tag:blogger.com,1999:blog-48157284996734229032024-02-21T09:56:28.206-08:00[Mobile] Commerce InsightsPersonal opinions about NFC, Contactless, Smart cards, Payments, Transit, Mobile, Online-Offline bridge...Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.comBlogger73125tag:blogger.com,1999:blog-4815728499673422903.post-62861615608264786692013-02-06T21:39:00.000-08:002013-02-16T04:08:38.837-08:00Emerging Markets can lead in reducing Credit Card FraudIt is only natural for us to get concerned when the media is full of reports of credit card fraud (<a href="http://www.livemint.com/Industry/pVTD01QuBCQISWquQb7xFK/US-18-charged-in-200M-global-credit-card-fraud.html?ref=dd" target="_blank">Fraud ring busted</a>, <a href="http://timesofindia.indiatimes.com/business/india-business/Global-gang-skims-Indian-credit-card-industry-of-Rs-30-crore-in-2-months/articleshow/18357670.cms" target="_blank">Indian credit card industry hit with INR30Cr fraud</a>), especially when so much effort is made by the industry to convince us that electronic payments are safe. I agree that card payments are basically secure, with fraud at less than 50 basis points (0.5%).<br />
<br />
Having said that, there are a few facts that are disconcerting <br />
<ul>
<li>Some of the card data was stolen from POS infrastructure: Payments at POS terminals should be secure. The best practice is for:</li>
<ul>
<li>End-to-end encryption of card data, i.e., card data is encrypted from the point it is swiped to the point it is processed (your bank)</li>
<li>It is best for the merchant / acquirers to not store card data</li>
</ul>
<li>It is necessary for acquirers to continue to upgrade POS terminals provided to merchants to ensure that weak points in the chain get strengthened. It is only natural for fraud to migrate to the weakest elements.</li>
<li>Talking about fraud migrating to the weakest link in electronic payments, it is inevitable that electronic commerce / online stores will show up in most fraud cases. This is because the de-facto method of payment at online stores is via 'Card-Not-Present' mode. Card-Not-Present is when the merchant cannot verify whether the customer is in possession of the card being used for the transaction.</li>
<ul>
<li>When card data is fraudulently harvested, the easiest place to use stolen card data is at online stores</li>
<li>While online stores take a lot of effort to detect such fraud (thru' two-factor authentication, intelligence in back-end systems...), there are always some countries whose laws are not as stringent as others. Again, fraud migrates to countries with lax authentication laws.</li>
</ul>
<li>While it is easy to parade Chip-n-PIN / smart cards as the silver bullet to prevent such fraud, Card-Not-Present payment mode at online retailers will continue to be the backdoor that fraudsters will exploit.</li>
<li>Magstripe is not the only bad boy, Card-Not-Present mode of payment deserves some of the blame as well.</li>
</ul>
<a href="http://portalsandrails.frbatlanta.org/2013/02/is-growing-fraud-really-catalyst-for-emv.html" target="_blank">Link to a related article by Doug King, Atlanta Fed</a><br />
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Ending on a positive note, one (among many) thing that the industry can do is to work towards supporting Card-Present (or some variant thereof) payment mode at online stores. Technology leaders have been working on such solutions and can roll them out if the industry commits to it. Emerging markets who have traditionally leaped-frog technology due to lack of legacy can play a leadership role here. India can set the tone by issuing contactless cards to support Card-Present payments online.<br />
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Another initiative would be have a deadline for retiring all POS terminals that do not support end-to-end encryption. Payment Networks, such as Visa and MasterCard, can take a lead on this.<br />
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Would love to hear your thoughts on this.<br />
<br /><div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com0tag:blogger.com,1999:blog-4815728499673422903.post-73484488183251473832012-10-24T02:34:00.002-07:002012-10-24T07:58:14.761-07:00New twist in payment card securityThe <a href="http://news.yahoo.com/barnes-noble-says-pin-pads-63-stores-hacked-023657958.html;_ylt=AoA89GDdGtrG9HidRSKmy361qHQA;_ylu=X3oDMTQ2ZzNpcHNpBG1pdANBcnRpY2xlIFJlbGF0ZWQgSUIEcGtnAzlmZTQ0YWNhLTE3YjQtMzZlOC05MmQ3LWQ3ZDhkODM4NzAzZgRwb3MDMgRzZWMDTWVkaWFJbmZpbml0ZUJyb3dzZQR2ZXIDMTQ4MzkxZDEtMWQ4Yy0xMWUyLWJlN2EtZDJlMGM1N2VjMjU2;_ylg=X3oDMTJqNTNsZDZqBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDNzVlODM3ZjYtMWRkNy0zOGVkLWE2OWQtODViZWNlMWFhZjU4BHBzdGNhdAMEcHQDc3RvcnlwYWdl;_ylv=3" target="_blank">security breach at Barnes & Noble</a> stores is noteworthy, because of the interesting twist in this story. We in the payments industry have always believed that online payments were the hairy ones, with payments made at stores safe and secure, especially when you enter your PIN.<br />
<br />
The breach at Barnes & Noble retail outlets occurred due to tampered PIN Pads (in less than about 10% of their stores). Guess what, their online stores are safe and secure.<br />
<br />
Key takeaway points to retailers:<br />
<ul>
<li>Nothing is intrinsically safe or unsafe</li>
<li>You have to work to make your systems safe, and keep them that way</li>
<li>Fraudsters are always out to get you (sounding paranoid, huh!)</li>
</ul>
Please drop in a note of any other noteworthy points from the above news item. Would love to hear from you.<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com0tag:blogger.com,1999:blog-4815728499673422903.post-9810839745814230602010-11-23T09:06:00.000-08:002010-11-23T09:33:12.580-08:00Card Payments in Turkey: Trends in contactless and mobile payments<div class="MsoNormal" style="color: black;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgHJIH9bphZc7AXF56Cdg7mWrU2kn04C8jBDkCq9NXzq26jkv0QrhyD5KJDam3-DLjeG6t02HyLsZ4XhOiJ_M34D3hlkPSn5xZx6MArYyUtyFNzfOZS7Vu-ls0LhfdLi9syeKXTNTs6QQQ/s1600/Turkish+mobile+payments+1.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgHJIH9bphZc7AXF56Cdg7mWrU2kn04C8jBDkCq9NXzq26jkv0QrhyD5KJDam3-DLjeG6t02HyLsZ4XhOiJ_M34D3hlkPSn5xZx6MArYyUtyFNzfOZS7Vu-ls0LhfdLi9syeKXTNTs6QQQ/s200/Turkish+mobile+payments+1.jpg" width="200" /></a></div><i>This is the last part of a two-part series about card payments in Turkey. The <a href="http://mcommercethoughts.blogspot.com/2010/11/card-payments-in-turkey-market-overview.html">first part of the series</a> provided a market overview. This post looks at trends in contactless and mobile payments.</i></div><div class="MsoNormal" style="color: black;"></div><span lang="TR">When it comes to contactless space, Turkey is the second country in Turkey after the UK. Number of contactless credit cards have almost reach % 6 of the total number and it seems that the growth will continue. Garanti Bank leads the market here and there are unconfirmed plans that they will migrate all the card portfolio into contactless cards.</span><br />
<br />
<a name='more'></a><br />
<br />
<span lang="TR">Contactless reader penetration is also quite impressive. For example, when you go for a coffee in a Starbucks, you will see a contactless card reader attached to the POS terminal. If your bill is less than 35 TL (20 EUR) you have the option to pay it via your contactless credit card without PIN or signature. Total transaction lasts no more than 30 seconds ,including the paperwork.</span><br />
<br />
<span lang="TR">Unlike many other Western countries, in Turkey, banks own the POS terminals, so the migration was smooth. Current infrastructure did not change, only the external contactless readers have been deployed. <a href="http://contactless-world.com/page/4/www.otiglobal.com">OTI</a> and <a href="http://www.verifone.com/">Verifone</a> (Vivotech) covers almost all the market, but Sagem (now <a href="http://www.ingenico.com.tr/">Ingenico</a>) has built in contactless readers –along with external readers, as well.</span><br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZDZpfV-3Qc5Evps0MC8SZssZ8km0XriKO8f5v9tGu2kFqRWOOccNSbgldF1gqM34fe_7OIvywwgk2Y4V9aeJqeHxBK63sSLkI-w4igF5I4FQE1LZokC9HTdey6KUtq95Ll7zcqVkk51A/s1600/Turkish+mobile+payments+2.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZDZpfV-3Qc5Evps0MC8SZssZ8km0XriKO8f5v9tGu2kFqRWOOccNSbgldF1gqM34fe_7OIvywwgk2Y4V9aeJqeHxBK63sSLkI-w4igF5I4FQE1LZokC9HTdey6KUtq95Ll7zcqVkk51A/s200/Turkish+mobile+payments+2.jpg" width="200" /></a></div><span lang="TR">There are also NFC pilot projects from <a href="http://www.turkcell.com.tr/">Turkcell</a> with <a href="http://www.garanti.com.tr/">Garanti Bank</a> and <a href="http://www.akbank.com/">Akbank</a>. Turkish Interbank Card Association (BKM) is working on handling the TSM role for NFC for a group of banks’ initiative. 2 (Turkcell and Avea) out of 3 (Vodafone) mobile network operators have active projects for NFC.</span><br />
