Wednesday, 18 May 2011

The Branch is Dead…Long Live the Branch!

I was having dinner with an entrepreneur in the Indian payments space earlier today. The emerging business models and evolving consumer adoption trends in banking & financial services, soon overshadowed the culinary delights that had adorned the table!

A silent revolution is unfolding on the ground, which otherwise appear frequently on business plans and venture capital pitches. Retail outlets, appointed by Business Correspondents (BCs) are now permitted to open bank accounts, accept deposits, facilitate withdrawals, take bill payments and enable fund transfers. This bodes well for retailers as they find discover new revenue streams but also have a great proposition to drive walk ins into their outlets. Now, this is rather well known and has been the norm for several countries that have successfully adopted the BC model and driven the financial inclusion agenda effectively.

An interesting development is however, that non-banking customers can now walk into a BC appointed retailer and deposit cash into third party bank accounts, and see their funds get transferred in real time! Hence a labourer toiling on the roads of New Delhi can ensure that his wife, thousands of miles away, in a village in Tamil Nadu can receive funds into her account in a couple of seconds. This effectively bridges the banked with the unbanked, converts cash into an electronic format and provides an instant transfer experience. All critical aspects for building confidence and driving usage of formal banking, payment and transfer mechanisms and eventually leading to the belief in the need for a bank account and financial inclusion.

The key point to be noted is that the neighbourhood retailer has earned the ‘Trust’ of the consumers accessing this suite of services. Banks have invested billions of dollars in building their brands and providing assurance to customers that their money is safe with them. Now, the retailer with his social equity, appears to have cracked the code!

Now, for most people reading this post, the process and experience of banking, having the comfort of a branch nearby (which may never be visited) is well ingrained and considered the only method of storing and accessing funds. However for billions of people worldwide, their circle of trust extends to their immediate social circle of neighbours and retailers, whom they can see and meet, at their convenience. A bank can be an ‘alien’ institution, an inanimate object that they cannot relate to as easily. MFIs with self-help groups have amply demonstrated this!

Which takes us to the second inflection point. Banking services have been rolled out by some companies, wherein the retailer requires just a mobile phone to accept deposits, enable withdrawals and fund transfers! No POS machines. No ATM machines. No Internet Banking terminals! No technology intensive kioks! No card plastic! No card readers! And a ton of other no’s as well, which would give shudders to most professionals who have grown enamored (and possibly addicted) to these devices and technologies.

Hence the question that is quite clearly staring us in the face today. Where do we go from here? How does one increase financial inclusion, banking access penetration and electronic payments usage.

The current access metrics in India are at predictably low levels of 66.3 branches per 1 million persons* and 16.3 ATMs per million persons (Source : Report on Trends and Progress of Banking in India 2009-10, RBI). For North America those ratios stand at 260 branches per 1 million persons and 1340 ATMs per million persons. Taking into consideration the income distribution and growth levels, the geographic spread and infrastructure challenges, traditional expansion models would still target a 3x growth in number of branches and 20x growth for ATMs to achieve reasonable levels of financial access. And with over 300,000 POS terminals, the growth factor opportunity for this segment can only be exponential.

This would of course incur capital investments, exceeding the GDP of several countries. But the question remains.

Which would be a more economical and successful method of banking and electronic payments growth?

There could be three approaches

Leverage new to banking & payments channels: The business correspondent and retail networks, appearing to be the primary choice.

Leverage new to payments devices : Enable payment processing via devices such as the mobile phone. Square could be a good point of reference on this dimension. I have in my earlier report, outlined the recommendations of the Inter Ministerial Panel, which has outlined a framework for mobile based acceptance network development. It has set out norms for a different approach to ATMs as well. Hence the thought is in place and the initial designs as well.

Follow the traditional branch + ATM expansion model

The Shifting Point!

The question that one ponders on now. The business correspondent / retailer models referred above have been primarily designed with a perspective of addressing the requirements of clients at the bottom of the pyramid, in both the urban rural markets.

Can these models be similarly applied to address the needs of the mass affluent and affluent audiences as well, in both urban and rural markets?

It’s been ages since I’ve visited my bank branch. Net banking and ATMs address my needs sufficiently. Hence the only leg that remains is that served by the ATM for dispensing cash.

Then, why do we need two models of expansion? The first catering to the affluent, and the second catering to the not too affluent.

A high end supermarket chain is just as hungry for business and walk-ins as your local neighbourhood grocer, a fundamental premise that drives retailers to participate in transaction processing.

Would I mind walking across to the cashier at the supermarket till to withdraw cash as I pick up groceries? Possibly not!

Would I mind depositing cash at a computer peripherals store as I purchase anti-virus software? Possibly not, again.

Would I mind if my pizza delivery guy swipes my card on a device like square instead of a fancy high end POS device? Nope!

Would I prefer a smiling attendant behind the cash till to an automated voice urging me to take my cash quickly? Yes! And she doesn’t have to be in a bank costume.

What would influence banks, regulators and processors to evaluate this radical shift in thinking? Isn’t there a sufficient economic value migration opportunity, for shifting the savings in capital and operating expenditure incurred in managing branches & ATM channels to the retail channel partner?

Would then, banks still need to invest in branches? Can a virtual bank complemented by a payment networks brand operating on a retailing layer operate in a scalable and efficient manner? Or, would in fact, retailers actually be willing to pass back value to banks for leading customers to them? Or would this perhaps lead to drastic reduction in costs across the value chain resulting in higher earnings for customers on their savings and lower lending rates possibly?

Can a model be evolved, where a ‘bank’ branch may be primarly designed for customer enrolment and loan disbursals, with currency disbursement, fund transfers and other services be completely migrated to their retailing partners? With new customer acquisition mostly occurring at third party locations, the branch could even play a administrative supervisory and customer support role in a hub and spoke model, wherein a single branch oversees the operations of hundreds of retailers and ATMs in its hinterland!

With mobile devices having achieved over 100% penetration levels in the mass affluent segments, the mobile could effectively act as the access and authentication device. This in turn could restrict the need for POS or ATM devices as we know them today. This makes it even easier for retailers to participate in the payments processing domain.

