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Business News/ Opinion / Betting big on payment banks
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Betting big on payment banks

We should move towards a mobile payment platform with collective effort from banks, the govt and RBI

Illustration: Jayachandran/MintPremium
Illustration: Jayachandran/Mint

Many bankers are justifiably concerned about introduction of payment banks in the country. The threat to bank’s low-cost current and savings account balances is real. It is now well established that the primary driver of balances in these accounts is the number of electronic or cheque payments made by the customers from these accounts (without withdrawing cash from ATM). If the new-generation payment banks introduce technology to make payments convenient for customers, some of the precious float in low-cost current and savings deposits of the banks could move to them.

Much of the threat could disappear if they could come together to create a mobile-to-mobile payment platform that could allow funds transfer to anybody by just knowing the recipient’s mobile phone number. Imagine a world where you can pay your maid her salary, the plumber his repair charges, the taxi its fare, the schools their fee, bills of various kinds, recharge of mobile and pay TV, and monthly transfer to mom knowing just their mobile numbers. The money goes from your account to their account in 15 seconds and a confirmation is received. You will not need to go to an ATM to withdraw cash. More importantly, by default, you would not imagine you would need an account with a payment bank to help you make payment.

This is not a utopian digital dream from a science-fiction movie. It is now a proven model in some countries. In UK a scheme like this, called Paym, was launched in April. Within three months a million customers signed up. A fast growing segment which uses this service prolifically is small merchants. Small roadside shops do not have size and scale to set up infrastructure to accept payments using cards. This is a big boon to them. It takes 15 seconds to secure an end-to-end transfer of funds and get confirmation. This has been on the table in India also but banks have baulked at taking it to its logical end point. We have today a platform called National Unified USSD Platform (NUUP) that has been created by National Payment Corp. of India (NPCI). By dialling *99#, from any phone on any network, one can connect to this service irrespective of your bank and carry out transactions.

However, it is quite cumbersome when it comes to transferring money to someone else. You need to know the recipient’s account number, IFSC code, or another long code called MMID. With slightly bolder thinking and innovation, we can make this platform seamless and achieve the objective of instant mobile-to-mobile funds transfer knowing just the recipient’s mobile number.

India needs this service more desperately than countries such as the UK. Developed markets such as the UK are almost fully carded, which means almost all customers have debit cards and most merchant establishments have a card-reading devices. Almost all payments at shops and merchants can be made using cards. What remains for the mobile-to-mobile transfer is small person-to-person (P2P) transfer or payment for petty errands. In India, this would be a revolution. Small shops which cannot afford a point of sale (POS) card-reading device would go for this option to receive payments. And this includes 95% of the shops in the country.

As a matter of fact, India has to bet on mobile-to-mobile payment as primary platform for customer purchases. Our banks, our government and the Reserve Bank of India are content betting on cards to be primary platform for retail payments. Even if we distribute plastic debit cards to all customers for free, small merchants in small towns are not going to have POS devices in the foreseeable future. The economics does not work out for card acceptance technology. We seem to be betting on cards, which is a 30-year-old technology developed for the West that suited its cause at a particular time. We need to bet on mobile instead and back it with a high energy collective effort from banks, the government and the regulator.

Interestingly, as this service goes live in the UK, many observers are predicting a wiping out of P2P service providers—a shutdown of UK’s version of domestic payment banks. In India, we seem to need payment banks to threaten banks into action. No one is arguing that there is no risk. The right approach is to apply full power of technology to find a way to beat the risk and not be beaten by it into inaction. Our banks have so far decided not to come together to fully harness the opportunity. They do so at their own peril.

Comments are welcome at theirview@livemint.com

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Published: 09 Oct 2014, 05:05 PM IST
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