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<b>Note:</b> The views expressed here by Mr Burak Ilgicioglu are purely personal and does not reflect his company's stand or viewpoint.<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com0tag:blogger.com,1999:blog-4815728499673422903.post-11026079906094698242010-11-23T09:00:00.000-08:002010-11-24T23:47:38.013-08:00Card payments in Turkey: Market Overview<div class="MsoNormal" style="color: black;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaR9jP2SaVvK30HlNC9xuw0Ln0kkJAstp-6LHC4QkfnXD681zw2vdfPLwcmk6ctPjePiHDTDRIiPry4-MBhaZB0CLVvAuS9phpv2FhbsHsiabHSzcEfs0LLmyKgD4znX6fp3QeB5tUjXU/s1600/Burak.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaR9jP2SaVvK30HlNC9xuw0Ln0kkJAstp-6LHC4QkfnXD681zw2vdfPLwcmk6ctPjePiHDTDRIiPry4-MBhaZB0CLVvAuS9phpv2FhbsHsiabHSzcEfs0LLmyKgD4znX6fp3QeB5tUjXU/s200/Burak.jpg" width="122" /></a></div><i>Turkey is a trend-setter in the card payments space. Understanding what is happening in Turkey could help us understand our own markets. </i><br />
<br />
<i>Mr Burak Ilgicioglu is the guest writer, and provides an overview of the market and trends there. Burak has<span style="font-size: 11pt;"> been working on card payment systems since 1994. He has worked for 4 different banks and 2 different payment processors and still working for a bank as the card payment systems analysis manager in Turkey. He is married with 2 kids. His main areas of interest are smart cards, contactless systems, Visa & MasterCard systems, networks and regulations. </span></i><span style="color: #1f497d; font-size: 11pt;"><i><span style="color: black;">He is the creator of the blog focused on contactless systems :</span></i> <a href="http://contactless-world.com/" target="_blank">http://contactless-world.com</a></span></div><br />
<a name='more'></a><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiBmGOFCalYq9DWecgLe7xauHn8TSFR_Sj_R_UYxLNmkQ3R2bqjdk1oEMMlxVTsaKCGKQTj41UMkFuR66lokyD8Z9g_6RLhmxG_YLtyuwpTfdpeOlZn9aC1UGW4GMNAIYqTx_VOmjy0DrQ/s1600/Turkish+Payments.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="130" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiBmGOFCalYq9DWecgLe7xauHn8TSFR_Sj_R_UYxLNmkQ3R2bqjdk1oEMMlxVTsaKCGKQTj41UMkFuR66lokyD8Z9g_6RLhmxG_YLtyuwpTfdpeOlZn9aC1UGW4GMNAIYqTx_VOmjy0DrQ/s200/Turkish+Payments.jpg" width="200" /></a><i>This is a two-part series. The first post provides an overview of the market. The <a href="http://mcommercethoughts.blogspot.com/2010/11/card-payments-in-turkey-trends-in.html">last post</a> provides an overview of the trends in contactless and mobile payments.</i><span style="color: #1f497d; font-size: 11pt;"><i><span style="color: black;"> Btw, it is sheer coincidence that this series is being published around Thanksgiving.</span></i></span><br />
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As a classical start of any article on Turkey, I must say that Turkey is a country of crossroads, a harmony of East and West and a mosaic of cultures. On the political level, Turkey has been struggling to join the European Union for about 50 years. Official negotiations started long ago, but not much progress has been made due to political issues. <br />
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Interestingly, when it comes to card payment systems, Turkey has joined the EU so long ago. Turkey is considered in the EU regions of Visa and MasterCard, due to highly sophisticated and big card payment business of Turkey.<br />
<br />
Turkey has a highly active card business in terms of figures and technology. It is in the top 3 countries in Europe according to Visa EU and MasterCard Europe, in terms of number of cards.<br />
Undoubtedly, Turkey is a smart card country. EMV was chosen as the national standard and EMV migration started in Turkey in 1999. It’s now one of the most mature countries in terms of EMV compatible POS/ATM terminals and cards. (Excluding debit cards which are all magstripe and online PIN based)<br />
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Here is a general outline of the market:<br />
Number of credit cards : 46.200.000Number of debit cards : 67.300.000<br />
Number of POS terminals : 1.800.000<br />
Number of contactless terminals : 38.000<br />
Number of ATM terminals : 26.600<br />
Number of contactless cards : 2.900.000<br />
More detailed stats are available from <a href="http://www.bkm.com.tr/bkm-en/periodic-data.aspx">BKM</a>.<br />
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Turkish banks are known to have complicated credit card products mainly based on installment programs. Almost all the electronics, white appliances, flat screen TVs, etc are financed by the credit card installment programs. There are very sophisticated credit card campaign management systems for retail networks. Toll payments for highways can be processed by contactless credit or debit cards.<br />
<br />
On the vendors part;<br />
<a href="http://www.gemalto.com.tr/">Gemalto</a> is the major player in the card vendor market. <a href="http://www.austriacard.at/">AustriaCard</a>, <a href="http://www.e-kart.com.tr/">E-Kart</a> (G&D) and Oberthur are the followers.<br />
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There are few card personalization offices in Turkey. <a href="http://www.plastkart.com.tr/">Plastkart</a> is the exclusive partner of Gemalto –which is also a card manufacturer, <a href="http://www.provus.com.tr/">Provus</a> and <a href="http://www.bilesim.net.tr/">Bilesim</a> are the other personalisation centers. Oberthur was also working on its own personalization bureau, but couldn’t manage and quit from the banking sector in Turkey.<br />
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<a href="http://www.wincor-nixdorf.com/">Wincor Nixdorf</a> and <a href="http://www.ncr.com/">NCR</a> are the major providers for ATM terminals while <a href="http://www.diebold.com/">Diebold</a> just started signs of growth.<br />
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Note: The views expressed here by Mr Burak Ilgicioglu are purely personal and does not reflect his company's stand or viewpoint.<br />
<br />
<i>The <a href="http://mcommercethoughts.blogspot.com/2010/11/card-payments-in-turkey-trends-in.html">last post of this series</a> provides an overview of the trends in contactless and mobile payments.</i><span style="color: #1f497d; font-size: 11pt;"> </span><div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com0tag:blogger.com,1999:blog-4815728499673422903.post-26865785544320194382010-10-21T06:46:00.000-07:002010-10-21T07:06:13.664-07:00Visa India<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRX02fGgWGhbEhK_KdnTOD-2GFFlb3LxuuC_lYJswt9jnPu_lXoEo3o-4-m2eRZEXXwNdXi9UialWOlnmdCfj7zvLbm6isP8XnDdCPyKZneMReOg25ct-wcRWhYbkLKOgBs99dwRenkK8/s1600/Visa+logo.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="127" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRX02fGgWGhbEhK_KdnTOD-2GFFlb3LxuuC_lYJswt9jnPu_lXoEo3o-4-m2eRZEXXwNdXi9UialWOlnmdCfj7zvLbm6isP8XnDdCPyKZneMReOg25ct-wcRWhYbkLKOgBs99dwRenkK8/s200/Visa+logo.jpg" width="200" /></a></div>Have you heard of Visa India? I came across a <a href="http://epaper.livemint.com/ArticleImage.aspx?article=21_10_2010_020_002&mode=1">news article today</a> referring to such a company. When you visit the Visa site and select India, you go to Visa South Asia section.<br />
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I am not trying to make a big deal of this innocuous article. Given the background about NPCI, quite a few folks whom I interact with suggest that a Visa India (similar to Visa Europe) is a reasonable market response. <br />
<a name='more'></a>While a Visa China may not be an appropriate response to CUP, a Visa India may be [to NPCI]. Considering the size of the India market, and the opportunity that Visa has in this market, Visa India makes a lot of sense. However, Visa's first response to NPCI may not be Visa India.<br />
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Stay tuned. Will keep you posted on the developments this part of the world. Also, do drop me a line if you have any related dope.<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com0tag:blogger.com,1999:blog-4815728499673422903.post-63509410673942201372010-09-19T03:40:00.000-07:002010-09-19T04:03:18.032-07:00Interview with Prof Das re: Cashless Payment System in India<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEievDAOpZZ0mnprazkdiMhi2hNIvU3acjwqj24GhecLM3vD0jM4hJ5GvOJTB3nthrVrS7aFMt1nFn1lpqLmX7otlOOJ1_n-a8hu21LNpKLWiy5f75hJdX4CuY6U3egk21Ihv6wBofN8unk/s1600/AshishDas.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEievDAOpZZ0mnprazkdiMhi2hNIvU3acjwqj24GhecLM3vD0jM4hJ5GvOJTB3nthrVrS7aFMt1nFn1lpqLmX7otlOOJ1_n-a8hu21LNpKLWiy5f75hJdX4CuY6U3egk21Ihv6wBofN8unk/s320/AshishDas.jpg" /></a></div>The response and discussions triggered by <a href="http://dspace.library.iitb.ac.in/jspui/bitstream/10054/1732/3/PaymentCardAugust31.pdf">Cashless Payment System in India - A roadmap</a> has been marvelous. Discussions among payments professionals [in India] have invariably gravitated to debating either suggestions in the report or the broad press coverage the report received. For sure, the report has helped bring the spotlight to the niche area of electronic payments and its role in an emerging market.<br />
