The status quo of payments in India

I still do not have a valid credit-card in India. The KYC (due-diligence mandated by the government aka ‘Know Your Customer’) norms require that Coin of Alupas of Udipiyou have an office (or fake it) but must have a land-line at office. If you work from home then you are out of luck! Does not matter how much money you have in bank or a few international credit cards to carry around. I have a debit card which is not accepted by any online portal (Thanks to Hongkong bank).

Net, net. I’m just like the other 88% Indian population which does not have a debit card or the other 98% who do not have a credit card. But, the good news is that I’m part of the 500m population who has a mobile phone.

As a result, I’m not able to show my purchasing power to the various portals selling books, gadgets, t-shirts and other trinkets online. I’m not able to show my fickle mind by making a purchase of Rs. 300 and being happy about it.

Prepaid or “stored value” card (or cash card) may be the solution, but they have a very poor distribution and I have to go out and buy a card from a travel agent; if you are lucky to find an agent carrying the cash-card.

Banks in India are busy in shoring up their mobile banking offering a la check your balance, make fund transfer, etc. I don’t know why there is so much push for mobile banking as the urban population; the users of mobile banking via a GPRS connection, already have access to ATM and Internet which can be used to do the same functions in a larger form factor.

Though Reserve Bank of India (RBI) has been raising the transaction limit of moving cash from the mobile; the problem is that the whole thing is tied to a bank or a credit card, which makes the installed base the same 2% for card holders and 12% for debit card holders or netbanking customers. So much so that RBI has allowed transactions to happen without using the traditional encryption techniques used in issued card-based transactions, but there has not been much uptake.

RBI does not want the operators to become banks, which is very valid as it would give rise to money laundering and of course operators then would disintermediate the banks. However, most operators are already making tonnes of money on VAS like premium SMS, ringtones, downloads and such. Why there aren’t any instruments which allow me to do a payment transaction which is not attached to a card or a bank account for things which are not sold by the operators? The lack of the same led to the downfall of mchek, they are on 100m phones but then only a fraction of the owners have a credit card or a bank account.

What is needed here is innovation to allow purchases to The mud road aheadbe done through the phone directly and billed to my monthly statements or debited from my top-up.  Banks are too big to be worried about longer tail of small value transactions, operators do not have the teeth, nor the desire to deal with the complexities of 3rd party purchases flowing through them. The laws are falling in place, consumers are ready to make those purchases — missing is the technology piece and a desire to experiment in these areas. This is a space to watch. The potential is beyond imagination when convergence of commerce and owners of mobile & users of internet takes place.

PS: So how do I buy tickets for the travel I do? I call up a few good friends to get it done and pay them cash later.

The coin shown above was used by a minor dynasty in coastal Karnataka called Alupas. Pic courtesy of Reserve Bank of India (RBI).

Pic from the road to startup gurukul.

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  • Adi

    Wow you don't have a credit card? Maybe I should “refer” you whenever the next annoying telemarketer calls me for a “free credit card offer” 🙂
    I have heard some buzz around mobile payments for quite some time now (Nokia was planning to do something too). However, even if we do get mobile payments would they allow you to buy flight tickets online? I doubt.

    • indus

      There has been a lot of “buzz” around mobile payments and it ends there. Nokia/Obopay has been doing trials in few cities in India, but they are still thinking traditional payments tied to a mobile device.

      Buying flight tickets is possible today via ngpay or other “portals” on the mobile but with a limit of Rs. 10K per day. The same can be applied to mobile money.

  • I was not aware of those norms that you mentioned. But I do remember ICICI bank offering credit cards to final year students in college. I wonder if the rules were a bit different 5 years ago.

    Providing a hassle free payment experience to consumers is a big challenge for startups and is a primary reason why e-commerce hasn't taken off in a big way. Yet!

    I am developing an application targeting the student community. But the biggest challenge that I foresee is collecting payments from customers. There may be 10,000 paying customers across India if the payment experience is hassle free. However, that number reduces significantly because paying becomes such a big hassle for so many customers.

    • indus

      Right. Large corps who own the payment pipeline just slap a user-experience of new age on top of an existing infrastructure which does not support the customer seamlessly. Need innovation here.

  • There has been innovation in this space. Do check out eko http://www.eko.co.in. Disclaimer: I'm a part of it and glad to be 🙂

  • Mihir Isbm

    India also has pre-paid cash cards available, Itz Cash Card Ltd. Is one such company which is a pioneer in pre-paid payment solutions and is the first company to introduce pre-paid cash cards in India. You can visit http://www.itzcash.com to know more about them, they also have a home delivery service, whereby you can get the card delivered at your doorstep to avail this facility you can visit http://www.itx.co.in/hd/orderdetails.asp