Mobile Payments Guide – Challenges & Opportunities India 2018
It is estimated that 1.15 billion people in India currently own mobile phones, which equates to almost 89 connections per hundred members of the population. Although India’s smartphone penetration is slightly less extensive, there are still around 300 million owners of smartphones (as at April 2017), which amounts to just over 22% of the population.
These high mobile phones take-up rates and an increasingly affluent population, combined with a number of other unique circumstances resulting in poor banking infrastructure means that we can expect to see mobile payments playing an increasingly important role in the Indian economy. You only have to look abroad at first world economies to see the different uses in ‘paying by mobile’ and its enormous potential for India’s digital economy.
India’s leading mobile networks
Part of the reason why mobile use is so high in India is that of the highly competitive carrier market, meaning there is extensive coverage in all the major population centers. Network coverage is generally a combination of 2G, 3G, and 4G services, with some limited 4G+ coverage available as well.
There has recently been a merger of the two biggest network carriers — Vodafone and Idea Cellular — to create the largest telecom company in the country. There are also a number of other significant players in the market who ensure that competition nevertheless remains fierce — for example Airtel, the second biggest carrier in the country, and Jio the only Voice over LTE provider.
Mobile payment methods in India
Mobile wallets and proximity mobile payments (where a mobile is used to scan, tap, swipe or check in at a POS) are therefore providing an increasingly accessible solution for both retailers and consumers in India, and it is anticipated that the industry will grow to around USD$500 billion by 2020 and contribute 15% of the country’s GDP. Non-bank service providers like Paytm, MobiKwik, PayUMoney, Vodafone M-pesa and Oxigen are expanding rapidly as more merchants are able to accept payments through these systems, and more and more people have access to smartphones.
Indian banks are also increasingly creating mobile apps that facilitate digital transactions, and it’s estimated that 30% of Indian smartphone users will use their phone to pay for goods and services at least once per month in 2018.
Consumers can currently take advantage of three types of mobile payment systems in India. Closed mobile wallets can only be used with a specific retailer or service provider, and there is no provision to withdraw cash or use them at other merchants. Semi-closed wallets, currently the most popular category, can be used at a variety of different merchants or service providers, although they do not facilitate the withdrawal of cash. Open wallets allow consumers both to shop or pay for services, but they can also be used to make cash withdrawals, including at ATMs.
Challenges to mobile payments
Despite the initiatives instigated by the Indian government that has led to demonetization and the greater emphasis on the digital economy, non-bank mobile wallet providers are nevertheless facing some potentially serious legislative challenges in 2018 and beyond. Most notably, these concern KYC, or Know Your Customer rules.
In short, people whose KYC credentials have been established solely through a mobile wallet provider are not considered valid in the same way as those who have done so via a bank. These customers are therefore required to submit their details again and go through the KYC accreditation process once more. This also means that mobile payment providers will need to upgrade their KYC operations in order to comply with Reserve Bank of India rules on KYC so as to be able to certify their customers’ credentials.
India is ideally placed to transform its economy through the provision of mobile payments, as the use of this technology allows its citizens to overcome many of the problems associated with traditional banking in the country. However, the implementation of KYC rules could, in the short term at least, severely inhibit the growth and take-up of mobile payments.
Therefore, this is a critical issue to be resolved if India’s merchants, retailers, and consumers are able to capitalise on the rapid growth of technology and the increased access to payment methods that have hitherto been beyond the reach of many of its citizens.