual, since cashless products are not pull
products
Solution

Business
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
B2B payments Environment-Where does cash comes into picture
Cash-less
(through
online
accounts
or checks) Small sized

Mainly in
cash

The employees
Contractors,
of contractors,
Vendors or other
vendors
partners
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
Busines
s

Cashless
The business
splits the
amount
transferred
into 2 parts

Small sized
partners
Only account
transferable-No
cash
Cashable part
Success Factors

Employees of
Contractors
Transferred
to Aadhar
linked bank
accounts of
employees
Can be
withdrawn by
contractors

Banks

Source for graph: Bank for International Settlements Data, MasterCard

Advisor Estimates(Data)

Regulatory Challenges & Reforms

Harmonizing the KYC requirements of RBI and
TRAI

Tax Rebates

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
cards/mobile and cash on de
Charge on
high valueusing
cash transactions
money to pay for utilities.

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)

Increased Coverage of IMPS

Harmonizing transactions between mobile

money accounts & bank accounts

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.

Removal of discrepancy between P2P transaction limits for

fully KYCd mobile money accounts by non-bank BCs (Rs
5,000/transaction
accounts

by

&

bank

Rs
BCs

25,000/month)
(Rs

and

fully

49,999/transaction

KYCd
&

Increase in POS machines

Rs

1,50,000/month).
No differentiation between the different kinds

of service

Pre-approval
requirement
forthe
wallet-to-wallet
providers for a similar
service but
differentiation can be
interoperability

on the basis of service.

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.

Mobile
Money
Accou
nt

Bank
Accou
nt

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
Interest on value stored self
in an e-wallet
checkout machines in Walmart
stores
A part of digital wallets can be
linked to bank accounts so as to
enable the customers to earn the
interest.

Technological Solutions: Global

Digital Currency

Banks Involvement in Branchless Banking Models

Individual bank
accounts used
through bankmanaged
branchless
channels. CAIXA
(Brazil)
XacBank
(Mongolia)

Individual bank
accounts accessed
through nonbank
networks/technolog
ical platforms
EKO (SBI India)
SMART
(Philippines)

Bank issued
electronic value
distributed by
nonbank to
customers.
Orange Money
(Cote DIvoire,
Senegal and
Mali)

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
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.
Telesom
Somaliland has migrated cash-based
P2P customers into digital channels by offering
digital payment transactions for free.
Telenor Pakistanhas recently eliminatedits digital
transaction fees as well.

Nonbank issued
electronic value
holding matching
value in bank
Safaricom (MPesa Kenya)
Globe (GCASH
Philippines)

Bitcoinis 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.

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
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.
UK: City buses have stopped accepting cash as a
valid payment rather a "Oyster Card" or a prepaid
ticket is accepted.
Amsterdamss parking meters have banned the use of

APPENDIX

Appendix 1

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
732
1.24
toiletries and
Sundries
Source:
Non-Cash Expenditure were obtained from Road to lesscash, Research report by VISA and IMAI
Tobacco
620
0.5
Industry 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

Comparison of B2B and P2P

Invoice
Timing
Onemany
Payment
s
Data

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

Source:
http://traxpay.com/2014/02/delighting-and-de-risking-b2b-transactio
ns-for-the-digital-age