Mobile Banking Ecosystem

Mobile Banking/ Mobile Payments / M-commerce Ecosystem in India

Nimesh Bhandari VP – Strategic Alliances ValueFirst Messaging

(The views expressed are solely those of the author and do not reflect the views of industry gurus and public at large)

1. Terminologies Mobile Banking is a broad terminology which includes three specific use cases broadly:1. M-Commerce: Buying of goods/services over mobile phone. This may or may not use mobile as the payment authentication device (ex. Paypal can be used on wap enabled website) 2. M-Payments: Using mobile as the authenticating medium for payments while goods/services can be bought over internet/ mobile / retail stores. 3. M-Banking: Using mobile to perform certain banking transactions like transfer funds/check balance / issue DD etc. Depending on the technology used it might require use of physical infrastructure along with the mobile handset. Very often these terms are used inter-changeably because one may lead to another and companies operating in one area have plans to enter into the other areas of the mobile banking eco-system.

2. Segmentation

Debit card holders

Credit card holders

Non-banking customers

Banking customers

Mobile phone users Internet users

While I did not dig deep into the numbers, broadly, there are distinct consumer segments to which different mobile banking companies are trying to address. 1. Non-banking consumers: Typically people at the bottom of pyramid. But the new found fancies of mobile phones have seen even these people owning mobile phones. Companies like Eko.co.in are trying to address this market by helping these consumers accessing banking facilities through mobile. 2. Credit-card holders: These consumers typically use credit-cards either for contact-less transactions (internet) or POS transactions. Companies like m-check are trying to contact-less transactions space by making the payments more secure and hassle free. Companies like obopay are trying to address the POS transactions space by addressing to needs of those consumers who do not own a credit card but would want a cash-less transactions 3. Debit-card holders: Direct-to-bank transfers is a space where security is of paramount importance and mobile banking companies like Tyfone, Obopay and paymate are trying to work on a model which addresses the need of this space.

3. Transaction Pie The diagram below depicts the various kinds of transactions done in India. The cash transaction pie is very large and companies like Obopay, Tyfone are trying to address this market while companies like paymate, m-check are trying to cater to credit-card and debit card transactions

Debit card transactions

Pre-paid transactions

Transaction Pie

POS Credit card transactions Contact-less Credit card transactions

Cash Transactions

*Not to scale

4. Mobile Banking companies in India Following companies have been covered for the purpose of analysis:1. m-check 2. Obopay 3. paymate 4. Tyfone 5. C-Sam 6. Ngpay 7. Eko 1. m-check m-check is focusing on contact-less credit card transactions as of now but they have plans to enter into other areas. The market m-check is focusing in small but growing a rapid pace, thanks to movie ticketing and airline ticketing. Given that the fraud percentage on credit card transactions is very high, m-check has a story specially it makes the credit card transactions really hassle-free if you are registered on it. It uses USSD as the underlying protocol for authenticating PIN and therefore will have to aggregate all operators. Right now it works only on Airtel. m-check has a major hurdle to pass of convincing all operators which is very difficult given their walled-garden approach. Also, not sure what is the share of transaction pie operators are taking and whether banks would be willing to give that to the operator. From security point of view, risk which I see in m-check is what if steal somebody else’s credit card number and attach it with my mobile number in m-check ?? 2. Obopay Obopay focus clearly is cash transaction pie as of now but focusing on micropayments. Given the limited spread of credit cards in India and huge amount of transactions taken place everyday in cash, there is a huge addressable market. The terminology used by Obopay is P2P mobile transactions which are typically initiated by the sender and validated/authenticated by the receiver. Only sender needs to have on Obopay account and if receiver is not registered he will receive instructions for the same on his mobile number. Obopay is validating the PIN via IVRS which seems to be secure. For Obopay to work seamlessly they will have to aggregate large number of banks which will then have to attach mobile numbers with the bank account. So for it to actually pick up, they will have to do tie-up with large number of banks. How soon, will it be used by taxi walla and petrol pump guy needs to be seen. Apart from that

use cases like restaurant bill splitting etc., the uses cases are limited. Also, the amount banks/obopay will also be the deciding factor.

3. Paymate Paymate is targeting the Contact-less Debit card/ Credit-card transaction pie where the issuing banks would authenticate the mobile number against the credit-card/ debit-card. Once that is done, everything (even the authentication) will be done over SMS. Paymate claims to have large number of portals already signed-up but there are inherent issues with the service. First, it uses SMS to authenticate where the delivery ratio can be bad at times. Second, PIN remains in the sent items. I hope, they have built in some restriction on amount of transaction as Debit-card transaction with a loose authentication mechanism like this can be very risk. Paymate will have to aggregate large number of banks to work, but unlike obopay which is targeting P2P it does not need to aggregate all of them to enable seamless P2P transactions but will have to aggregate merchants. In the contact-less space m-check model seems to be better than paymate because of USSD and credit-card only transactions. 4. Tyfone Tyfone is targeting the cash pie like Obopay but the focus is on merchant POS transactions rather than P2P transactions as of now. In this case, merchant needs to have an application installed on his mobile phone to initiate a transaction and receiver receives an SMS on his mobile phone to authenticate the transaction. Tyfone model requires it to aggregate banks and retailers to work. Tyfone model does not necessitate users to download mobile application on their phone to pay the money. Only the merchant needs to have application on the phone. This removes atleast one hurdle of application working on all phones. What needs to be seen is how secure Tyfone model is for authentication of PIN. Tyfone model has great potential for high cash transactions POS like super-markets and petrol pumps. Petrol pumps can be the ideal target as non-availability of cash is a issue number of times and also credit-card transactions entails a wait-time of 5 minutes at the petrol pump. Going forward, large number of small retailers can start using it as they would not have to invest in POS machines for credit-card transactions. Second market Tyfone is targeting is Near field communication where the bank issues a memory card with embedded RFID Tag and debit card/ credit card on the memory card. The mobile phone can be used for payment with any RFID reader. The limited number of RFID reader installations makes it a technology which is little early in India. Also, the uses cases of real contact-less POS transactions are more pre-paid in nature (metro stations, bus tickets etc.) where the amount to be paid is fixed and automatically deducted from the pre-paid card by swiping the mobile phone (no need of authentication).

5. C-sam C-sam is targeting the m-commerce space where it believes that people would use mobile as a medium to buy goods/services. Given the huge mobile penetration and limited internet penetration the market and the need is there but the perennial problem of application not working on all phones and poor user experience given the limited screen size remains. Given the increase in movie ticket booking/ airline booking / railway booking which one might want to book while on the move, there is a great potential. But one really needs to make a very user friendly UI that works on all phones for this. Also, for these companies to be have a share in the transaction pie, they need to either tie-up with the existing payment gateways (m-check, payal, visa etc.) or create its own payment gateway. 6. Ngpay Ngpay seems to be following a similar model as C-sam and it needs to be seen how the make the application will work on all phones. It did not work on my phone ?  7. Eko Eko is trying to build its niche in mobile banking space targeting non-banking customers who are at the bottom of pyramid. The focus is clearly to build a sustainable microfinancing/lending/banking model. Eko is using mobile as the authentication channel but requires a physical person to be present to help you bank. In essence Eko is creating a model for outsourcing banking services albeit for people who do not have a bank account as of now. Eko is targeting a very unique and different space and given the RBI stipulation of providing services to all categories of people, it seems to have a good story.