This potentially ‘outrageous’ approach is open for debate and would welcome your views.

Saturday, 16 April 2011

Payments (Alone) May Not Pay the Bills

I came across an enterprising man who worked as a driver and doubled up as the neighborhood milkman. In the initial months,he found himself collecting and carrying large amounts of money on a daily basis, which became quite unwieldy with his day job. To make matters worse, with outstanding dues, leakages in collections and a host of challenges posed with managing currency, he often wondered if in fact he was making any profits in this enterprise.

A benevolent aunt stepped in and helped him open a bank account in a new age bank. Now armed with a debit cum ATM card, he ventured into this mysterious world of electronic banking and soon adopted a device called the 'ATM'. Though 24 hour access was the dominant benefit, the ATM allowed him to experiment and learn with his banking relationship without the risk of 'social embarrassment' in a branch.

The ATM was soon his new business ally, allowing him to make currency deposits, print mini statements, place requests for cheque books and a host of other essential features that helped run his business. It was his business ledger and he would brave it into the branch once a month to take a detailed printout for the month, tallying the deposits and withdrawals!

I'm not particularly sure if the founders and generations of bankers thereafter had conceived of such benefits, but this enterprising entrepreneur did indeed create some for his use. In an interesting twist however, in this journey, he still hasn't ventured out to use his debit cum ATM card for making over the counter purchases at retail stores! He just doesn't get it!

"Why should I use a card, when I have cash in my wallet?"

"Why should I use a card, when I know I may spend more than I should?"

His bank, in the meanwhile, has been pounding him with offers of reward points for using his debit card for POS purchases!

With a debit card population crossing the 200 million mark in India, the industry continues to be challenged with low levels of usage at POS. Furthermore, with a host of new age mobile based banking, payments & transfers services available & being introduced by leading players, it makes one think!

  1. Should more be done to increase the adoption of these new age payment systems?

  2. What is the role of banks & Financial Institutions in the payments space in driving adoption of electronic payments?

This appears to be a challenge spanning socio-economic segments. PhD yielding professors and rickshaw pullers seem to resonate similar questions!

Hence, though the challenge is universal, is the solution necessarily singular?

The conventional methods of driving adoption of electronic payments, may be broadly classified into the following three categories :

  1. Legislation & Financial Incentive : The South Korean model wherein card based payments are mandatory for tax breaks

  2. Convenience & Safety : The classical advantage of using plastic. No need to carry cash (and spend money you don't' have!)

  3. Scarcity : MPesa, launched in a financial environment that didn't offer a semblance of a reliable transfers network.

When one operates in an environment of 'Scarcity', then the need for safety and trust are sufficient!

But how would it work when alternatives are available? Here…cash is good! It's worked for centuries, and no reason that it won't for the ones coming up as well.

As a significant proportion of future growth would emerge from populations that lie below the affluent & mass affluent segments, there is a need to understand and define solutions that address their need states and socio economic environment. Furthermore, one needs to bring in a wave of fresh thought even for those customer segments that we have been addressing in the past.

The challenge that lies ahead for those in the payments industry is to think beyond transaction processing and move towards designing solutions in a segmented manner. Why should financial institutions even consider this approach in a more aggressive manner. Well, let's do a reality check!

  1. Margins are dropping : We've all seen what's going on with Interchange in North America. The wave should sweep the globe in mature markets soon

  2. Who's grabbing the value in the value chain? : Non Banking institutions appear to be raking in the revenues in what was conventionally deemed to be the domain of banks & FIs, as in the case of MPesa

  3. Dropping ticket sizes : It makes immense sense to make 1.1 % on a USD 50 transaction, but not as much on a 50 cents transaction.

  4. Brands v/s commodities : We all know that brands command a greater premium vis a vis commodities. Would intermediate value added service providers come in and rule the roost?

  5. We don't need Reward Points! : The new consumer lying near the bottom of the pyramid may not find the tried and tested approaches of reward points sufficient enough to switch behavior.

There appears to be a tenable economic argument or justification for banks to consider going down the path of value creation.

What next? Well, banks & FIs may do well in investing greater resources in enhancing both the experience and value generated in the payment process, often the last leg in the buying process. Some brands have however made some interesting forays that should inspire others.

Visa had launched 'Rightcliq' in 2010, allowing consumers to shortlist products online and seek feedback from their social networks. This, as a service was made available for non-customers of Visa products as well. Subscribers could also use non – Visa cards to make purchases!

American Express labs had set out on that journey, potentially reaching out to customers and going further back in the purchasing and selection behavior prior to the end payment state.

The fundamental shift lies in the fact that both these brands and a few others have realized the need to develop segmented solutions that address aspects in the buying process, that venture further up the value chain, much beyond the actual act of making payments.

Now, let's head back to the milkman. What would be a sufficient stimulus or trigger point for him to use debit cards for over the counter purchases. Reward Points? May be..or perhaps:

  1. A discount coupon sent via an SMS with every swipe? Hence demonstrating the economic impact of using a debit card vis a vis cash?

  2. An alert informing him how much he could have earned on bank interest if only he had not withdrawn a large amount of funds at the beginning of the month and used his debit card prudently for purchases through the month. Also, how much he could have saved by availing discounts from bank issued offers.

  3. Offer him additional airtime if he were to purchase talk-time with his debit card

  4. Escrow systems & Micro-credit: Establish a promise to pay between a trader and a buyer via the mobile for a pre-defined period. On maturity, the seller receives the due amount. The buyer however continues earning interest on the balance till the date of debit! This could also be an interesting take on EMI payments

  5. Group Buying & Pooling : Groups often purchase items in a collective format to avail discounts, or even pool in together for gifting purposes. Could a pooling system be enabled, allowing each of the group members to make payments to the local retailer, allowing the retailer to track the payments received and the customers in availing the benefits.

Though there is clearly no scarcity in creativity, a significant nudge is required in the fundamental shift required for payment service providers.

