Tuesday, April 20, 2010

Electronic Cash in India: A conversation with S Fareedi

I spoke with Mr Seemab Fareedi, Senior Manager, Smart cards division, Sodexo India to understand the opportunity for electronic cash instruments for micro/small payments in urban India.  India is a fast growing market holding promise for a lot of industries.  I wanted to find out from Seemab whether the broad based optimism holds for electronic cash as well.  Below are the excerpts of the conversation:

Manju: How much of a problem is cash handling for small merchants in quick serve restaurants (QSRs)?
Seemab: Merchants like to handle cash.  This is as much cultural as it reflects the high interest rates that merchants have to pay for short-term loans for informal sources.  Additionally, labor is cheap to both handle cash with customers as well as to process cash at the back end.

Manju: How practical / attractive is cash displacement (use electronic cash [payment cards] instead of physical cash) in QSRs?
Seemab: The cost of handling physical cash is not as high as it is in the west (primarily due to low labor costs).  Additionally, the special place that cash holds in the culture of small merchants far outweighs the benefits of electronic cash

Manju: How attractive is the business of acquiring transactions from QSRs?
Seemab: The MSC is pretty low in India (1.25%-1.5%).  When combined with low ticket values in QSRs of $1-$6, QSRs are not very attractive / viable to payment processors.

Editorial Note: While the interview was around QSRs, the points made are as applicable to other similar use cases, including paper/magazine stands, coffee shops...

Manju: Prepaid telecom service plans revolutionized the telecom industry in India with over 95% of all consumers using prepaid plans.  Does this success usher in similar innovation trend in the payment industry?
Seemab: Indian regulators have been very proactive in regulating the prepaid industry.  They are very specific in what a service provider can and cannot do based on the role they play in the payments value chain.  Additionally, they expect sizable balance sheets from service providers.  While this is good for consumers, it virtually eliminates startups from innovating in this space.  It is debatable whether consumers would have been the beneficiaries if startups were allowed to bring innovative products to the market (though some of them would have failed).  In addition to this, telecom operators in India are yet to gain that level of trust which a bank enjoys for handling money and subsequently payments. However there are few instances where telecom operators and banks have team-up and synergized to create very promising payment instruments like m-wallets or SMS-enabled payments.  We need to wait and see whether it is really successful.

Manju: How attractive are prepaid cards for consumers?
Seemab: While prepaid cards, like other payment cards, are attractive to consumers, the chore of loading funds into the prepaid wallet is inconvenient.  As internet penetration is still not universal, consumers have to use physical kiosks to load value which significantly reduces the utility of prepaid instruments. Indian population is fairly under-banked and it can be a hindrance & could impede the prepaid proposition here.  Sometime back India had around 403 million mobile users. About 46% of them, or 187 million, did not have bank accounts.

Manju: Mass Transit services are being deployed in a massive scale across large cities in India. Does this trend impact the perception of electronic cash?
Seemab: Mass transit has the capability to change behavior, both consumers and merchants.  Innovations coupled with transit wallets is the silver lining in the cloud.  Only time will tell how regulations will affect/impact this opportunity.

Manju: Seemab, thanks for your forthright comments and perspectives on the Indian market.  I am sure that the readers will benefit from your experience.

Note: The views expressed here by Mr Seemab Fareedi are purely personal and does not reflect company's stand or viewpoint.

Look forward to your comments, questions and observations about the above perspective and insights.


  1. Great Insight - Transit Wallets, especially with Multi Applications including some small value remittances and ease of top up will open up the market for innovation.

  2. The opportunity for electronic cash does exists provided banks come forward. Credit card and Debit card has certainly penetrated even at rural levels. SodexHo is talking about a market which they are concentrating. I see a big opportunity of electronic cash in Kisan Cards and NREGS cards.
    On a lighter note, maybe we should find out the perspective from a postman on the influence of credit card, debit card or electronic wallet. India has so much of post office and debit cards for post office accounts doesnt exists till date.

  3. Alchemist / Prashant,

    Very valid points about related opportunities in rural India, which is subject of another blog. For better or worse, we focused our discussions on urban India. Regarding Post Office accounts, you are bang on target. The latest Inter-Ministerial Group report about financial inclusion is setting the foundation for just a product/service.


  4. Dear Alchemist,
    That is exactly what teh Department of Post, Government of India is planning to do... They are launching DoP Prepaid cards very shortly, in association with a Bank and a popular Payment Scheme. This will open up an altogether new avenue in this space....

  5. Excellent, Seemab, very good insight.