Mobile Payments Gain Traction Among India’s Poor

December 4, 2013

Mobile Payments Gain Traction Among India’s Poor



Shashank Joshi, founder of MoneyOnMobile.

MUMBAI, India — In a narrow room filled with acrid fumes in one of the world’s largest slums, Chinak Ramtheol earns about $4 a day tending machines that melt and slice plastic trash into pellets for recycling. He manages to save enough that he regularly can send a few hundred rupees to his family in rural Siddharthnagar, a thousand miles across India near Nepal.“I have to go to a bank and fill out a form. That takes an hour,” Mr. Ramtheol said. “The bank is only open when I am supposed to be working, so I lose an hour’s pay.”

He’s intrigued by a new service that will enable him to send the money by cellphone to his family. MoneyOnMobile, an Indian start-up, is latching on to an idea that began six years ago in Kenya of transferring money with a few taps of the keypad on an everyday cellphone. That country’s mobile payment service, M-Pesa, has become so popular that most Kenyans these days send money, buy groceries and pay restaurant and medical bills and school tuition via cellphone — wirelessly transferring the equivalent of $21 billion annually. M-Pesa has inspired almost 200 similar efforts in other countries.

South Asia is a fertile market for the concept. The region consisting primarily of Bangladesh, India and Pakistan accounts for the largest number of offices actively providing mobile money services, 3.8 million compared with 805,000 in all of Africa and 1.8 million in East Asia and the Pacific. After only four years in operation, Pakistan’s wireless network, Easypaisa, is moving some $3.5 billion annually. In Bangladesh, where the bKash wireless payment system has been operating for only two years, the transaction rate is $4 billion annually.

India has been proceeding more slowly, but the pace is quickening. According to the latest tallies from the nation’s central bank, the Reserve Bank of India, the number of wireless money transfers has more than doubled since September 2012, moving the annualized equivalent of $3.2 billion. Lately, the two best-financed efforts, Airtel Money and Vodafone M-Pesa, have begun expanding across the country. And because of the nation’s huge population, broad adoption of cellphones and some of the lowest airtime rates in the world, even a modest conversion to mobile money in India could make South Asia the world’s largest wireless-transfer economy.

“India is probably the most exciting market for mobile money in the world,” said Michael Joseph, the man credited with the success of M-Pesa in Kenya. Now in London, he heads mobile money programs globally for Vodafone. “When India takes off,” he said, “it will eclipse anything we’ve done in Kenya.”

Indian regulators concur. “We have not set a target, but it is going to happen,” said the Reserve Bank’s deputy governor, Harun R. Khan, who oversees the nation’s payment systems. “I’m optimistic about its future.”

By 2015, mobile money transfers in India could total $350 billion annually, some analysts estimate. The size of the opportunity has attracted the major banks and mobile network operators but also at least a dozen new companies, including Beam Money, CanvasM, Ezetap, PayMate, Y-Cash and Zaakpay.

The most rapidly growing new venture is MoneyOnMobile, just across a causeway from the slum recycling shop where Mr. Ramtheol works. In operation less than three years, MoneyOnMobile already has attracted four times as many users as Kenya’s M-Pesa (75 million versus 18 million) and twice as many retail outlets (163,000 versus 79,000) although its transaction volume is tiny by comparison.

The company — controlled by Calpian, a payments processor based in Dallas — was founded by Shashank Joshi, a 40-year-old engineer who has been starting companies since he was in college. “Payments is a globally neglected industry. Nobody pays attention to it,” he said. “But if you actually drill down and look at it, you cannot survive without making payments.”

“Within three to five years,” Mr. Joshi said, “you will see more than 30 percent of this country’s payments moving on a mobile device.”

Mobile payments could improve the lives of India’s 354 million poor — most of whom have cellphones but no bank accounts, credit cards or debit cards — by lowering the cost of the domestic remittances on which so many families depend. Across India, a hundred million migrants like Mr. Ramtheol have come to the cities from the countryside in search of work. Every year, these domestic migrants send an estimated $12 billion back to their villages.

Most funds travel in cash via networks of relatives and friends or courier services. Such conduits can be slow, unreliable and expensive; courier commissions approach 5 percent of the amount being sent. Over wireless networks, money can move instantly, at any hour, and sending costs less than a penny. As a result, studies of Kenya have shown, the poor not only have a bit more to spend but also enjoy better health because wage earners can respond more quickly to financial emergencies, such as illness.

MoneyOnMobile is preparing to offer money transfers. It recently received permission from the federal authorities and is negotiating the required alliance with a bank. Another young company, Eko India Financial Services of Gurgaon, has already made a name for itself in money transfers. But a number of mobile money services in India have proved unrewarding for others, including Beam Money of New Delhi; Boku of Palo Alto, Calif.; mCheck of Bangalore; and even Finland’s Nokia. One possible reason is their reliance on the latest mobile technology, the smartphone. Although there are almost 900 million cellphones in India, a mere 4 percent are smartphones, and only half of those connect to the Internet. As a consequence, MoneyOnMobile is proceeding cautiously, trying to achieve scale with the technology of yesterday that most of its potential customers already own — the ordinary cellphone.

As in developing economies worldwide, almost all Indian subscribers pay in advance for cellphone service, adding a few rupees of airtime to the handset as needed at a retail store, a process known as topping up. Globally, top-ups account for three-fifths of mobile money transactions, and MoneyOnMobile initially focused on that service as well as utility bill payment.

“Our strategy has been to start with small amounts and build consumer trust,” Rajesh Mishra, the company’s president, said. “Top-ups first. Then bill payment. Next, money transfer.”

Although the company’s average transaction amounts to less than $1.50, it processes more than 400,000 transactions daily. The result is annual revenue of $200 million, and the company expects to break even early next year.

Despite its location — in the Bandra area of Mumbai, a leafy seaside neighborhood known for its night life and the homes of Bollywood stars — the facilities at MoneyOnMobile are as utilitarian as a budget call center, with workers crowded together in small cubicles. Its marketing approach also keeps costs down. Rather than relying on advertising, the company has grown by identifying locales across the country with high densities of migrant workers, bustling foot traffic and streets lined with the mom-and-pop businesses that dominate India’s retailing. Its products are profitable sidelines for retailers of fast-moving consumer goods, such as soft drinks, shampoo, snacks and cigarettes.

“The key is volume,” Mr. Mishra said. “We make almost nothing on each transaction, but millions of them — millions every day — can be a good business.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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