Could these be services that could be charged? Why not? If the bank can establish a comprehendible and coherent value proposition, why not?

The migration to electronic payments would surely need to offer solutions to daily problems and needs of the larger populace. We really need to move past reward points!

Wednesday, 16 February 2011

Electronic Payments in India - Looking Back & Surging Forward

Have authored a document on Electronic Payments in India recently.

The document is available on at the following link

Look forward to hearing your views and feedback

Friday, 12 February 2010

Mobile Payments Redefined

Purchasing an airline ticket with Rs. 30 in the wallet at 2 am in the midst of a trekking expedition, considered nigh impossible till a few years back is now a distinct reality made possible by mobile phones. Is cash on the brink of extinction, well not yet!

With the explosion in mobile telephony, it was often considered that mobile payments would overtake cash and card based transactions in a similar wave. With large customer and retail footprints, customer acquisition and account management expertise, competence in managing large transaction volumes, having redefined global norms of running expensive and complex networks profitably at phenomenally low billing rates and ARPUs, the mobile ecosystem appears to have the ingredients for redefining the payments space in India.

From a customer’s perspective, the omnipresence of the mobile device in her daily life coupled with her increasing familiarity and disposition towards accessing a wide bouquet of service offerings via the mobile, has made the argument even more tenable.

In the context of transactions, mobile phones have been used in a wide variety of end uses including mobile banking, fund transfers and retail payments. Several service offerings have been initiated leveraging the portability and convenience factor, spanning financial inclusion to purchasing coffee. But, very few of these initiatives have evolved scale or universal acceptance.

The reasons have been attributed to economic viability, regulatory restrictions, technology limitations and consumer apprehensions or even the absence of relevant value propositions. However, the success of mobile transactions is closely linked with a mix of factors that also determine the long-term viability of any retail electronic payment system.

Retail electronic payments refer to those transactions made by individuals for retail payments, in which there is no physical exchange of cash. Hence, payments made via debit, prepaid and credit cards or electronic fund transfers such as NEFT and RTGS would qualify. Mobile transactions would hence refer to those transactions routed via the mobile channel with funds originating from credit, debit, prepaid and bank accounts.

The 180 million debit and credit card base in India today with an estimated Rs. 80,000 crores of retail spends, is nascent yet significant in its scope and opportunity. Payment cards, largely issued by banks and financial institutions today, enable both face to face and remote transactions, having fueled the over Rs. 10,000 e-commerce market in India today.

Impact of Retail Electronic Payments

Electronic payment allow accessibility, portability, safe storage and “ownership”, providing clear audit trails, which are distinct lacunae in cash based payments. They have also provided mechanisms for recourse in case of disputes and made remote transactions a reality. In effect, they have provided a cost efficient means for transactions.

The broader impact of electronic payments lies in its influence on triggering economic growth, reducing the costs of cash management and in deterring the large grey economy (that is rumored to equal the Indian GDP).

Global studies have established that electronic payments have stimulated GDP growth in excess of over 200 basis points. Combined with the actual cost of cash management (including printing, disbursal, collection, reporting and theft), estimated to be as high as 5%, a need for a clearer and broader policy and framework to stimulate electronic payments clearly emerges in India today.

As India enters the next decade, it is faced with the challenge of sustaining and further accelerating its GDP growth. Key growth drivers include initiatives in infrastructure development, financial inclusion, micro lending to stimulate commerce and healthy retail spending within the banked and un-banked populations. The viability of initiatives as disparate as financial inclusion to transit payments hinges on efficient payment mechanisms.

The economic viability of business correspondents (BCs), driving financial inclusion today lies in their efficiencies in managing cash transactions and in stimulating usage post account opening. The NREGS, perhaps the primary stimulus today for opening bank accounts amongst the unbanked, has facilitated electronic credits to bank accounts accessible via mobile phones & smart cards, thereby reducing transmission losses. However as consumers continue to withdraw cash from BCs, the larger cost and risk of cash management prevails.

The availability of a wide-spread retail electronic payment infrastructure to these consumers would allow them to purchase goods and services with the funds credited to their bank accounts thereby reducing the need for managing cash in the system.

In the arena of infrastructure and public transport, there are already millions of prepaid instruments that have been issued to commuters to make payments on metro rail, bus services and toll roads. With a quantum growth outlined in new and modernized transport services, the volume of transactions within these operators itself is projected to exceed Rs. 100,000 crores in the next decade. With costs of cash management constantly increasing, the viability of these projects would be significantly influenced by the methods adopted for payment acceptance.

The impact of card payments on enhancing average ticket sizes, purchase of big-ticket items and catalyzing segment level spends including travel, has also been established. As banks and issuers aggressively promote card usage, consumers also see increasing value in using their card accounts. However the benefits of electronic / card payments is yet to penetrate the larger segments of retail and consumer population in India.

Dimensions & Challenges

The six key dimensions and respective challenges for a retail electronic payment system as follows:

1. Transaction Sizes : Traditional card based payment systems cater to transaction sizes in excess of Rs. 250. With over 98% of retail transactions in India being below Rs. 250, any payment system seeking to expand penetration would need to cater to this segment.

2. Banked & Unbanked : Payment cards have been primarily available to the banked population in India. The unbanked have over the last couple of years been accessing prepaid cards, though in relatively smaller proportion, to make transit payments, Internet based purchases and store level purchases. The opportunity lies in enhancing the banked penetration and in bridging transactions between the formally banked and unbanked.

3. Face to Face & Remote Payments: Card based payments have made both possible, and with the debit card base also being gradually opened for remote payments, the opportunity basket would expand multifold. But face to face payments would remain crucial. The existing card & POS based design approach would be prohibitive for low transaction sizes and volume throughputs per customer and retail outlet respectively

4. Standards & Customer Convenience: As an example, with millions of prepaid cards being issued by transit operators today, following multiple technology standards, customers would soon require to load several cards in their wallet, only to make transit related payments! Hence the need for a common set of standards to be adopted early is crucial to achieve scale and consumer usage across a wide basket of services.

