Mobile Payment Systems:What Can India Adopt From Kenya’s Success?

An interesting paper, but I don't agree with your conclusion - after seeing that an easy-entry, fee-based system worked in Kenya based on free-market principles, and acknowledging that there is no business case for zero-balance accounts in India, you come to the conclusion that the RBI should incentivize the private partners and establish a promotion fund. Why not allow participants in the ecosystem to develop a fee-based business model that is sustainable without subsidies? Experience in other markets shows that customers, even the poor, are willing to pay for convenience and suitable products, but these will never emerge where the accounts are being provided free of charge or at loss-making prices.

Dear Mudita & Deepti
The study report is interesting from institutional economic perspectives. Perhaps more experiments in different context and time for perceiving the outcome ,would be worth for emulation. However, from sociological outlook , a must for researcher in the field of micro finance and poverty in developing countries be India or Kenya for that matter , there are some concerns unanswered. In particular, who gets ultimately benefited ? Does technology reach last mile unbanked vulnerable poor for their empowerment (MAYA declaration) ? Do small business/trade people alone grab the benefits of technology for their growth in the given community? To what extent the potentials of M Pesa such as money circulation, transaction, expansion business, employment, financial capital accumulation (as reported )could be harnessed for the inclusion of the bottom also who remain persistently excluded in all kinds of inclusion drive? Admittedly, in one of the discussion posted in CGAP linked in group on Jipange Ku sav in Kenya by Sara Rotman & others , it was reported that mobile enabled technology remain hardest to reach the poorest.and asserted the need to continue to think about responsible and effective way to reach them. This scenario is of any indication, then the bottom poor , mostly unbanked segment, would remain excluded in the inclusion process either by branch banking or branchless mode warranting more innovation in this technology intrusion. This is a major concern of ‘ inclusion’ mission both in Kenya and India (in fact both in Asia & Africa ) with sizable number of socially vulnerable and economically deprived poor in bottom pyramid. In the context of persisting poverty, inequality gap even among the poverty segment may widen if tech does not outreach (unbanked) last human being in the last mile from sociological perspectives. In the context of tremendous growth of mobiles in nook and corners in both the continents, intellectual debate continues on whether we need mobile phone or toilet in the given extent vulnerability in health sector ( majority with open defecation)
The above observation need not necessarily treated against technology . It is the question prioritization and sequencing the input contextually. Further, in the process of development or inclusion , equal distribution of end benefit is to be ensured both in supply and demand sides. Unlike functional department or institutions , research domain provides more flexibility and multidisciplinary perspectives to seek the truth on ground realities and provide concrete solution for policy makers I believe.
With good wishes
Dr Rengarajan

Mobile money models that worked in Kenya may not necessarily work elsewhere. Move from cash to electronic money is huge behavioral and psychological change, we cannot expect the poor (suspicious of such alien interventions) to adopt mobile money quickly. Urban consumers too took considerable amount of time using credit cards in India and urban users are still not comfortable using credit card - emergence of cash logistics business is partly due to this behavior. India needs to fundamentally change the way mobile money models are developed. I believe it must be the rural businesses that need to first begin incorporating mobile money in their transactions, gradually passing it on to the individuals. G2P payments is a good starting point, but transactions in rural business can be more effective in building the market.

Good presentation Mudita and Deepti, i quite agree with 70 percent of your findings.
from my point of view market equillibrium should be the driving force in terms of price.For penetration sake let RBI create demand by bringing values to the unbanked taking care of their basic banking need like savings ,remmitance and credit accessibility after which the market force will reward the stake holders.
Best Regard Chidi

A couple of things-

1. M-Pesa was launched in India early this month-

http://www.mpesa.in/

http://www.icicibank.com/mobile-banking/mpesa/m-pesa.html#

2. 2 key points highlighted by the M-Pesa India Head while comparing Africa with India-

(a) Sethi says there are differences between India and Africa: “Firstly Africa was a largely unregulated business, with mobile money transfer done more like a telecoms company than a financial services company. In India, mobile banking is under the guidance of the RBI [Reserve Bank of India].”

(b) Identification is also an issue. “In India we don’t have a national ID card, like a social security number”, Sethi explains. “In Kenya, surprisingly, they has one so it was easy to check identity to open a mobile account.”

Source: http://blogs.ft.com/beyond-brics/2013/04/19/india-m-pesa-is-rolled-out-…

The current suite of offerings from M-Pesa primarily cover money transfer and payments to select entities like telcos (mobile re-charge), utilities (power companies), etc. I am not sure if this is "innovative" enough to attract the un-banked segment in India.

Thoughts?

