Mobile payments in India

Annual growth of mobile subscriber base in India

However, India is the second-largest telecommunications market and has 1100.37 million mobile phone customers. Mobile phones are quite common even in the remote villages. The mobile phone industry is growing at a rate of over 200 million per year. It was expected to touch the one and a half billion mark by 2015. The share of the urban subscribers is 66% and the share of the rural subscribers was 34%. In May 2011, the net monthly addition in terms of the number of subscriptions was 13.35 million. Of those, 7.33 million were from the urban segment and 6.02 million from the rural segment. The subscription growth rate on a monthly basis is 55% for urban segments and 45% for rural segments.[7] Given this context, it is possible to consider the mobile phone as an economically viable instrument to enable inclusive access to financial services.

Mobile telephony has had an impact mainly by allowing for agents in information restricted areas to engage in more optimal arbitrage. The adoption of mobile phones by fishermen and wholesalers resulted in a dramatic reduction in price dispersion, the complete elimination of waste, and a near-perfect adherence to the law of one price. Both consumer and producer welfare increased.[8]

Mobile payments can have a positive impact on welfare by easing operational aspects and associated costs of cash-based transactions related to cash handling, storage and transfer, and by providing a strong platform for financial inclusion.

The key features of IMPS Funds Transfer are as follows:

• Instant funds transfer
• 24-hour, 365-day availability
• Credit and debit confirmations to sender and receiver
• Simple and easy to use
• Fast, inexpensive, safe and secure, accessible

Currently IMPS service is provided to the customers over various channels including SMS, Bank Mobile Application and USSD (*99#).

The transaction flow for IMPS can be simply described as 'customer-bank-bank-customer'. When a customer initiates a transaction by sending an SMS to the bank's gateway, this SMS is processed by a mobile payment provider (MPP). The role of MPP is defined in the standards document. After appropriate checks with the customer's bank, the transaction is forwarded to a central switch. The role of the switching agency is played by the National Payments Corporation of India (NPCI). NPCI routes transaction to the payee's bank based on the MMID.

A transaction is initiated by sending the following details:

• Mobile number of the payee
• The seven-digit MMID of the payee
• The amount of money to be transferred
• The four-digit personal identification number (PIN) of the payer

Depending on the type of the transaction, either both parties (payer and payee) or only a single party is notified about the transaction. A successful transaction will be notified by an SMS to both parties.

The communication between the MPPs and the banks takes place using ISO 8583 message format,[11] which is the standard message format for all financial messages in India. In order to test the compliance and conformance to the standards set and the message formats, a certification lab is being set up at IIT Madras.

The Mobile Money IDentifier (MMID) is the key identifying detail of a user participating in a transaction. An MMID is a seven-digit number given to a customer upon registration with a bank for the service. In the seven digits of the MMID are four digits used to identify the bank of the user and three digits used to identify the account of the user.

A mobile number and a MMID will uniquely identify a customer’s account with the respective bank. The design of the MMID allows customers to operate multiple bank accounts linked to a single mobile number; each bank account has its own MMID. Additionally, since the MMID of the payee must be entered along with the payee's mobile phone number, it serves to reduce the possibility of an erroneous transaction when the payer inadvertently enters an incorrect mobile number.

The MMID is not intended to be a secret – it is simply an identifier and it does not give away any sensitive information about the customer. For example, a merchant will advertise his mobile number and MMID publicly in order to receive payments from the customers.

Most banks provide a Java application that can be downloaded on a Java-enabled phone which will guide the user through the money transfer process. An SMS sent through a Java application on the mobile device is as secure as an Internet banking transaction, since it can be encrypted between the user and the bank.

An SMS–IVR combination is used for transactions for mobile phones without Java capabilities. An SMS is sent to a phone number provided by the bank, and an IVR call-back is used for authentication and the transaction is carried forward as a voice-based transaction, at the end of which the user will be prompted to enter the MPIN. The SMS channel is used to send notification messages, while the IVR channel which is as secure as a GSM channel.

A transaction can also be initiated over USSD. A USSD session will provide the user with simple prompts over a menu allowing the user to input the payee's mobile number and MMID, and the user's own MMID and PIN for authentication.

Every communication channel has its own set of security mechanisms. In addition, the RBI-issued guidelines on security of mobile payments[13] require a two-factor authentication mechanism to be employed. A two-factor authentication in this context consists of:

• What you know: User PIN, MMID
• What you have: Mobile number, mobile phone, SIM card

No transaction can take place without the use of the secret PIN. The guidelines also specify a cap on the amount of money that can be sent during transactions.

Mobile top-up for prepaid mobile subscribers is one of the most common mobile-related financial transactions. This is made considerably easier, if the payment for topping up the mobile account can also be made over the mobile phone. There are already many online recharge options available and emerging, which point to the rapid growth in this business segment.[14]

Mobile payments can also be used to remit money. Migrant workers (from other states) in India need to transfer money to their kin in their native states. Using this service, transfer of money is safe, fast and effective as established by a pilot study conducted.[15] This has potential to act as a very significant driver for adoption of mobile payment services in this demographic.

Bill payments provide convenience for the user and for utility companies. For payment to merchants, they offer another medium for the customer which vastly reduces cash management.

Mobile payments can have a large impact on interaction with government services and are being explored in India.[16] Mobile payments are convenient to track and account for, key requirements in government payment transactions. Government to peer payments can also be made easier by using mobile payment channels[17] and is being explored for schemes like NREGA.[18]

Mobile payments could also open the possibility for new business models, as now one would have the ability to pay and receive even small sums of money, almost instantaneously. A variety of value-added services based on mobile payment transactions are already entering the market.[19]

• High penetration of mobile subscribers.[21]
• Mobile top-up services, domestic remittances and bill payments can be made very conveniently over a mobile phone.
• Growing demand, and an existing thriving ecosystem, for mobile services like ring tone downloads, Bollywood music, update for cricket matches, etcetera. Thus the uptake for another service, especially financial services, should be positive.
• Drive to be a part of the financial system for those people who currently do not have a bank account. The cost of cash handling, storage and transfer is very high in the informal sector. The ability to perform basic financial transactions over a mobile could act as a driver.
• There is a strong demographic dividend in India, where a large proportion of the population is very young. The young are often enthusiastic to take up new technologies and services.

• Poor levels of literacy are a problem, and voice-based services offer a potential solution. Voice-based solutions, especially in local languages, have two major benefits: they can work on all handsets and can be used by all irrespective of one’s comfort level with technology or level of literacy.
• The mobile financial services have to be effective in terms of usability, cost, efficiency, interoperability and security for transactions of all ticket sizes.
• M-payments options should be available even on low end mobile handsets.[22]

Though mobile payments allow payments to be made electronically, they do not enable depositing money into a bank. The Reserve Bank of India (RBI) tended to this issue by creating the post of a banking correspondent (BC).[24] The role of a BC is to act as an interface between the bank and its customers in places where traditional banking is not feasible. Banks can appoint a trusted third party as a BC in a village. All the villagers who wish to transact with the bank can get in touch with the BC. Deposit and withdrawal of money is handled by the BC. When a person deposits money at the BC, their account immediately gets credited. The person can then use their mobile phone for additional transactions.