5. Interoperability : If it is mandatory that both buyer and seller need to have a relationship with one bank or operator, it would typically restrict both scope and scale.

6. Transaction Costs : The key challenge for globally adopted electronic payment systems have been in the high costs of issuing plastic, transaction cost management and managing these payment acceptance networks. Coupled with settlement costs and fraud risks, these have typically been expensive and complex businesses to operate and restricted to transaction sizes only in excess of Rs. 200.
The viability of payment networks are dependent on achieving transaction volume scale. This is one of the primary reasons for the relatively low POS acceptance infrastructure in India today and hence acceptance of electronic payments.

The Road Ahead for Mobile Transactions

There have been several mobile based payment systems that have emerged across the globe over the last five years. Mpesa, in Kenya, managed by a leading mobile operator, has revolutionalized the payments and transfers market. It has however developed in an economy, where the formal banking system had marginal penetration and controls in place. Other models in the Far East and South Africa have focused on the remittances & transfers market and targeted the unbanked populations. South Korea, with a high penetration of banked and mobile populations has evolved into levels which most nations would aspire to reach in this decade.

Much has been written on the elaborate opportunity and proven impact of mobile telephony on the Indian economy, stimulating entrepreneurship and trade. However, coupled with payments and fund transfers, the mobile phone could perhaps address these challenges and provide an exponential impetus to the Indian economy in the next decade.

What Next

Growth of electronic transactions in India can follow the conventional linear path of installing POS machines and issuing cards to consumers. Alternatively there is a confluence of forces and actions that could possibly emerge to catapult electronic payments into a trajectory similar to that achieved by mobile telephony in the decade gone by.

The existing card and cheque based payment systems were designed and established in an era when the first Internet or mobile connections had not even been issued to customers. These systems had also been designed to cater to high-ticket urban purchases and related transactional costs. A lot has changed since then.

The challenge for banks, financial institutions, mobile operators and payment processors would lie in evolving a new approach to payments. The key would lie in creating an ecosystem that offers a foundation of high frequency payments including grocery, bill payments etc. with a blend of high impact transaction opportunities such as fund transfers and P2P payments. The mobile ecosystem possibly holds the key.

Potential Business Models & Their Evolution

The business models and economic value chain that could emerge for a mobile payment ecosystems would be defined by the following factors:

1. Who holds the funds?
2. Who would own the customer relationship?
3. Who would service the merchant?
4. Who would acquire the customer?
5. Who would own the brand?
6. Who would manage the core transaction system?

Reference a report published by The Mobey Forum, two broad categories of models would emerge, the first would morph from the existing bank centric business models and the second would be more “transformational” in nature.

In the bank centric models, the mobile channel would possibly play the role of carrier and user inferface as in the case of mobile banking today.

In the transformational category, there are three models that have emerged till date:
1. Partnership Model : The bank and mobile operator jointly manage the business
2. Independent Service Provider Model : wherein a non-banking or telecom entity would set up a mobile payments ecosystem &
3. Operator Centric: Wherein the mobile operator takes the lead, with the banking entity servicing evolving regulatory requirements w.r.t fund storage, clearing & settlement.

The Tipping Points for Mobile Payment System Evolution

1. Source of Funds :

The recent circulars by the RBI on prepaid cards, allowing non bank entities to create prepaid payment accounts, is a critical step in expanding the funnel of customers who can be brought into the electronic payments fold, and potentially redefining the traditional role served by banks in India.

Hence virtual mobile wallets, Internet payment accounts, potentially issued by mobile operators, manufacturers and service providers along with banks, would allow both banked and non banked customers to have a prepaid payment account. The loading via cash could be undertaken at 3rd party agent networks or the banked may choose to transfer funds from their existing banking accounts.

As open-ended prepaid cards still remain under the ambit of banks, partnerships could emerge for the creation of co-branded offerings between banks, operators and service providers.

2. Segmented Product Offerings & Value Propositions

Students, migrant workers, housewives, micro-entrepreneurs, marginal farmers and a host of other customer segments, could be targeted with well defined and positioned “packages” bundling content and services linked with mobile payment products.

Eg : For migrant workers, with limited access to the formal banking channel but high mobile penetration a suite of remittance related offerings clubbed with “safe storage” for cash is an arena that is likely to be exploited quickly

3. Use of funds :

a. Remittances & P2P Payments

As operators and other retail players seek to leverage their retail and consumer reach, they would go straight for the jugular in the estimated Rs. 20,000 crores domestic remittances market. This would be an ideal entry strategy for acquiring new and retaining large and existing customers, offering sufficient economic value propositions for the customer and retailer communities.

The first set of services have already rolled out, and several more poised to enter shortly in 2010.

The next layers of use would emerge from the balance two categories, but would take much longer to evolve.

b. Remote (Non Face to Face) Payments :

The challenge here lies more on the supply side of the equatiion. Ecommerce, conducted via pcs / laptops using browsers, has been dominated by high ticket, complex selection, high involvement items such as airline & railway ticket purchases followed by books, music, flowers etc. Hence the need to build a basket of products and services that could be seen and purchased via the mobile is crucial.

The turning point would be in making payments towards utilities, government levies and taxes in a user-friendly manner. These offer wide appeal, relevance and frequency. But the incentive to adopt a new mode would need to be substantial to move away from the confidence and habit of making cash payments. The agent would possibly hold the key here, as noticed globally as well.

c. Face to Face Payments :

The holy grail of electronic payments, would require speed, ease of use and security to converge profitably.

The battlefield is currently strewn with a myriad of acronyms and pilots. The challenge has remained in finding a solution with limited adoption or entry barriers for consumers matched with an inexpensive payment acceptance model.

A pure mobile phone transaction play, used by both consumers and merchants, as in the case of Mobipay using USSD possibly still offers a ray of hope.

The other options include NFC or issuing new contactless payment cards stuck to the mobile phone instrument, both of which would require significant investments for large roll outs.

The inflection point in this space would possibly arrive with the ability to make transit payments with your existing mobile!