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While Prof Das, the author of the report, has been understandably busy, he took some time off to talk with Mr Manju Murthy. Please find below the excerpts of the conversation:<br />
<br />
<b>MM: Why did you feel there was need for this report?</b><br />
<a name='more'></a><b></b><br />
AD: The card based retail payments should have been the run-of-the-mill standard by now. Why is not? As common consumers, all of us must have encountered situations where, though being within reach of a card payment (having a debit card, if not a credit card), one finds the merchant not accepting cards or merchant offering discount on cash payments or merchant imposing a surcharge on a card payment. With advancements in electronic payments how can cash payments be preferred and cheaper than debit card payments. So, there are barriers in our path! We need to see, understand and then implement ways of moving towards a cashless retail payment system... Hence the Report.<br />
<br />
<b>MM: The average transaction size/value at a small retailer is about INR 200, and rarely goes over INR 500. Considering this, a MDR of 0.2% is only INR0.40 which seems low to account for fixed costs. Consequently, would it be appropriate to propose a fixed MDR (for e.g., INR 5)?</b><br />
AD: The value of 0.2% and the cap of INR 20 can be sharpened further based on the exact distribution of the ticket amounts for debit card transactions at POS. Bank's earnings of INR 20 for larger tickets compensates for the shortfall in revenue generated from small ticket debit card transactions. A fixed MDR of INR 5 is too high. It would discourage merchants having smaller ticket size to accept cards.<br />
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<b>MM: Presently, merchants pay a monthly subscription fee (about INR 100-250) if the merchant does not meet the agreed upon monthly minimum transaction volume (e.g., INR 25K). Do you see the subscription fee changing?</b><br />
AD: It should not<br />
<br />
<b>MM: Do you see the minimum monthly transaction volume changing?</b><br />
AD: Yes.<br />
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<b>MM: What might such a [average] number be? </b><br />
AD: I would not know<br />
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<b>MM: The report seems to be silent on the On-Us/Off-Us aspect of the industry. Is there a reason?</b><br />
AD: On-Us/Off-Us has not been distinguished in the report. It is definitely cheaper to have an On-Us transaction. One saves on the switch charges. The card service provider has an incentive to ensure more of On-Us transactions, and would have the liberty to encourage more of such transactions by passing some component of his savings (on switching expenses) to the merchant.<br />
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<b>MM: The timeline suggested for action are aggressive [to a conservative industry/regulator]. Who might be the co-travelers who could champion these recommendations?</b><br />
AD: One needs to be proactive in these matters. The report only provides a suggestion on the timeline.<br />
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<i>MM: Thanks a lot for taking the time to share your thoughts in this forum.</i><br />
<br />
Note: Please send in any questions you may have for Prof Das. We'll work on getting them answered.<br />
<br />
You can find the analysis of the original report <a href="http://mcommercethoughts.blogspot.com/2010/09/review-of-cashless-payment-system-in.html">here</a>.<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com0tag:blogger.com,1999:blog-4815728499673422903.post-68056834514844876552010-09-03T00:49:00.000-07:002010-09-24T08:47:49.111-07:00Review of report: Cashless Payment System in India<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuvrGTo_fPTk0ibZ386Y-ZtqmcsCeSY-CKFp2hM1NoxEx1iua7IoWzcIAdpurEZ_NYhfoPijzm04jqslmQ5VzwgpNLmjo54ve3QsjIuzpUkMFdgPAamSYqP7dN6IyMX4RP6EZXRvUiXaw/s1600/retail+payment+india+4.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuvrGTo_fPTk0ibZ386Y-ZtqmcsCeSY-CKFp2hM1NoxEx1iua7IoWzcIAdpurEZ_NYhfoPijzm04jqslmQ5VzwgpNLmjo54ve3QsjIuzpUkMFdgPAamSYqP7dN6IyMX4RP6EZXRvUiXaw/s1600/retail+payment+india+4.jpg" /></a></div>This post reviews <a href="http://dspace.library.iitb.ac.in/jspui/bitstream/10054/1732/3/PaymentCardAugust31.pdf">Cashless Payment System in India - A roadmap</a> authored by <a href="http://www.math.iitb.ac.in/people/faculty/homepages/ashish.html">Prof Ashish Das, IIT Mumbai</a> and Ms Rakhi Agarwal. This report is a well researched and comprehensive report which is a must read for payments professionals, those who focus on India and others as well. The report is unbiased and credible as the authors objective has been to identify factors to deliver an effective and efficient retail payment tender for India. As a professional addressing opportunities in India, I have been waiting for this report for a while now. The 104-page report did not disappoint. While I normally do not have much patience (or attention span) for long documents, this report was an easy and quick read. I encourage you all to read this report.<br />
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The summary of the findings are:<br />
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<ul><li><i>Encourage the usage of no-frill debit cards and devise ways to bring in awareness on debit card usage among merchants and cardholders through focused financial education campaigns.</i></li>
<li><i>The MDR on all no-frill debit cards be fixed at 0.2% per transaction with a cap at Rs 20.</i></li>
<li><i>The no-surcharge rule to be applied strictly to no-frill debit cards</i></li>
<li><i>Make all debit card transactions at POS PIN-based.</i></li>
<li><i>Cash withdrawal at POS should be clubbed along with purchase.</i></li>
<li><i>Merchants to be given freedom to surcharge on credit cards.</i></li>
</ul>The report also recommends:<br />
<ul><li> Change the distribution of MDR from 75%:20%:5% to 25%:50%:25% (Issuer: Acquirer:Network)</li>
<li>Tax benefits to merchants for accepting electronic payments</li>
<li>Tax benefits (and elimination of duties) for EDC terminal manufacturers</li>
<li>RBI could consider subsidizing all switch charges so as to reduce costs and make card usage more attractive.</li>
</ul>You can find some of the press coverage of the report below (this list is being updated to reflect recent articles):<br />
<ul><li><a href="http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/finance/Bankers-retailers-seek-fee-cut-in-debit-card-processing/articleshow/6482804.cms">Economic Times</a></li>
<li><a href="http://economictimes.indiatimes.com/personal-finance/credit-cards/news/Use-of-credit-cards-goes-down-in-India/articleshow/6543624.cms">Economic Times: Use of credit cards goes down</a> </li>
<li><a href="http://businesstoday.intoday.in/index.php?option=com_content&task=view&id=16131">Business Today</a> </li>
<li><a href="http://indiatoday.intoday.in/site/Story/111406/Business/merchant-rate-cut-can-help-debit-card-owners.html">India Today</a></li>
<li><a href="http://www.thehindubusinessline.com/2010/09/06/stories/2010090651061000.htm">Hindu Business Line</a></li>
<li><a href="http://timesofindia.indiatimes.com/business/india-business/Use-of-credit-cards-goes-down-in-India/articleshow/6543407.cms">Times of India</a></li>
<li><a href="http://www.rupeetimes.com/news/credit_cards/credit_card_usage_declines_in_india_4201.html">Rupee Times</a></li>
<li><a href="http://pindebit.blogspot.com/2010_09_05_archive.html">PIN Debit Blog</a></li>
<li><a href="http://mcommercethoughts.blogspot.com/2010/09/interview-with-prof-das-re-cashless.html">[Mobile] Commerce Insights: Interview with Prof Das</a> </li>
<li><a href="http://www.business-standard.com/india/news/cut-merchant-discounts-to-popularise-debit-cards-study/408622/">Business Standard</a> </li>
<li><a href="http://economictimes.indiatimes.com/personal-finance/credit-cards/news/Debit-card-use-can-be-popularised-by-cutting-MDR-Study/articleshow/6592563.cms">Economic Times: Debit card use can be popularised with cutting MDR</a></li>
<li><a href="http://ibnlive.in.com/generalnewsfeed/news/debit-card-use-can-be-popularised-by-cutting-mdr-study/337879.html">IBN Live</a></li>
