Mobile Payment Systems:What Can India Adopt From Kenya’s Success?
40% of Indians currently do not have access to a bank, and most of these people belong to low-income rural areas. Starting in 2005, the Reserve Bank of India (RBI) has recommended that banks increase access to banking services for the unbanked population using the mobile payment (m-payment) systems. With nearly 51% of the population carrying a mobile phone, private partners in India developed m-payment systems modeled after the M-PESA system to increase financial outreach by providing deposit and withdrawal services to clients. Safaricom launched M-PESA in 2007; by 2009, nearly 40% of Kenya’s adult population used M-PESA services; and by 2011-2012 Safaricom estimated that over 14 million Kenyans use the service as of 2011-2012.
Photo Credit: Jay Bendixen
A study conducted in Kenya to evaluate M-PESA’s community-level impact found (1) easier circulation of money allowed clients to remit money in times of financial distress; (2) conducting business transactions became easier and safer; and (3) vendors were able to reduce the transaction costs and apply savings towards business expansion. M-PESA’s phenomenal success has prompted Indian policy makers and private partners to consider using similar applications to achieve financial inclusion objectives and to provide a cost-effective alternative to brick-and-mortar bank branches.
Subsequently, in India the Interbank Mobile Payment System (IMPS) was launched – a mobile based funds transfer service for users registered with participating banks. MNOs and banks partnered to provide m-banking services all over India including Airtel’s (MNO) “Mobile Money Transfer”; and by other banks such as ICICI, HDFC, and State Bank of India (SBI) have launched their own mobile payment services in partnership with several MNOs experiencing varying degrees of success. Despite these initiatives taken in India, the adoption of mobile payment technology, especially among the low-income population, has been cautious. This is primarily due to stringent regulations and marketing models aimed at acquiring the predominantly urban and technically advanced users. Additionally, transactions need to be conducted on a phone via an internet connection, which is not only a relatively expensive service but also requires basic know-how about the internet technology. While these systems have been adopted by approximately 15% of urban mobile users as of 2009, cash continues to be a predominant mode of transaction for unorganized retailers and their clients.
Marketing models towards developing a strong client and agent base are also lacking. Though m-payment systems have been promoted on television and internet, the onus of enrolling into the m-payment system and understanding the application primarily lies on the client. Also, there is no clear client acquisition model in place; store managers and customer care representatives rarely advertise the products to the clients directly, and do not receive a separate incentive to enroll customers. Furthermore, retaining customers after signing them on to an m-banking service has been challenging as well.
A CMF-IFMR study found that while customer acquisition was fairly easy when the mobile money service was provided for free, a midway introduction of transaction fees led to almost a third of existing users dropping out of the services. The inactive low-income users expressed their keenness to restart using mobile money in the future subject to a reasonable pricing policy by the service provider. The study concludes that despite the immense potential of mobile money in promoting financial inclusion in India, very little efforts have been made by the RBI and banks to promote the model among the prospective low-income clients.
Regulations in India permit mobile transactions only they are linked to a registered bank account, through which transactions take place. While it is a well-intentioned regulation to protect clients, this excludes the 40% unbanked population and may also be a deterrent for those uncomfortable with the banking system.
Another study conducted by CMF-IFMR found that the financial inclusion mandate by the RBI does not allow private partners to charge appropriate fees for zero-balance accounts targeted for the low-income populations. This has discouraged agents to offer diversity of financial products to low-income clients through the m-banking channel.
In contrast, mobile money services in Kenya offered primarily through M-PESA experienced rapid and sustained take-up because of brand value, large outreach, a feasible incentive structure for the agents, and an intuitive product design. Safaricom provides the M-PESA service and built the distribution system for M-PESA on a well-established telecom brand and a widespread agent network. Safaricom also provides its agents help with storefront setup and training. Agents receive incentives for early adoption of M-PESA services as well as clearly defined commissions on person-to-person transactions and withdrawals. This enables them to experience sustained growth in their businesses. With active agent and client management, Safaricom avoided the “chicken-and-egg” trap by increasing the agent base and the client base simultaneously, and achieved critical mass by acquiring 9 million, or 40% of Kenyans in 3 years. Most importantly, regulations in Kenya permit Safaricom to provide mobile money services via M-PESA, where clients can conduct all transactions without their M-PESA account linked to a bank account.
What India can learn from Kenya?
While protecting clients should be the top-most priority, regulation should also ensure that m-banking systems are lucrative for the MNOs, banks and their clients. The RBI and principal banks should consider creating a dedicated fund for promoting the use of mobile money among low-income clients. Additionally, the RBI should incentivize private partners to develop platforms to reach low-income urban and rural populations, and create an intuitive interface for users with diverse economic and education backgrounds.
M-PESA was initially introduced as a simple remittance system to “Send Money Home”, and then added on other mobile money services. An increase in national remittances by nearly 35% between 2006 and 2009 is attributed to the widespread network of agents and usage of the M-PESA system. This market remains untapped in India, where “hawala” (method of informal transfer or remittance of cash based on an honor system of individual hawala agents) still remains a predominant form of payment in remittance corridors. A study by CMF-IFMR of 274 families from major migrant corridors found that 57% of the families used informal carriers to transfer money, especially “hawala”; half of these families had access to bank accounts but said they were cumbersome to use.
Considering the positive impact of an intuitive mobile payment system in Kenya, the RBI should recognize the significant positive externalities of this system, and incentivize MNOs, banks and private partners by providing knowledge platforms for lessons learned from other markets and creating learning opportunities for all. Additionally, there must be a larger focus on increasing the penetration of mobile phones in India, which stands at 51% compared to over 68% in Kenya. Lastly, the government can set the gold standard by using mobile systems for government payments, taxes and other payments via a mobile payment system.
--- Mudita is a program head, and Deepti is a senior program manager, both at Centre for Microfinance, IFMR Research, Chennai.
- Mani Nandhi, CMF-IFMR Working Paper, Impact of EKO‟s SimpliBank on the saving behaviour and practices of low income customers: the Indian experience, October 2012 (IMTFI Funded Project)
- CMF-IFMR Newsletter Article, A closer look at the financial viability of the Business Correspondent Model, October 2012
- Amrik Heyer and Ignacio Mas, Gates Foundation Working Paper, Seeking fertile grounds for mobile money: mobile money for the unbanked, September 2009
- Isaac Mbiti, David N. Weil, NBER Working Paper, Mobile Banking: The impact of M-PESA in Kenya, June 2011