4. Usability : Asking customers to remember short-codes and key words to access information and enable payments would always hinder scale. The key lies in offering a user interface with extremely low adoption barriers ( no downloads etc.), ease of use and good user experience.

Web interfaces will improve the user experience exponentially. The 3G rollout may hold the key to truly creating a payment experience that matches the classical card based payment process in time and security.

Also, access to the Internet will enable providers to offer solutions that do not depend on the security environment offered by the SIM, the heart of the mobile relationship today.

5.Payment Convergence, Standards & Interoperability : The 2007 payments bill by the RBI permitted third parties to perform clearing & settlement, opening up the field for different models to evolve.

It may take several years or decades for dominant universal standards to emerge as in the case of card and cheque payments, unless banks and operators can quickly converge organically and create a new payment association for these “new” or “alternate” payments.

This might also be a market with several closed group service offerings that co-exist and link with the existing payment franchises, bridging the banked with the unbanked, and the low ticket size with the high ticket size transaction sets.

A key turning point however could be if a third party or even the regulator were to recognize the opportunity and define a set of standards, as in the case of cheque clearing, which is then followed by all.

6. The Regulatory Opportunity

Though the government and regulator may not be in a position to directly participate in the establishment of an electronic payments infrastructure, it can play a more influential role in catalyzing and spurring innovation in new payment mechanisms including mobile-based payments.

Governments and financial regulators across the world have influenced the usage and acceptance of electronic payments with positive impact on their economies. The most influential and noteworthy has been the initiative of the South Korean government. With the primary objective of curbing the large flow of cash in the underground economy and huge losses in tax collections, consumers were incentivized with tax rebates to make purchases using cards along-with threatening retailers not accepting card payments with tax audits.

This has resulted in electronic payments in excess of over USD 250 billion (compared to around USD 18 billion in India), comprising over half of all private consumption related payments, being settled via credit card payments in South Korea. Similar incentive approaches also adopted in Argentina, Uruguay and Colombia where rebates are offered against VAT for card payments.

Hence the potential avenues for the regulator:

a. Extend the purview of electronic payments to include non bank issued accounts

Electronic payments are currently dominated by payments emerging from bank issued credit & debit cards, where the source of funds include the funds held in the bank account or credit lines extended by issuers.

With an explosion in mass transport projects spanning toll, metro, taxi and bus services, and the RBI circular of August ’09 having laid the foundation for widening the scope for issuance of prepaid instruments by non-banking entities including transit operators, service providers or even mobile operators, requires the expansion of the term electronic payments

Considering their vital role played in converting cash to an electronic mode, related cost savings and audit trails, the case for their inclusion is sound. Hence payments via multiple modes issued by non-banking entities such as transit or mobile operators should be considered for inclusion within the ambit of electronic payments.

b. Extend Tax rebates to consumers for all payments made via electronic modes

A tax rebate may be extended to consumers, proportionate to the value of electronic payments made on an annual basis. This would create a compelling and universal incentive to for migration from cash.

c. Identify focus sectors for electronic payment acceptance

Payments towards utilities, government taxes and tourism could be three sectors in which additional focus and incentives may be explored

d. Incentives to retailers and service providers accepting electronic payments

Though the South Korean and other International models have focused only on incentivizing consumers, the coupling effect of extending benefits to retailers as well would only be exponential. Tax rebates via VAT or GST could be options that could be examined.

e. Expand The Payments Ecosystem

The Reserve Bank of India has made significant strides in expanding the stakeholders that can participate in the payments ecosystem, beyond traditional banking institutions.

The regulators initiatives in opening out critical elements of the payments value chain over the last couple of years is encouraging and affirmative.

The foundation has been set for a new wave of payment systems to emerge and grow in India. As India enters the new decade, the 180 million cards and 500 + mobile phone connections offers a unique opportunity to mould the payments landscape and stimulate growth. A greater focus and stimulus at this juncture would only provide a stronger platform to fuel growth in the formal economy in the next decade.

Wednesday, 3 February 2010

For the Love of Apple!

Have been an Apple convert for over three years now. It's possibly one of the leading consumer marketing organisations of the decade, if not the century.

Came across an article on " Apple & the Dawn of I-Commerce", and the author's predictions ...
  • Amazon will be selling the iPad before Christmas regardless of the future of the Kindle.
  • Google Wave will find its real footing not on Nexus One but on the iPad
  • Independent multi-media producers will distribute their content outside of studio control, directly on a "iMarketplace" within three years
  • Netbooks will disappear from the retail shelves by 2011 and be replaced by a variety of slate devices running Windows 7.
  • The iPad will become a video calling mobile device by the time 4G networks are reliably deployed
  • The next iteration of the AppleTV (let's call it iTV), rumored for 2011, will interact with the iPads, iPods and iPhones to extend the viewer's experience across multiple screens simultaneously.
Further quoting the author... "For all we know a year from now Square will introduce an enhanced version of its service and card reader for the iPad (let's call it "Cube") to provide low end merchants with POS functionality up to now reserved for systems integrated with a cash register."

Time will tell if the above predictions indeed do materialise, but would be keen to see if Apple can actually revolutionalise the alternative and core payments space....

Sunday, 24 January 2010

Innovations & Trends in Payments : Gazing into 2020

The decade gone by has been a fairly exciting & tumultous for the world in the realms of retail finance. Banking penetration has exploded, card payments continue to flourish in the developed and developing economies, the mobile remains the talk of the town, Internet as a significant enabler for access and transaction transmission is becoming a reality.

The impact of electronic payments on economic growth has been proven repeatedly. Coupled with explosion in new frontier financing including microfinance, the onus on retail payments to grab the opportunity and leap frog remains.