Amit

Thank you for the good, thoughtful piece. However, there is an important factor being overlooked--namely the essential role of network effects in user adoption, and the corollary requirement for operator independence. In Kenya, Safaricom started with circa 60% of Kenya's mobile subscriber base, growing to over 70%, meaning that early M-Pesa users--myself included--knew on Day One that I could send money to just about everyone in Kenya possessing a mobile. In India by contrast, there is no single operator in a monopoly position that can gaurantee ubiquitous acceptance. As in any payment system (be it cards, hawala or otherwise), network effects is crucial to success. And therefore, any mobile financial service provider must be able to reach every user regardless of the type of mobile phone being used (not only those with mobile internet, as the article observes), but also basic phones; and must be able to reach users regardless of whether they are using an Airtel, Idea, Reliance, Vodafone, or any other SIM card available in India. One need look no further than Safaricom/Vodacom's failure to successfully export M-Pesa into Tanzania to see how crucial network effects are: Vodafone/Vodacom's more modest circa 20% subscriber base was nowhere big enough to get to network effects acting alone. We welcome further dialogue on the topic also on twitter: @mistralmobile

As authors, we are very appreciative of all your comments and feedback. The biggest motivation for this article was to address the issue that regulators need a more inclusive and innovative approach to Financial Inclusion (FI) in India. As you have correct pointed out, most FI initiatives are bank led, or associated with the bank in some form or another. With dormant No-Frills Accounts and a vast population still unbanked, the traditional bank-led model might not be sufficient to meet the demand. There is a very strong demand for financial (savings, loans etc) products among the poor; we therefore support the need for incubation of innovative ideas for FI - including mobile banking (that's not associated with a bank account per say). While a single solution is not clear in the Indian context yet, we do think that RBI must seek input from stakeholders before setting the ground work for any FI initiatives.

Dear authors
In agreement with your reconsidered views on strategies for financial inclusion, there is a need for paradigm shift to demand oriented and indigenous based incubation of innovative ideas for FI. In India I feel number of banking innovation schemes related to financial inclusion in rural area like RBI’s Lead Bank scheme (branch expansion, district credit plans, service area credit plans banking coordination committees etc) , village adoption scheme, specialized branches like Grama vikas Kendra (PNB) Gramodaya kendras (IB) rural credit development division(IOB) Farm clinic(SYB) etc., Non-public business working days(NPBW) for branch officials to have direct consultations with the service area village folks, door to door campaign for savings in the village , have potential for responsible financial inclusion but remain neglected or being implemented lackadaisically. Adding insult to the injury , directed lending seems to focus more on indirect lending to the institution like MFI/NBFCs and other branchless modes without any face to face human relationship between the banks and the ultimate poor clients leading to non transparent exclusion phenomenon in the form of drop outs in SHGs, group mortality, defunct a/c, inoperative a/c etc. It is therefore RBI need to consider rejuvenation of our own indigenous schemes as stated above well suited for unbanked areas in rural India. In the context of cry over for financial inclusion of unbanked/under served (nearly 51.4 % of the farming HHs-NSSO data) on the one side, it is not clear why regional rural bank which has emerged as champion for inclusion of rural poor is shrinking and merging with sponsored banks (from 196 in 2000 to 82 in 2012 )loosing its own identity with rural flavor and pastoral products? If this RRB scenario is of any indication , growth on supply side actors and mere inclusion for the sake of inclusion particularly branchless mode for the said mission is harmful and may cause exclusion of already included also.
In view of the above trends in banking scenario, I agree with you that RBI need to seek input from stakeholders before setting the ground work for any FI initiatives. Towards this direction kind attention of the researchers, the proponents and policy makers on the subject , is drawn to my just published book entitled “Microfinance Principles and approaches –Ten commandments for responsible financing to the poor” suggesting a new framework for rejuvenation of lead bank approach for outreaching unbanked areas and responsible inclusion of bottom poor through prudent Micro finance planning with appropriate pro poor integrated micro finance products and services. The access platform for the book
Amazon: http://www.amazon.com/MICROFINANCE--Principles-Approaches-Commandments-…

Notion Press Store: http://notionpress.com/store/index.php?route=product/product&filter_nam…
Welcome for further improvements in the ways and means towards sustainable inclusion and empowerment of the bottom pyramid who remain hitherto excluded.
Dr. Rengarajan

Dear Authors and Others,
Just came across this paper. I have few comments for all to think through…
1. The canvass for the study was quite limited.
2. Kenya model is only P2P.
3. In India, we have both Bank and Telco led model working.
4. The regulations in India allow / hinder a lot of things. The whole of the mobile based payment / banking / commerce would be governed by this model
5. The so called “hawala” is a wrong comparison considering the ticket size.
6. The market is moving towards a very large throughput, complex, efficient and instant mobile money provided consumer adoption can be ensured.

This is based on my experience as I manage the leading mobile payment platform that is close to 50% of the M-PESA and has a host of additional features including security elements.

This article is excellent........ Every thing is clearly defined in this article............

1. 'Trust' is important for financial services. I remember reading somewhere that the trust in the banking system in India is higher and therefore, bank led model may be better suited for India.
2. Poor are willing to pay.. I think there was a microsave research paper on the Indian context. They are willing to pay a reasonable price for the services - as often the alternate cost is far too expensive for them. Take micro finance for example.. the poor were willing to pay 24-36% interest as alternate cost was often 100% or more!!
3. Not clear why RBI should incentivize.. They have done their bit and opened up payment services to all prepaid operators by allowing them to connect to NPCI for free movement of money from and to bank account to wallets of all kinds..
4. The biggest problem in the country is everyone wants everything free or some incentive ( including for voting!!!)... not realising the impact it has on many other aspects including repayment culture and behaviors. The only incentive required is an enabling environment.. I think it is there in India with respect to mobile financial services..

an interesting paper but it is also important to understand what really drives Kenya's consumers to use mobile money transfer.
my PhD paper statistics showed that in Kenya the most important factors was perceived usefulness and perceived ease of use for men while women were mainly motivated by perceived enjoyment and perceived ease of use. Security and image are also important factors.