</ul>Note: IIT Mumbai faculty page is the source of the picture of Prof Das <br />
<ul></ul><ul></ul><div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com1tag:blogger.com,1999:blog-4815728499673422903.post-65541973963739975542010-08-30T07:22:00.000-07:002010-08-30T19:13:09.454-07:00Mobile POS for Micro-merchants<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHq8nXD1nMFAWxW_nJHw1y6BmqcZNH6F3ESyXTDn11p5Cad2ycVIOu96r-eOIg0lfe6Wg4x0DwCEZMzaGYTkDabqaGP32TNiO6ufyj65q8sQt6VMJF8ax5Fx-vfzJVEblaul6MbN6ePFg/s1600/Morphie.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="150" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHq8nXD1nMFAWxW_nJHw1y6BmqcZNH6F3ESyXTDn11p5Cad2ycVIOu96r-eOIg0lfe6Wg4x0DwCEZMzaGYTkDabqaGP32TNiO6ufyj65q8sQt6VMJF8ax5Fx-vfzJVEblaul6MbN6ePFg/s200/Morphie.jpg" width="200" /></a></div>I have been intrigued by the trend to accept mag stripe cards while on the go. Mobile POS terminals have been used by large organizations for a while now (e.g., rental car drop-off). However, acquirers did not find it cost-effective to offer similar services to micro-merchants (baby-sitter, handyman...) [US Market size/TAM of 26M]. The total transaction volume handled by these micro-merchants did not justify addressing this unmet need. Payment received via cards by micro-merchants monthly can vary widely, starting from as little as nothing to thousands of dollars. While most micro-merchants would like to keep their fixed costs to a minimum, those that wanted to have the facility to accept cards had very few service providers selling them this service [at a premium].<br />
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Note: This post evaluates the opportunities in the US market only. <br />
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With the proliferation of smart phones and associated app stores, Square, Mophie among others are addressing this opportunity. Micro-merchants buy their own device [and add-on] and pay a service fee to avail the facility of getting paid via credit cards. Below is a quick look at the traditional devices and how they stack up against the emerging trend (sources include <a href="http://www.engadget.com/2010/08/26/mophie-and-intuit-partner-to-create-complete-card-solution-for-i?icid=sphere_blogsmith_inpage_engadget">this site</a>).<br />
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<div class="separator" style="clear: both; text-align: center;"></div><div class="separator" style="clear: both; text-align: center;"></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEixyY1hMYRIPIyd692cdOK5ZVvfvFfXjrgun5cjdTosYpYzwb1n24-sXfmv2ra379U4YpGBZ0WpsJ2PloeUNM8XXRRqhzLPFk80Iz9z-W1GRv8-8LigLm9s-eioUjFtXZ0ZJF0YMd75q-g/s1600/Capture.JPG" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="441" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEixyY1hMYRIPIyd692cdOK5ZVvfvFfXjrgun5cjdTosYpYzwb1n24-sXfmv2ra379U4YpGBZ0WpsJ2PloeUNM8XXRRqhzLPFk80Iz9z-W1GRv8-8LigLm9s-eioUjFtXZ0ZJF0YMd75q-g/s640/Capture.JPG" width="640" /></a></div><br />
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Traditionally, part of the acquirer's fees (portion of the MDR paid by the merchant) has covered the cost of the POS device. However, in the case of micro-merchants, as the user has paid for the device, the MDR has to be reduced accordingly.<br />
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The above anomaly is not a big deal initially. However, as the micro-merchant market grows/explodes, micro-merchants will feel fleeced for having to pay extra. Unlike the current controversy (Credit Card Act 2010) where the Issuers are the beneficiaries, micro-merchants will be padding the pockets of acquirers.<br />
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Another lesson from the PayPal success may be relevant here. PayPal earned above-average returns, thanks to the high CNP rates necessitated by the 4-corner Visa and MasterCard model. Would the incumbents make a similar mistake again?<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com1tag:blogger.com,1999:blog-4815728499673422903.post-68657938460294666332010-08-08T09:53:00.000-07:002010-08-20T10:38:47.484-07:00Who cares about US mobile payments<div class="separator" style="clear: both; text-align: center;"><a href="http://ts3.mm.bing.net/images/thumbnail.aspx?q=211054104738&id=c55a1890653b235f6449682c6a609edd&url=http%3a%2f%2fccphotos.taboca.com%2fimages%2flife_n_things4%2fModern_Cell_Phone%2fthumb.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="150" src="http://ts3.mm.bing.net/images/thumbnail.aspx?q=211054104738&id=c55a1890653b235f6449682c6a609edd&url=http%3a%2f%2fccphotos.taboca.com%2fimages%2flife_n_things4%2fModern_Cell_Phone%2fthumb.jpg" width="200" /></a></div>The <a href="http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704271804575405292841532412.html">latest mobile payment announcement</a> (Mercury NewCo) is note worthy. AT&T and Verizon among them have over 170M subscribers, and would deploy 60M handsets annually (assuming an average of 3-year plans). Assuming half of the handsets on offer support mobile payments, and a third of those subscribers activate their mobile payment service, we can expect about 10M new mobile payment cardholders each year. <br />
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It may not come as a surprise that <a href="http://www.mastercard.com/us/personal/en/aboutourcards/paypass/issuers.html">nearly half a dozen banks</a> offer MasterCard PayPass cards, and <a href="http://usa.visa.com/personal/cards/paywave/issuers_offering.html">10 issuers</a> offer Visa PayWave cards. These banks have already deployed over 60+M contactless cards over the past 5 years. There is a 1 in 3 chance that US readers of this blog have a contactless card in their wallet.<br />
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You might wonder why I jumped from mobile payments to contactless payments. Elsewhere in the world, these two payments are synonymous. I would tap my phone to pay for products/services. Consequently, I am assuming that this latest announcement is going to be along similar lines. <br />
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If none of us have been excited about 15 banks issuing contactless cards for the past many years, why is there a buzz around this latest announcement? Mobile payments are sexy, while bank cards are boring. New is good and a way to stay in the news and the minds of the consumer. The real questions are: When would the consumer care? Why would the merchant care?<br />
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<b>Consumers:</b> Humans are creatures of habit. In return for changing our habits (paying with a phone instead of a card), we demand ubiquity. If we change to mobile payments, we would like to pay with our mobile phone wherever we pay with our card or with cash. To keep things simple, most of us might not mind using our card for the large purchases and having ubiquitous mobile payments for the small purchases / cash displacement (cash usage is estimated at 14% of retail spend / $1T).<br />
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To change habits, user awareness and education needs to take place and incentives given. Given the marketing budgets and reach of the above consortium, they can participate in a high-decibel campaign.<br />
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<b>Merchants</b>: The rub is whether a merchant cares about 10M users becoming contactless (out of a base of 300M). There is a silver lining, in the form of a large and influential merchant (not the one from Bentonville). Even though mass transit is not the volume leader in small payments, mass transit is the killer app in mobile payments elsewhere in the world (Tokyo, Hong Kong, [London]...). Riding on mass transit, we can expect success in New York, Bay Area, Washington, Los Angeles, Boston... However, for success in these regions this missing merchant category needs to be added. If users start using their mobile phones for transit, they will start using for other allied activities.<br />
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It is necessary for this mobile payment consortium to be focused and not be all things to all people. There have been suggestion of support for PIN Debit and EMV. My suggestion is to stay away from large ticket purchases, big box retailers... Concentrating on Transit (including parking), QSRs, movie theatres, vending... will get to fill an unmet need. With just this market, it is feasible for the mobile payments industry to capture over $10B of transaction volume in the short-medium term. With an addressable market of $1T, they would have enough room for growth as well.<br />