However, giant unconventional leaps has not been the hallmark of the banking industry, which has typically believed in incremental and linear innovation and adoption. Regulation, economics, trust and sunk investments have stymied innovation and rebellious outbreaks from the non banking sector. However, as we gaze into the crystal ball, what lies ahead in the next decade might just surprise us

1. Micropayments Go Electronic : Paypal laid the path and led the charge in the last decade. The Internet made switching costs for micro-payments an economically viable reality, ensuring no compromise on the transactional trust in the process. Mobile, transit, prepaid, contactless, biometric and a host of other applications and approaches is going to make this the decade of "Electronic Micropayments"

2. Microfinance Goes Into Course Correction : The excitement over microfinance is palpable and understandable. A few institutions in this space have reached large scale and even gone public. Repayment rates appear to remain stable across Asia, Africa and Americas, with low delinquencies.

The challenge for microfinance is going to be in processes, talent, scaling profitably and increasing regulation. MFIs need to brace for regulators & governments placing caps on interest rates & charges, covering the potential customer delinquency risk caused by droughts, famines and other natural disasters. New portfolio and risk management techniques would need to emerge quickly to enable MFIs to steer clear from a significant market correction.

3. Debit & Prepaid Card Payments Explode : Asia will lead the charge on debit usage. As debit card platforms open out for remote payments, an increasing number of customers will benefit from the convenience of using card payments and differentiate from the credit extension facilities offered by credit based instruments. Coupled with an increasing familiarity with prepaid payment concepts and exploding acceptance channels, both formats would soon overtake credit. ( Am sure this one is open for much debate!)

4. Card Acceptance Gets Cheaper : POS & ATM devices have almost bottomed out on their price curve, and card acceptance services leveraging
the mobile or its connectivity would make card acceptance drastically cheaper. Card issuance across mag stripe and chip would continue to dominate the payments landscape, hence reliance and need for card acceptance infrastructure and devices would remain.

5. Credit Scores Go Global : As the global workforce moving across geographies gains scale, sharing of credit scores across boundaries will become a reality. So dont be surprised if your FICO follows you to your next assignment in Venezuela!

6. Domestic Payment Networks Proliferate : Global economies will establish and adopt domestic payment networks along the lines of NETS & China Union Pay, to create a more cost effective & flexible payments DNA.

7. Payments Get Tax Rebates : Increasing number of nations will incentivise electronic payment usage to counter parallel grey economies and money laundering activities

Lets connect in 2020 and see where we stand.

The Decade’s 12 Greatest Developments in Payments recently published a listing of the Top 12 developments & trends in the Payments Industry over the last decade.
(There's been a deluge of lists published over the last couple of months, but this one is quite a decent analysis)

Key Excerpts below:

#12 AmEx Goes Global

American Express transformed itself from a largely American go-it-alone card company into a global network with 128 bank partners in 127 countries (based on its 2008 10-k) including the United States. Read the full post here

#11 How the World War on Interchange Fees Transformed the Card Industry

A global war on interchange fees raged during most of the decade and will continue into the next. We'll have to wait until next decade to find out who wins the war. But the war itself has already led to massive ramifications for the card business around the globe.

#10 Collateral Damage from the Financial Crisis: Consolidation and Regulation

The CARD Act has transformed the card business in the United States and that's why it is number 10 on my list of the great developments in the card industry in the last decade along with the further consolidation that resulted from the crisis.

#9 Shanghai Surprise

The fact that in a decade China has achieved such rapid growth of the card business and expanded globally is remarkable. As always, China has both opened up a vast new market and unleashed new competitors onto the global scene.

#8 The Mag Stripe Lives On

Some of the greatest developments in the last decade were the failure of massive efforts to displace the humble magstripe card. It is also serves as a reminder that innovations in payments have to make people and merchants significantly better off to gain traction.

#7 How the ACH System in the U.S. is Encouraging Electronic Payments Innovation

A major factor in what you might call the greening of the payments industry has been the growth of the Automated Clearing House (ACH) system for directly debiting and crediting depository accounts.

#6 What Has a Bigger Head and Longer Tail? Card Issuing

Its head has gotten bigger and the tail longer and skinner. I'm not talking about a scary monster but about the distribution of purchasing volume for the credit and debit card issuers in the United States.

#5 Innovation Driven by Prepaid Cards

The use of prepaid cards has exploded during the first decade of this century and they have enabled many types of payment innovation from whipping through transit lines to helping disaster victims to transferring money to mom in Mumbai.

#4 The New Kid on the Block: PayPal

Starting a new payment system is incredibly difficult. Many try, few succeed. MasterCard and Visa did it in the 1960s. No one did it in the 1970s at least in the US. Sears brilliantly did it with Discover in the 1980s. The 1990s was a miss. For this decade the only company that entered the exclusive club of major payment systems was PayPal.

#3 Debit Takes the Plastic Throne in the U.S.

Debit cards helped make prepaid card possible and may lead to significant changes in banking relationships if decoupled debit cards take off. Debit cards have led to an enormous change over the decade in how Americans use plastic.

#2 The Marriage of Mobile and Payments Make the World a Better Place

Mobile illustrates just how this industry can drive progress and really make the world a better place. I also think that it is a harbinger of a revolution that will take place over the next decade.

#1 MasterCard and Visa Go Public

MasterCard and Visa emerged as publicly traded financial powerhouses after four decades of working for associations of banks. Their transformation marks a radical shift from the past and will most likely define the shape of the payment ecosystem for decades to come.

Saturday, 16 May 2009

The Recession is Dead...Long Live the Recession

There has been a virtual tsunami of content lashing every medium known to mankind elucidating on why we got here in retrospective magnificence. Nobel laureates, industrialists and even social workers are in the company of laid off millionaire junk bond dealers elucidating on black swans and the death of capitalism (and banking) as we know it. There is also the trickle of hope that creeps its way through the swamp of pessimism in the shadow of the recent global enthusiasm in the stock markets.

The irony of the situation lies in the fact that yet again optimism breeds on the same speculative phenomenon of clearly irrational stock markets which have wiped off trillions within 18 months, but have displayed an irrational exuberance over the last 90 days. This rather feels like the case of the battered wife that files a complaint and then returns to the husband to seek emotional support.

