Saturday, January 9, 2010

Higher transaction limit breathes life into a comatose market?

 Over the holidays, RBI (the Federal Regulator in India) raised mobile transaction limits to Rs50,000 per transaction (source).  A gripe by the mobile payments industry has been that the prevailing limit of Rs5000 per transaction was not sufficient, for e.g., to pay for an air ticket. What is the impact of RBI raising the limit for mobile payments in India?  I'll look at this question in the context of urban India.

A quick survey of the possible demographic segments that the new regulation would appeal to:
a. The 80% of urban India who carry cell phones were held back because of the low transaction limits
b. The upwardly mobile tech savvy Indian (early adopters) did not have access to mobile payments
c. Those who are already paying for their sundry expenses using their mobiles phones, but couldn't pay for their airline tickets though
d. None of the above

As you might have realized, this is a rhetorical question.  Mobile payments in India has been a big yawn.  Mobile payment service providers in India are struggling, or are re-inventing themselves to stay alive / relevant (related post).

In India, the dominant perception (Cash Culture) is that cash is a preferred way of living, leaving no trail behind, being anonymous and not attracting attention of the government.  This holds true for purchases related to both durable goods and consumables.  Let's look at the traditional factors driving mobile payments, cash handling costs / cash displacement) in such an Indian context.
  • Merchant's perspective: Other than in exceptional cases, merchants prefer cash as they control / manipulate what is reported as sales, primarily for tax purposes (euphemism for tax avoidance)
  • Consumer's perspective: Do not want to leave a trail of purchases [for tax authorities to follow]
  • Significant part of India's retail economy lives in a parallel black market, some say as much as half of the economy!
Who would use mpayments in India
- Consumers who have and use credit cards and bank accounts, and merchants who accept them
- Organized retail
- Those interested in reducing customer service costs via self service channels

When you look at mpayments from the above perspective, there is a significant overlap between payment card users and mpayments target market. While this insight is not a revelation, in the context of India which has very few active card users (20-30 million active card users), the increase in transaction limits will do very little to the mpayment industry in India.  The change in the transaction limits has not raised the mobile payments market size which continues to be 20-30 million card holders (not the 500 million mobile phone users).

The above undercurent does not bode well for the industry.  If mobile payments changed the market size from 20 million to 500 million you get people's attention.  If the pie is only going to grow marginally bigger, there is little incentive for the various ecosystem enablers to invest resources and do the heavy lifting to deploy mobile payment technology. 

Look forward to dissenting or concurring opinions.  Have a wonderful 2010.


  1. For the Mobile Payments Market in India, to grow in size,innovative marketing strategies are required.

    Who has to bell the cat?
    The Banks, The IT Companies, The Telecom Companies or who else?

  2. Prashant,

    Thanks for your interest in the blog.

    My assessment is that an enterprising startup will take advantage of this opportunity as telecom companies and banks posture. IMO, it is possible (i.e., have a profitable business) for service providers to satisfy consumer needs while meeting RBI regulations. This is a great opportunity for India to come up with its version of PayPal.