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There is an additional joker in the pack. The handset vendors. There is enough on this topic to warrant another post.<br />
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Do you think that this latest initiative is just another bump on the mobile payment road?<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com0tag:blogger.com,1999:blog-4815728499673422903.post-10567312205412084632010-07-30T10:41:00.000-07:002010-08-08T09:55:27.533-07:00Benefits of closed-loop payment networks<div class="separator" style="clear: both; text-align: center;"></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpJ4KI94EvpmSu4sPDpfaQgzS6Zp03jPnzL_OT2wSmKiyQaFbl77QQXRe0O2VJXmbukEhweMBw8v2zniF2dR0C4Lx73SUsQ2825xCs5vS4F1ijrdhaQK5pLsKzlE8l350DVaHkWHSbCY0/s1600/paypal+logo.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="78" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpJ4KI94EvpmSu4sPDpfaQgzS6Zp03jPnzL_OT2wSmKiyQaFbl77QQXRe0O2VJXmbukEhweMBw8v2zniF2dR0C4Lx73SUsQ2825xCs5vS4F1ijrdhaQK5pLsKzlE8l350DVaHkWHSbCY0/s200/paypal+logo.jpg" width="200" /></a></div><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhNbA_eDy6iKMRk75AfMhbUCW3BlpOHVoBnc2LlVHEZUpVqoK6vnm6jluvkWfyqT1pSKJtbc_txbDrBnMySghjqWb4kW0mhvMJz4-dJPOKHSuQYFFE7tqtpt-Ksv4DfUwX3Q9XKFVi6Dpo/s1600/PayPal+fraud+transaction+losses.JPG" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="193" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhNbA_eDy6iKMRk75AfMhbUCW3BlpOHVoBnc2LlVHEZUpVqoK6vnm6jluvkWfyqT1pSKJtbc_txbDrBnMySghjqWb4kW0mhvMJz4-dJPOKHSuQYFFE7tqtpt-Ksv4DfUwX3Q9XKFVi6Dpo/s320/PayPal+fraud+transaction+losses.JPG" width="320" /></a><br />
I was surprised to note the continual downward trend of fraud figures reported by PayPal (see graph [includes some interpolation]), including <a href="http://www.digitaltransactions.net/newsstory.cfm?newsid=2508">their recent figures</a> of 0.18%, which is about 1/3rd less than comparable figures with Visa/MC. This is one of the obvious value-adds of closed-loop payment schemes. PayPal is an example of a [dominantly] closed-loop scheme, in which the merchant and the consumer use PayPal for payment, thereby making it easier for the scheme provider to detect fraud.<br />
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Merchant Discount Rates (MDR) for online retailers are about the same, for either open-loop schemes (e.g., Visa, MasterCard) or their closed-loop counterparts (PayPal, Amazon...). In addition to the MDRs paid by online retailers, they also incur costs associated wtih charge-backs, shopping cart abandonment... This can add another 1% to the costs of accepting online payments. In case of closed-loop schemes, IF you follow the rules, the scheme provides you a payment guarantee at no additional cost. This is a big allure to online retailers.<br />
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As you would be aware, fraud rates of less than 0.5% was part of the <a href="https://www.paypalobjects.com/html/mit-1201.html">differentiation in PayPal's business model</a>. Needless to say, skeptics take these published numbers with some amount of salt.<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com0tag:blogger.com,1999:blog-4815728499673422903.post-47424476764082033052010-07-24T04:21:00.000-07:002010-07-30T03:44:34.477-07:00Setting up a new scheme: Learning from CUP<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLOe5eKSwkFk84M1DsL8FYwbs-oXCq5anpLmddHD6ewwFBeDiUFvrNb-96QP9iCgxDG8vY3xNiPRJD0wj6qZfPOkCZ3DAvlzA15HkR8zatcCmcLbgNStRX7snb_oN4F_ddeTtU_oZ2ofg/s1600/China+UnionPay+logo.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="128" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLOe5eKSwkFk84M1DsL8FYwbs-oXCq5anpLmddHD6ewwFBeDiUFvrNb-96QP9iCgxDG8vY3xNiPRJD0wj6qZfPOkCZ3DAvlzA15HkR8zatcCmcLbgNStRX7snb_oN4F_ddeTtU_oZ2ofg/s200/China+UnionPay+logo.jpg" width="200" /></a></div>Traversing down the roadmap of bringing a payments scheme to life is interesting. Once a scheme is launched, most of us think that all the features of the scheme come to life in relatively short order. As an entire industry is affected by a new scheme coming to life, getting a good feel for timeline is critical to success of many products/ventures that are dependent on the scheme of the land.<br />
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Features of a typical scheme include:<br />
<ul><li>Domestic</li>
<ul><li>ATM</li>
<li>Retail (Debit, Credit)</li>
<li>Online</li>
<li>Other payment networks (Postal system, Rural, Cooperatives...) </li>
</ul>
<li>Connectivity / bilateral agreements with other schemes (primarily 'international'), primarily around card acceptance</li>
<li>Connectivity / bilateral agreements with international banks (primarily 'international') primarily around card acceptance</li>
</ul><br />
<a name='more'></a>While launch of new schemes are not commonplace, China UnionPay (CUP) is a recent addition The journey to setup a scheme is hard work and takes years, this post will look at some of the milestones once a scheme has been 'launched' (<a href="http://en.chinaunionpay.com/">source</a>)<br />
<ul><li>1993: Creation of CUP started as part of the Golden Card Project </li>
<li>2002: Launch of scheme</li>
<li>2003: Issue of new cards</li>
<li>2004: CUP cards accepted in Hong Kong</li>
<li>2005: CUP cards accepted by ATM/POS offered by Citicorp network</li>
<li>2006: CUP cards accepted in Australia</li>
<li>2007: Multi-factor authentication for online payments </li>
</ul> While the world is getting smaller, and technology becoming more of a commodity, the above timeline might still be representative of a new payment scheme roadmap.<br />
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Do you see the trend for new payment schemes coming up? Do you see a different timeline? Appreciate your comments.<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com2tag:blogger.com,1999:blog-4815728499673422903.post-38322499538326415602010-06-28T23:27:00.000-07:002010-07-30T04:07:38.415-07:00Broadening electronic payments coverage in India<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEizwEM4BQkBnz2s70AEFafeFraJhHJdoPODg5x3riSpiYUOdiBa0iqE1cEAiyfcQXYvqN-EVs0SJ6DwQhzNwgry_63HqKSb7OlNMF6E-8OadIvERAryW7koXgWmSjlU4P6skSysavGRWEU/s1600/RBI+logo.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEizwEM4BQkBnz2s70AEFafeFraJhHJdoPODg5x3riSpiYUOdiBa0iqE1cEAiyfcQXYvqN-EVs0SJ6DwQhzNwgry_63HqKSb7OlNMF6E-8OadIvERAryW7koXgWmSjlU4P6skSysavGRWEU/s200/RBI+logo.jpg" width="200" /></a></div>Electronic payments industry requires the government to motivate laying the rails (aka necessary infrastructure). It is heartening to note that government in India is using RBI's bully pulpit to get there. Public Sector banks in India have signed up to bank the unbanked over the next 5 years. I am sure the skeptical readers have been hearing about such good intentions for many years without any perceptible change in ground realities. I think that this time it is going to be [marginally] different<br />
<ul><li>Back to back governments of the same party is providing adequate time to focus on and deploy infrastructure</li>
<li> Political parties in India have figured out how to benefit from government sops being distributed electronically.</li>
</ul> Having said that, it will take time (5+ years) and effort to see electronic disbursements and financial inclusion (FI) make a difference in the lives of the poor, and change behavior (reduce use of physical cash).<br />
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Reserve Bank of India (RBI is the Indian Banking/Payments regulator) Deputy Governor Dr KC Chakrabarthy, among other RBI officials and Bank management shared their Financial Inclusion plans at the <a href="http://www.skoch.in/index.php?option=com_content&view=article&id=1171&Itemid=1471">23rd SKOCH Summit on Financial Deepening</a> in Mumbai:<br />
<ul><li><br />
<br />
<a name='more'></a>As part of Phase-1 (by 2012-13) of the current initiative, all villages with population greater than 2K are being covered (400K villages). Subsequently, the rest (200K villages) will be covered. <br />
</li>
<li>Banks will each spend Rs 30-50Cr ($7-$11M) annually towards meeting their FI plan</li>
<li>Banks are hiring their own Business Correspondents (BCs) this year, and addressing about 10-15% of their 3-year goal</li>
<li>Banks will sign up third party BCs to scale up their efforts to reach their target over the next couple of years.</li>
<li>NABARD suggested Self Help Groups (SHGs) to be BCs as they currently have a financial relationship with the target audience. [Editor: There are over 6M SHGs in India]</li>
<li>It appears that the telcos will be on the sidelines during the current FI initiative. Please understand that FI targets the 400M individuals who are unbanked / underbanked. Telcos could still have a role while addressing the folks who already have both bank accounts and cell phones</li>