The Internet boom (&bust), the dizzying reality valuation explosion and stock market benevolence have bred a generation of global professionals that have set very high growth rate benchmarks for wealth creation in their professional and personal realms. With decades of personal savings having been wiped off, most retail investors find themselves out in the cold.

With corporates facing liquidation or bankcruptcy, nations on the brink of insolvency and banks witnessing capital and reputation inadequacy, the notions and vanguards of trust are seeking true champions.

Entrepreneurial zest, intellectual brilliance, ingenious rural & urban economic ecosystems would find it difficult to navigate in the current sea of mistrust. Derivatives, junk bonds, swaps, market linked insurance products have been sold to hapless corporates and consumers alike. In this backdrop, the largest and most pertinent need that arises is for a suite of services that can provide unbiased advise on capital/wealth protection and growth.

A stimulating dialogue with a young organization earlier today has further reinforced my belief in the need for financial advisory services that are driven only by the client interests and not by the commission and incentive structure of the manufacturers (of bonds, mutual funds, insurance companies etc.). The future lies in independent, trained and certified advisors that would recommend a savings mix to retail individuals which truly address the individuals' risk appetite and hygiene wealth requirements.

Tuesday, 27 January 2009

Slumdog Millionaire and Global Risk ...

Was fortunate enough to see Slumdog Millionaire last week. Am a die hard romantic and as a Bombaite (or should I say Mumbaikar) at heart, there is a deep bond with the spirit of that city. The city has been witness to millions of stories of determination and grit in the face of adversity.

The concept of a child swimming through human faeces and yet coming out all charged up, may feel revolting, but such is the state of the global economy right now!....Well ,that's the feeling one gets as you browse through the Global Risk '09 report published by the World Economic Forum. F

inding the glimmer of hope through the maze of risks portrayed across slowdowns in developed and developing economies, deceleration or even drop in infrastructure investments etc., is going to be quite a task!

A concise and well written report, makes for a rather decent read....

To access the report Click Here

Saturday, 17 January 2009

The Future is Bright...The Future is Here...

My first blog post in over 3 months had to be something remarkably refreshing...which perhaps kept me out of action this long.

Barclays has launched a 8,000 sq ft state of the art bank branch in Piccadilly, London, quite recently. Serving their high net worth as well as local business clients, the truly high tech branch breaks new ground as it
is sprinkled with a host of high tech gadgetry including Microsoft surface.

Click here to read more about it....

In these times of recession and gloom, truly great brands and organisations would seek to innovate and revitalise their customer relationships. Touche to Barclays!

Wednesday, 1 October 2008

American Express Labs...

I am simply in awe of American Express Labs. Its been around for a while now, but for several reasons believed that this was perhaps time to present and analyse the same.

For those who are new to the concept..."Our mission is to highlight the important ways that innovative new products and services from American Express continue to improve the Cardmember experience. By showcasing innovative pilot programs and highlighting opportunities for Cardmembers to receive access to emerging technologies and innovative applications before they are made available to the public, we are providing a framework for understanding the trends and developments impacting the future of innovation."

They've tried out some rather neat stuff including Virtual agents that guide you through the website or the very cool "Entertainment Access spotlight" which has posts on updates in the entertainment scene and even an introduction to their mobile access application.

Customers are invited into the beta versions and participate in the trials and usage of the various service offerings. This is quite distinctive as they have pulled it off quite well and its heartening to see that there is a clear pipeline of innovations that they have committed to.

Equally amazing is the fact that they have veered from the beaten path and have attempted to blend into the lifestyles of their customer segments, rather than approaching the conventional "hardsell" route. Also believe that they have created a platform that is fairly credible and consistent with the brand experience. They've also not adopted the classical "I'm there on facebook / myspace" 2.0 approach, which lacks the punch, and the brands look rather out of place.

Looking forward to more exciting stuff from the folks at American Express...

Sunday, 28 September 2008

Hunger Redefined....

  1. 25,000 lives are lost every day from hunger and poverty; even a bad case of diarrhea can lead to death because of weakness caused by hunger
  2. More than 800 million people know what it feels like to go to bed hungry; most of them women and children
  3. Malnutrition causes more than half of all child deaths.
  4. Poor families spend over 70% of their income on food.
  5. More than 100 million children are stunted physically and mentally from malnutrition, wrecking their chances for a good education and productive future
On this bright Sunday, as you set out for a sumptuous lunch and an afternoon siesta, may I request you to kindly put your grey cells together and think once again how the banking and finance communities can re-engineer and make a difference...

Sunday, 21 September 2008

It's Crunch Time for Mobile Banking in India

The Reserve Bank of India has updated the Mobile Banking Guidelines. You would recollect that the draft had been published a few months back, and most decisions had come to a standstill as solution providers and banks awaited the final version.

A transaction cap of Rs. 2.500 per txn and Rs. 5,000 per customer per day is one of the highlights. It would also be interesting to see the guidelines issued by some other central banks inc
luding the State Bank of Pakistan.

This is a significant milestone offering banks and solution providers a broad framework to move forward. We should see several initiatives being launched over the course of the year, now that this release is out.

However, as I've stated several times earlier as well, mobile banking applications and standards in itself would not be able to serve the larger objectives of inclusion if aspects of interoperability and financial inclusion regulations are not addressed quickly. The Mobile Payments Forum of India, triggered by IRDBT is a move in that direction
, but perhaps a more authoritative and direct participation by the RBI and the government would provide the necessary boost to make this a reality.

A wordle depiction of this article for your humour below...

Monday, 8 September 2008

Of Icons & Defaults!

An iconic brand is a legacy that most marketers would like to bequeath to the world. A brand that builds a strong relationship over the customer life-cycle and consistently delivers value at various life stages, yet retaining its charm and appeal allowing customers to clearly express their personality in a distinctive manner!

The last decade has been an excitingly turbulent one for financial services brands, driving a roller coaster of emotions for consumers alike. These brands have expanded the market, taking risks of market expansion in their stride and expanding the customer base. Having providing a financial identity to several customers and enhancing the expenditure appetites, the players have successfully fueled the growth of a wide array of industries including the housing, travel and retail fashion sectors.

