Feb 18 2016
Growth of Mobile Money in India: Regulatory Barriers
A comparative analysis of Kenya and India, two developing countries that have similar patterns of the spread of mobile phones, in terms of usage of mobile money, shows up a startling statistic. In 2014, Kenya and India both had 74 Mobile cellular subscriptions per 100 people but the percentage of people subscribing to mobile money in India on Airtel (one of the major telecom operators with operations in both the countries) was a measly 0.74 percent to Kenya’s 60 percent!
In terms of mobile money service providers, India is next only to Nigeria but in terms of value of mobile money transfers it stands below even Pakistan and Bangladesh, both of which have smaller and comparatively poorer populations.
Looking at the issue from an end-user perspective, a mobile money user in India would hesitate to put his/her money in a mobile wallet for the simple reason that it cannot be transferred from one Mobile Money Service Provider (MMSP) to another. This is because the RBI guidelines do not permit interoperability. RBI’s restriction presumably stems from concerns about money laundering and lack of infrastructure for fund settlement between MMSPs. However, with most of them being on the National Payments Corporation of India, NPCI’s platform, the Corporation could facilitate fund settlement. As for concerns about money laundering, perhaps this facility could be extended to only those customers who have full KYC (Know Your Customer) credentials, to start with. An Ernst & Young study in 2012 in Indonesia has shown that interoperability among MMSPs had a positive impact on the mobile money services industry.
For a migrant worker (one of the main potential users of mobile money), the absence of the option to withdraw cash from mobile wallets, is a big drawback. Given that most MMSPs have gained experience acting as Business Correspondents, BCs to banks and handling cash-out facilities for the bank wallet, the RBI could consider at least a limit-based cash pay-out option to full KYC wallet holders. Biometric authentication, including Aadhaar, could be considered.
However, elaborate authentication and KYC norms could be self-defeating, when it comes to mobile money, since a money wallet use case, unlike banking, is practically a transactional relationship with small amounts of cash. Considering the fact that the Telecom Regulatory Authority of India, TRAI has already streamlined KYC requirements for mobile connections, the mobile service business can share its KYC base with the Mobile Money and the Payment and Settlement Systems, PSS.
The RBI guidelines also limit the amount of deposit to be made into a mobile wallet with the total value of reloads during any given month being restricted to INR 10,000/- for customers with minimum KYC (complete address and telephone number). It may be pointed out, however, that individual walk-in customers, who seek to make hard cash transfers (without account reference) can deposit cash up to INR 50,000/- per transaction with minimum KYC details in the case of National Electronic Fund Transfer (NEFT).
Looking at the issue from the MMSP’s point of view, one of the incentives that makes the business attractive for an MMSP is the interest income from the ‘core portion’ held with the banks. But the RBI’s prescribed methodology to calculate the ‘core portion’ seems to be weighted against MMSPs. Currently, the ‘core portion’ is calculated by taking the average of lowest daily outstanding balances for each fortnight in the year. The RBI could consider revisiting the methodology laid down in April 2009, when the prepaid payment instruments guidelines were first notified. One of the options could be to compute the core portion taking into account the base of the average daily balances to allow the Pre-Paid Instruments, PPI players to gain some advantage in the already low margin business.
Another area where mobile money could get a boost is if Direct Benefit Transfers (DBT) of government schemes could be credited to semi-closed wallets, which RBI policy does not allow at the moment. The government is pushing banks to open accounts through alternate channels like business correspondents due to absence of bank branches in India’s rural pockets, but could leverage mobile money wallets for the purpose.
The scenario has changed. Mobile Money business is ripe for renewed activity. In general, it is considered good for financial inclusion and expansion of the banking distribution at low cost. With some regulatory support and some smart business moves aimed at reducing operation cost, India could be one of the successful mobile money markets.