<li>Banks' FI initiative will loose money over the first 3 years. However, RBI felt that, considering the profits being posted by banks in an economy growing nearly 10%, these looses can be absorbed.</li>
<li>Government disbursements, to essentially the same audience targeted by FI, are expected to reduce losses for banks. </li>
<li>Four products are part of the initial deployment: Banking, Remittances, Debit Card, Credit Card</li>
<li>Use of payment cards (as debit/credit card for FI) was discussed, while its feasability and sustainability were questioned. [In the near future, not many transactions will be made using credit/debit cards, therefore the concern over ROI).</li>
<li>Financial Education will be a significant heavy lifting that will need to be undertaken. Training BCs and education rural India are necessary for change in behavior and increase in transaction volumes. ABHAY (Bank of India), PAC (Primary Agricultural Cooperative) and Vikas Kendras are some of the associated initiatives.</li>
<li>Role of UID in meeting FI: Banks are expected to perform their own independent KYC and cannot rely on a third-party KYC effort (i.e., banks cannot rely on UID's KYC).</li>
</ul>To make this a balanced post, telcos presence needs to be mentioned. Airtel also presented at the summit. Airtel felt that telcos were better positioned to address FI for the following reasons:<br />
<ul><li>Banks have 30M accounts and 2500 BCs. Telcos have 600M accounts and 2M agents</li>
<li>Telcos handle nearly $20B of cash via recharge of minutes. Therefore, they have both the front-end expertise and the back-end sophistication to adequately serve the market and meet the regulators requirements</li>
</ul>Please note that the current RBI regulations restrict bank wallets to offer Cash Out services (i.e., get cash from funds in their wallet).<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com2tag:blogger.com,1999:blog-4815728499673422903.post-50802569904740007282010-06-13T23:18:00.000-07:002010-07-30T03:53:23.898-07:00King of grand vision and bold strokes<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZeyNmyXZm7DI8ZWboeq9Fah8E0vqWvlx2PJvew73J3Si-9ldlz9XXExz9gFu75fJJvXoKGAWCqI9Nq4a8vDOWRrcyOkz0vsGT4wtSfk1xuE0_1Dw7ulLoVM9QtH_vX5-8XGckuCu-73U/s1600/RIL+logo+1.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZeyNmyXZm7DI8ZWboeq9Fah8E0vqWvlx2PJvew73J3Si-9ldlz9XXExz9gFu75fJJvXoKGAWCqI9Nq4a8vDOWRrcyOkz0vsGT4wtSfk1xuE0_1Dw7ulLoVM9QtH_vX5-8XGckuCu-73U/s200/RIL+logo+1.jpg" width="200" /></a></div>Reliance (RIL) led by Mr Mukesh Ambani re-enters the telecom market in India by acquiring Infotel (<a href="http://www.nytimes.com/2010/06/12/technology/12tele.html?partner=rss&emc=rss">source</a>) for about $1B. Infotel, in the recently concluded auctions, won the pan-India Wireless Broadband license. Why would a blog about payments and commerce care about this development?<br />
<br />
<b>Overview of RIL</b>: As you might be aware, RIL is a major player in India's growing retail space. RIL has been aggressive in experimenting with different formats of stores, business models, locations... RIL, under the leadership of the older Ambani, has used a wide canvas and made bold and audacious strokes. When RIL started Reliance Infocomm (since renamed to Reliance Communication), they were amongst the first telco to have Java on all their handsets. RIL has been generating a lot of cash (cash surplus of $25B over the next 4 years [<a href="http://economictimes.indiatimes.com/markets/analysis/Aggressive-steps-key-to-ensuring-RILs-long-term-growth/articleshow/5670001.cms">Source</a>]) from its petrochemical business and needs new projects to deploy this cash.<br />
<br />
<b>RIL and Commerce</b>: RIL's vision in communication is to make broadband-based TV, Internet and Phone affordable and ubiquitous (as they did with mobile phones/service in 2003 [<a href="http://www.expressindia.com/latest-news/RIL-to-offer-3G-WiMAX-devices-in-mega-splash/628803/">Source</a>]). They plan on having <br />
<a name='more'></a>100M subscribers in 5 years. In India's hyper-competitive market of 600M users, RIL's foray may come across as just another vendor in a crowded space. What makes RIL's entrance into the communication interesting to the readers of this blog is the interplay between Retail, TV, Internet and Mobile services. Images of convergence of brick and click commerce conjure up. While many different economies and service providers have been going at this pot of gold for a while now, RIL on the coattails of near-10% growth in India, might be able to get to this pot of gold. As importantly, RIL might be able to show a viable business model in a price conscious India market.<br />
<br />
Early days and exciting times in mobile and electronic commerce in India. Do you agree with this vision and hype?<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com0tag:blogger.com,1999:blog-4815728499673422903.post-11851744060963265122010-06-07T21:57:00.000-07:002010-07-30T03:57:24.536-07:00It is all about inexpensive convenience<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0eEKsHz6qmjRo1cb8mqZvUwudSO8vCT7sq1WvXL6kufsFivhbZY88X_71LO3wXifC36Ro2jDYjcS3rJNm8fdWKPlNPI7ux43IOjvDnN6FzUkvBmIO6eETiKCHR1XiSxWDwv8F7i7PmzE/s1600/branchless+banking.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="133" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0eEKsHz6qmjRo1cb8mqZvUwudSO8vCT7sq1WvXL6kufsFivhbZY88X_71LO3wXifC36Ro2jDYjcS3rJNm8fdWKPlNPI7ux43IOjvDnN6FzUkvBmIO6eETiKCHR1XiSxWDwv8F7i7PmzE/s200/branchless+banking.jpg" width="200" /></a></div>In India, banks are making a serious and sincere attempt at serving the unbanked / underbanked. However, progress has been slow and restricted to the margins. G2C not withstanding, domestic remittance is one of the litmus tests of whether formal channels (banks & post office) are relevant in the lives of rural Indians. Elsewhere in the emerging/developing world, remittances have been the killer app to start the process of digitization of cash in rural settings.<br />
<br />
A<a href="http://www.google.com/url?sa=t&source=web&cd=1&ved=0CBUQFjAA&url=http%3A%2F%2Fifmr.ac.in%2Fcmf%2Fseminars_conferences%2F2009%2FRemittance%2520Market-IFMR.ppt&ei=dQIKTKXAMdGzrAf6xoiCDQ&usg=AFQjCNE5RWn7lopFW9gNwKPFMYau8MK93A"> survey</a> conducted by IFMR, indicated the following as the top reasons (not in any particular order) that drive choice of channel for [domestic] remittances:<br />
<ul><li>Lines / queues to send / receive money </li>
<li>Time taken [by service provider] to deliver the money</li>
<li>Price (fees/commission charged)</li>
<li>Proximity of deposit and withdrawal points</li>
<li>Business hours of deposit and withdrawal points (should be open during hours when they are free)</li>
<li>Minimal paperwork as a significant percentage of migrant workers are marginally literate</li>
</ul><br />
<a name='more'></a>As banks figure out their strategy to serve the unbanked / underbanked, the above feedback would imply the banking 'agent' should be 'like a' retail outlet, ubiquitous / local presence (in their village) and open 12 hours a day at least 6 days a week.<br />
<br />
Remittances is a periodic but not a frequent activity, with an user transacting every few weeks-months. Given this, to ensure that the service is cost-effective, the customer service point cannot be a dedicated facility, like a bank or post-office<br />
<ul></ul><a href="http://tomnoyes.wordpress.com/">Tom Noyes</a> has argued eloquently about the <a href="http://tomnoyes.wordpress.com/2009/11/01/mnosrule/">role of MNOs</a> in India to serve the unbanked. However, in the first go-round, Indian regulators may give banks a shot at success/failure. This implies that the wallet will be owned by the bank. However, the mobile network could still be used for last mile connectivity. The mobile device might also still be a device option.<br />
<br />
Look forward to hearing your opinion on this topic, and your insights about what Nokia Money, Vodafone, Airtel, banks and others are doing in India in this space. Where do you think that the puck is heading?<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com0tag:blogger.com,1999:blog-4815728499673422903.post-9986941813474927172010-05-16T23:11:00.000-07:002010-07-30T03:59:40.837-07:00Bridging the gap in Branchless Banking<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbyeSTKcVqxnZJ6BzQfWg07Auq60QykXcPbEHXAL-HfV7DAVgtNMpX5nS1q87BZdmu0S4O10HKCv2Tg7gwdQtRRTgHVOY_HKXroqRL1r0QO2BwGu7v5WVnughvIzYgQh1c_EqidL-fA1o/s1600/rural+banking.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="136" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbyeSTKcVqxnZJ6BzQfWg07Auq60QykXcPbEHXAL-HfV7DAVgtNMpX5nS1q87BZdmu0S4O10HKCv2Tg7gwdQtRRTgHVOY_HKXroqRL1r0QO2BwGu7v5WVnughvIzYgQh1c_EqidL-fA1o/s200/rural+banking.jpg" width="200" /></a></div>This post is the final part in the series on branchless banking, and will provide an overview of the innovations (or gaps that need to be filled) necessary for branchless banking to be viable. The <a href="http://mcommercethoughts.blogspot.com/2010/05/analysis-of-branchless-banking-in-india.html">introduction of this series</a> set up the context. The <a href="http://mcommercethoughts.blogspot.com/2010/05/state-of-branchless-banking-in-india.html">first part of this series</a> provides statistics about the industry as is today, which is essentially in a fixed-cost and money-loosing phase. <br />