These brands were viewed as the "dream merchants" that not only showed you the dreams, but actually financed them. Instant loan approvals, cashbacks, rock bottom rates and flexible pricing structures were the darlings of every consumer from New York to New Delhi!

With the collapse of the housing markets across the globe, the meltdown in the financial services space has commenced with rising defaults across all formats of secured and unsecured lending. With the nationalization of Freddie and Fannie, the mortgage majors that fueled the palatial dreams of millions, the market has really turned a corner.

The dream merchants are now perceived as the vultures, as banks and financial institutions are calling in the loans, raising rates or pushing the envelope on the collection engines to curb delinquencies and quell defaults.
The monthly statements carrying special offers and treats have now proven to be the messengers of evil debits.

In these trying times, wherein economic survival is in itself the prerogative, how should financial services brands' retain their vigour and connect with their customers? For customers facing challenges in loan repayments, these brands may find it increasingly tough in retaining their emotional connect and relevance.

So, is it really possible to retain the inconic "dream merchant" status even during and post recessionary trends for customers. And moving to an even more pertinent question, do we have brands in the financial services space that are truly iconic! Where lie the Cokes and Apples of the financial services world?

It is often viewed that lending is a "serious" business and meeting consumers financial needs is the stuff of "serious" brands. American Express, Wells Fargo, ABN AMRO, RBS have hit the list of the worlds 100 top brands, but yet again "iconic" fervour is not something that comes to mind too often in their association.

Where arst thou James Dean?

Speeding Time to Market....

Hey...I've been out of action for a while...working on some new blogs and other initiatives...anyways...back in action..

Came across a Cap Gemini Report on...
  • Speeding Time to Market..
  • Increasing Time in Market...&
  • Maintaining Market Velocity...
Its not an outstanding report, but quite often makes sense to revisit the basics. The strategic imperative of reducing product development cycles and accelerating time to market has been much written. The paper attempts to quantify the revenue impact of achieving the above strategic goalsa

Do browse through it and perhaps revisit some of your businesses and product initiatives....

To read the report click here...

Saturday, 26 July 2008


This blog has been set up with clearly defined objectives, but must make an exception today.

The city of Ahmedabad has been rocked by over 16 bomb blasts today, and this just a day after serial blasts rocked Bangalore. India was also witness to the gruesome bombing in the cities of Jaipur and Hyderabad earlier this year. I happened to be in Mumbai when several bomb blasts crippled the city several years earlier.

However there is one common thread across the social fabric that I've noticed across these mega metro cities - Resilience!

Inspite of the most gruesome attacks and the fear that lurks post such terrorist strikes, the citizens have always prevailed and proceed with life as usual. The dedication to work, inherent belief in the democratic values and faith that normalcy shall prevail, has always resulted in these cities rolling into full swing immediately.

There are two schools of thought. The first believes that we've become insensitive and cynical and hence we go on. The other school of thought believes that people shall not bow and staying back home results in a recognition of victory for the terrorists. I'm a member of the latter.

May god bless the families of those who have lost their loved ones!

David & Goliath

I am a huge fan of "David & Goliath" business stories. Came across this one in the economist recently, and believed I must share this with you.

"Dabba" is a South African wireless start up which has pioneered the "village telco", making phone calls more affordable. Using reprogrammed wi-fi routers as base stations with open source software weaving them into a network and cheap wi-fi handsets, the folk at Orange Farm, near Johannesburg can make calls at cheap rates.

They have brilliantly connected with the mainline telecom networks and actually buy airtime which is then resold to their customers! Revenues arise from call termination charges, sale of air time to retail customers and in the future selling this model and set of garage technologies to other prospective villages. And all this at an astronomical investment of USD 5,000!

Dabba intends to present an aggregated front to the mainline telcos for the village telcos as and when the model proliferates.

Yet again, illustrating the sheer drive and innovation that is fueled by the opportunity presented in markets where most large organizations falter.

Friday, 25 July 2008

Collections Redefined!

With an increasing trend of customers playing truant on their monthly credit card and other loan repayments, believe the collections teams require to perhaps think out of the box!

Being a Friday evening, thought I might contribute to some approaches that they could adopt to contact these mischevious customers!

a. Call them for an Interview : With the employment market in a lean phase, you may be able to lure these chaps with this bait quite effectively

b. We Goofed Up : Yup, just tell them your back end operations cell goofed up on the interest calculations and their outstandings have dropped drastically!

c. Matrimonial Matches and Dating Services : You'd be surprised how appealing a blind date might be to a bachelor facing a liquidity crunch ( to lift his spirits of course!)

d. GPS Transmitters : Induce their doctors to inject those neat little gps transmitters into them, and that might help you track them down a bit easier!

Now to the serious stuff......With an increasing delinquency trend across retail customers globally, the need for innovation is dire! Though customer education and sane lending practices would perhaps address some of these issues as we go forward, a couple of approaches that are perhaps worth a shot for the chaps under repayment strife:

a. Seek Collateral : Convert unsecured to secured. Some high value outstandings could be restructured if the customer were to submit collateral - Gold, Stocks, Bonds etc.....anything to get the EMIs down and get the customer to commence repayment. May require a skill set outside your competency or "defined process", but this is the time to think out of the box.....

b. Counselling : Yup....may sound radical....I've come across senior professionals who get into personal economic crisis situations, and display irrational behavior. May just serve your while to get them into a counselling session " Defaulters Anonymous!"
The other end of counselling would involve undertaking a financial planning and budgeting exercise with the client and showing possible routes.

c. Reduce your rate / Restructure: Critical to understand the line between an intentional and accidental defaulter, and drop your rate. Much better to see the inflows than writeoffs!

d. Promissory Note : Yup, before you write off the loan, take a promissory note from the customer indicating promise to pay 12 months hence. You may just have a few grateful chaps who will reappear and pay.

e. Advertise the good deeds : If your organisation has been able to work with some defaulting customers in getting them back on track, you may just like to publicize the same. Could have a positive rub off.

Look forward to hearing your views!