I was in New York last week and while walking down the street, I bought a can of juice from a street vendor. Normally, I would have had to pay for this in cash, but before I could reach for my wallet, the vendor pulled out his iPhone and asked for my credit card instead! The vendor used the “Square”, a $10 card reading device which can be plugged into an iPhone and used for credit card payments. Technologies like this, which are creating new business opportunities for small businesses such as the street vendor, highlight their far-reaching potential.
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On the one hand, from a macro perspective, it is bringing whole new segments of people into the financial system who were earlier excluded due to financial, geographic and demographic constraints. On the other hand, from a micro perspective, it is changing the consumption patterns of individuals. From the earlier days when consumers had to go to the producers of products and services, the model is flipped on its head by producers reaching out to consumers.
These shifts are ushering in a new wave of commerce, which is being driven by the need to be micro, mobile and inclusive. To begin with, consumer mindsets are beginning to change. There is an increased demand for personalization and micro transactions. A simple way to explain this is to look at what has happened in the music industry. I have been witness to the transformation of this industry from the days of vinyl records to tapes to CDs to online music today.
What has been a fundamental shift through all of this is the fact that consumers have moved away from the need to buy an entire album for just the one song that they like in it. Today, they can pick and choose the songs they want to purchase and pay a fraction of the cost of the entire album in the process. The success of business models such as that of iTunes is testament to this transition to micro transactions. Another example of the shift to micro transactions is the Amazon Kindle, which revolutionized digital reading.
I myself use the Kindle to read documents on the go which I can receive directly on the device for a nominal fee of $0.15 per megabyte (MB). The ability to support such small transactions shows the evolution of micro transactions. Product and service providers across industries, banks, retailers and e-commerce are enhancing their systems and process capabilities to address this demand for micro transactions.
The growing focus on mobility is another major trend in this new wave of commerce. Consumers today want to express their demand and purchase or transact from any location. This mindset is changing the dynamics of customer relations, supply chains and payment gateways. Most organizations have been quick to grasp this and e-commerce providers such as Paypal, Amazon Payments and Google Checkout now have mobile payment options.
In India, SMS-based transactions and feedback mechanisms have created unique business models in industries such as media and advertising, indicating the potential of mobile and micro transactions. The banking and financial services industry has also been leading the way in leveraging the business potential of mobile commerce. It is estimated that by 2012, in the emerging economies as a whole, the number of mobile phone owners without a bank account will be around 1.7 billion.
It is also estimated that by 2020, nearly half of India’s population will use hand-held devices for banking transactions. These projections highlight the potential of the mobile banking space which is not limited to the developed and emerging economies alone. The success of branchless banking services such as M-Pesa in Kenya which offers commercial transactions through the mobile phone is another leading example. With a network of agents in place, the service allows people to transact on their mobile phones, enabling several small businesses, casual workers and even city dwellers to have an easier and safer alternative to informal means of handling their money. Nine-and-a-half million people or 23% of the population now use M-Pesa. This not only indicates the incredible potential of mobile-based banking services, but also the change and willingness of consumers to adopt this technology. Let us look at the third important trend. Despite the great strides that the banking and financial services industry has made in the last century, even today, close to 2.5 billion people—which is nearly 38% of the global population—remain unbanked. The new wave of commerce has the ability to bridge this gap. Look at the impact created by institutions such as the Grameen Foundation for instance. It is a non-profit organization that caters specifically to economically backward groups by providing access to technology and microfinance.
They have multiple initiatives that look at working with MFIs (microfinance institutions) across the world. In India, the Grameen Foundation created an intermediary, Grameen Capital, that helps MFIs tap into affordable capital through various financing initiatives. This helped Indian MFIs grow at an incredibly fast rate. In less than two years, the foundation’s initiatives have generated more than $100 million in financing for Indian MFIs which can fund more than 800,000 micro loans for lower income groups in the country. Other organizations are also creating unique propositions aimed at increasing inclusiveness in areas such as access to information.
ITC’s e-Choupal initiative, for instance, helps small and marginal farmers. This initiative has set up centres, which are Internet-enabled, to help provide farmers with information on agricultural techniques, updates on the weather and much more. More importantly, it helps them compare crop prices globally, conform to food safety norms and work as virtual buyers’ co-operatives. The initiative has empowered close to four million farmers across the country.
To conclude, it is important to note that talking about the business potential of innovations in technology and commerce is stating the obvious. The most significant contribution of this new wave of technology-driven commerce is the fact that it is bringing information to the hands of the uninformed, removing intermediaries and levelling the playing field. How else could a regular street vendor in New York rub shoulders with retail giants in providing mobile payment options? These trends have the potential to create a cashless economy that can bring about a social and financial revolution. However, in spite of all these advances, many issues in key areas such as education, healthcare, communications and disaster prevention among others still remain unsolved. The new wave of innovation in technology and commerce being driven by mobility, micro and inclusiveness provides us with the unique ability to deal with these unsolved issues. I strongly believe that the challenge for business leaders of the future is to be able to leverage these opportunities so that the benefits of progress can reach the marginal and excluded sections of society.
The author is set to take over as chief executive officer and managing director of Infosys Technologies Ltd on 21 August.This is the sixth in a series of articles he’s writing for Mint on seven strategic themes that Infosys has identified and sees as transforming businesses going forward.
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