<br />
The following structural changes are recommended to help the industry move from an early-adopter opportunity to a sustainable market which has the green shoots of sustainability and stability:<br />
<ul><ul><li> Use of Commercial Off The Shelf (COTS) hardware as a POS device. This would preferably be a device which the agent already uses, for e.g., a mobile phone. </li>
<ul><li>This will reduce the cost of entry for an agent</li>
<li>Standardized devices will have higher uptime and lower maintenance costs</li>
<li>Such devices will be interoperable with other service providers' infrastructure</li>
</ul>
<li><br />
<a name='more'></a>An alternative to Core Banking solutions for No-Frill accounts. Core banking solutions were not designed for No-Frill accounts, and therefore have not been cost-effective. </li>
<li>Bring in more users, including banked, to use existing infrastructure. This could well be a function of time.</li>
<li>Increase use cases for electronic payments, including time consuming user awareness and education. Presently, number of transactions per user per month is about 1. This needs to increase to about 5-6 transactions per month (which is the break even point) by 2012.</li>
</ul></ul><br />
The first two recommendations on this list are game changers. An report by the Inter Ministerial Group (IMG) on Mobile Linked No-Frill Accounts (Apr 2010) has done a thorough analysis of how to structure the industry so that it is equitable and fair to all participants. There is similarities between the above recommendations and those made by the IMG report. We will have to wait and watch to see RBI's directives (as a response to the above IMG report) in this area and the impact on the industry's health.<br />
<br />
In an free-market scenario, the recommendation to service providers would be to build out the network even though the business is not profitable. Once you have a network in place, you can change the dynamics/structure to convert a loss-making proposition into a profitable business (e.g., PayPal).<br />
<br />
In addition to the above changes, below are a few recommendations for service providers to focus on over the near-term to survive till the chasm is crossed:<br />
<ul><li>As the payments market in India is regulated (more so than elsewhere in the world), it would be best for service providers to focus on a few key geos,while waiting for the regulatory environment to be more favorable.</li>
<li>Experiment quickly and many times to help identify killer apps and usage models, invest in consumer eduction.. </li>
<li>Do not spend a lot of money, while having access to a war chest. I don't see profitability in this market under the current conditions.</li>
<li>When the environment does get better (3-5 years), i.e., some of the fundamental gaps have been fixed, expand aggressively using your war chest. </li>
<li>Resist the temptation of being the biggest player today as with each passing day the bleed will weaken you. There is no obvious advantage for early-movers.</li>
<li>Partner with others. Putting together proprietary vertically integrated solutions makes sense to get demonstrate and pilot solutions. However, few organizations have the resources to scale all parts of a vertically integrated service (e.g., custom hardware, feet-on-street to acquire agents/merchant, separation of platform and service, back-end processing infrastructure). Identify and focus on your core competence and dominate this space. Partner with others for complementary activities. Investors/VCs should help force this issue as companies/entrepreneurs might not readily head down this path. </li>
</ul>Finally, regulators need to address some gaps (e.g., reduce cost of KYC for opening new accounts). This topic is not discussed here (need a different post for this).<br />
<br />
What are your thoughts about where nirvana is in branchless banking in India?<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com1tag:blogger.com,1999:blog-4815728499673422903.post-74713533654530138922010-05-16T23:10:00.001-07:002010-07-30T04:05:21.392-07:00State of Branchless Banking in India<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTMbSnwhlggwJAXRPlIU0qe3khz0QDpLxWzBO24RBJXNlbcwYPi1-VjRoCmjMdeIIavfhkO_1wpnX0LXBiPu_tvV6tgwo-vga5xlAD-jwviHYygbLA92EibMDagj479qAFQWFjjio-QZc/s1600/Rural+Women%27s+Bank.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="111" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTMbSnwhlggwJAXRPlIU0qe3khz0QDpLxWzBO24RBJXNlbcwYPi1-VjRoCmjMdeIIavfhkO_1wpnX0LXBiPu_tvV6tgwo-vga5xlAD-jwviHYygbLA92EibMDagj479qAFQWFjjio-QZc/s200/Rural+Women%27s+Bank.jpg" width="200" /></a></div>This post builds on the<a href="http://mcommercethoughts.blogspot.com/2010/05/analysis-of-branchless-banking-in-india.html"> previous post</a> which setup the context of this series, and will provide an overview of branchless banking as they exist today. The <a href="http://mcommercethoughts.blogspot.com/2010/05/bridging-gap-in-branchless-banking.html">next post</a> in the series will discuss bridging gaps that exist and will provide recommendations for service providers.<br />
<br />
Below are some of the key performance measures of branchless banking in India (based on many sources including CGAP articles from <a href="http://www.microfinanceindia.org/download_reports/ppt_greg_chen.pdf">G Chen</a> and <a href="http://www.cgap.org/gm/document-1.9.43424/CGAP_-_Building_viable_agent_networks_in_India.pdf">K Krishnaswamy et al</a>):<br />
<ul><li>Account Opening Fees paid by banks for No-Frill accounts, a major revenue stream, does not exist. Presently, No-Frill accounts are a loss-making proposition. Consequently, I don't see banks pushing for new no-frill accounts in their current avatar</li>
<li>Custom hardware devices are provided, as POS terminals, by service providers (e.g., FINO, ALW, Eko) to their agents (e.g., merchants), in lieu of a deposit (typically INR 5000 / $115)</li>
<li><br />
<a name='more'></a>Number of users per agent are about 1000, which are spread over multiple villages. </li>
<li>About 30% of the users are active users. Active users are defined as those who use the service (irrespective of frequency).</li>
<li>Average number of transactions per user per month is about 1 (300 transactions per month per agent)</li>
<li>Agents get about 0.5% as transaction fees, in addition to a fixed fee of about INR 750 ($17) per month</li>
<li>A typical agent has multiple revenue streams from his/her existing business, which complement revenues from branchless banking.</li>
<li>NREGA is a killer app which has kickstart branchless banking.</li>
<li>SBI and Department of Posts are leading the charge in this space. </li>
</ul>Both banks and service providers are losing money in this initiative. They are hoping for increased services that can be offered over branchless banking infrastructure to generate incremental revenues. My own perception is that the electronic payments infrastructure was not designed to deal with branchless banking to serve BoP (Bottom of Pyramid) users. Serving BoP users is an unmet need. However, the value chain, products and processes need to be re-invented to make this proposition viable. A similar exercise was undertaken successfully by the mobile network operators (and the telecom industry) in India. The electronic payments industry need to undertake such an exciting and challenging journey as well.<br />
<br />
The <a href="http://mcommercethoughts.blogspot.com/2010/05/bridging-gap-in-branchless-banking.html">next post</a> discusses some of the innovations the industry needs to undertaken to make branchless banking a success endeavor.<br />
<br />
Look forward to hearing about additional data points that describes the industry today.<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com0tag:blogger.com,1999:blog-4815728499673422903.post-47558299810815639062010-05-16T23:10:00.000-07:002010-07-30T03:24:55.125-07:00Analysis of Branchless Banking in IndiaIt is easy to agree that branchless banking is a preferred way to serve rural India. However, I have been trying to get my business mind to arrive at the same conclusion by looking at the numbers. I would like to go thru' such an exercise here at the risk of getting beaten up.<br />
<br />
I am starting this exercise by leveraging the wonderful work done by CGAP, notably these two publications:<br />
○ <a href="http://www.microfinanceindia.org/download_reports/ppt_greg_chen.pdf">BC Banking Channels in India - G Chen</a><br />
○ <a href="http://www.cgap.org/gm/document-1.9.43424/CGAP_-_Building_viable_agent_networks_in_India.pdf">Building Viable Agent Networks in India</a><br />
<br />
<br />
<a name='more'></a>Branchless Banking might mean different things to different people. In this article, I am looking at the use of agents/merchants to serve the users in villages.<br />
<br />
Target list of services provided at a branchless bank include:<br />
○ Cash In/Out Services<br />
○ NREGA disbursement<br />
○ Micro Lending<br />
○ Micro Insurance...<br />
<br />
I will discuss this subject by looking at three aspects:<br />
○ <a href="http://mcommercethoughts.blogspot.com/2010/05/state-of-branchless-banking-in-india.html">State of Branchless Banking</a><br />
○ <a href="http://mcommercethoughts.blogspot.com/2010/05/bridging-gap-in-branchless-banking.html">Bridging the gap in Branchless Banking</a><br />
<br />
Please do let me know your opinion about this industry.<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com0tag:blogger.com,1999:blog-4815728499673422903.post-61486377634578700632010-05-06T11:20:00.000-07:002010-09-19T04:09:10.881-07:00Visa getting into acquiring businessSBI is teaming up with Visa International and Elavon (<a href="http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/SBI-forms-JV-for-POS-terminals/articleshow/5896000.cms">Source</a>) to jump start SBI's acquiring business. It is a critical win for Visa. In light of SBI being the 800# gorilla in the India, their choice of Visa is intriguing. Is this the beginnings of Visa's aspirations in the acquiring space? When Visa decided to acquire CyberSource, Visa was expected to be measured in its interaction with the merchant community so as to not offend its partners, the acquiring banks and processors. With Visa's intentions of taking CyberSource international, and its move into acquiring business in emerging markets, we might seeing elements of Visa's strategy for the coming decade (at least in emerging markets). With SBI's interests in mobile payments (primarily driven by financial inclusion and branchless banking initiatives), Visa's JV with SBI becomes even more significant.<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjEiRSeNYdVSFl-DxRorUuTobWncHoaihVXKwZsmveZ1L5Ln1NeJumYSYAQMZfvPCXtiQmW0rc_Lm21UNEIHv4ErRdo3vKrBe5iiCkqrMb1mP6SNC21oAzJm3W1MSY0S1X7OQ-b4u-YnQo/s1600/indiapay.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="58" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjEiRSeNYdVSFl-DxRorUuTobWncHoaihVXKwZsmveZ1L5Ln1NeJumYSYAQMZfvPCXtiQmW0rc_Lm21UNEIHv4ErRdo3vKrBe5iiCkqrMb1mP6SNC21oAzJm3W1MSY0S1X7OQ-b4u-YnQo/s200/indiapay.jpg" width="200" /></a></div>What does this mean for NPCI's aspirations and the IndiaPay initiative? <br />
<br />
Look forward to your comments on the implications of the SBI-Visa JV.<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com0tag:blogger.com,1999:blog-4815728499673422903.post-38640770802807506292010-04-24T05:47:00.000-07:002010-04-24T05:47:39.946-07:00Visa's acquisition of CyberSource: Potential for growth but not quite a home runSince going public, Visa's expansion plans had to be well calibrated to not upset a lucrative business while trying to take advantage of upcoming trends. Visa's M&A considerations ere driven by the following factors:<br />
<br />
<b>Ecommerce segment is more lucrative</b>: Prima facie it makes sense. The interchange rates charged for credit card payments is around 1.8%. However, ecommerce merchants pay around 2.5%+$0.30. This provides payment gateway providers, such as CyberSource revenues of around 70 bps. This kind of revenue is huge, considering that the financial risk as a payment gateway service provider is minimal. The percentage revenue to a payment gateway provider in only second to that of an issuer.<br />
<br />
<b>Mobile Payments are coming</b>: They will change the dynamics of merchant acquiring, not in as far as displacing incumbents, but as they are expected to take a significant share of future growth. This holds true for both developed and emerging economies.<br />
<br />
<b>Brick-n-Mortar still rules</b>: While ecommerce and mobile payments have folks gushing, transaction volumes from these sources account for less than 20%. The bulk of the revenues come from brick-n-mortar stores which Visa wouldn't want to impact.<br />
<br />
Visa's decision to acquire CyberSource met these criteria. Having said that, it is not clear how much of the upside from ecommerce CyberSource can deliver to Visa. It is interesting to note that CyberSource's revenue per dollar processed is only 22 bps (Revenues of $265M from TPV of $120.4B). This is pretty small compared to expectations of over 50 bps. However, CyberSource's TPV per merchant is also a whopping $400K/merchant/year ($120.4B from 300K merchants). The high number is consistent with CyberSource's clientele of both high-volume retailers and SMB online merchants. Compare this against PayPal's TPV of over $10,000 per merchant per year ($20.1B/quarter from 8M merchants).<br />
<br />
Consequently, the opportunity then for Visa is to increase both revenues per transaction, and revenues per dollar processed. Additionally, the mobile payments world will be dominated by lower value transactions and smaller/micro merchants which requires the payments service provider to have low acquisition, fixed and variable costs. Both Visa and CyberSource are both used to medium and large retailers. To effectively compete and take advantage of mobile payments, the new entity has to fill the above holes, either thru' internal capability or thru' yet another acquisition.<br />
<br />
While the acquisition looks like a base hit, it will require a lot of chutzpah from Visa's management to convert it into a triple, which Visa really needs if it is going to be something more than a payment scheme (which its shareholders demand) and to take on PayPal in any meaningful manner.<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com3tag:blogger.com,1999:blog-4815728499673422903.post-84847886729447657842010-04-20T04:55:00.000-07:002010-04-21T05:14:25.266-07:00Electronic Cash in India: A conversation with S FareediI 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:<br />
<br />
<b>Manju:</b> How much of a problem is cash handling for small merchants in quick serve restaurants (QSRs)?<br />
<b>Seemab:</b> 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.<br />
<br />
<b>Manju:</b> How practical / attractive is cash displacement (use electronic cash [payment cards] instead of physical cash) in QSRs?<br />
<b>Seemab:</b> 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<br />
<br />
<b>Manju:</b> How attractive is the business of acquiring transactions from QSRs?<br />
<b>Seemab:</b> 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.<br />
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<b>Editorial Note:</b> While the interview was around QSRs, the points made are as applicable to other similar use cases, including paper/magazine stands, coffee shops...<br />
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<b>Manju:</b> 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?<br />
<b>Seemab:</b> 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.<br />
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<b>Manju:</b> How attractive are prepaid cards for consumers?<br />
<b>Seemab:</b> 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.<br />
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<b>Manju:</b> Mass Transit services are being deployed in a massive scale across large cities in India. Does this trend impact the perception of electronic cash?<br />
<b>Seemab:</b> 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.<br />
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<b>Manju:</b> Seemab, thanks for your forthright comments and perspectives on the Indian market. I am sure that the readers will benefit from your experience.<br />
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<b>Note:</b> The views expressed here by Mr Seemab Fareedi are purely personal and does not reflect company's stand or viewpoint.<br />
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Look forward to your comments, questions and observations about the above perspective and insights.<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com5tag:blogger.com,1999:blog-4815728499673422903.post-63999752142092535442010-03-19T13:46:00.000-07:002010-03-19T21:05:55.573-07:00Citi shows being roadkill is only naturalCiti has shut down its mobile P2P payments program (<a href="http://www.paymentssource.com/news/citi-sees-weak-demand-mobile-p2p-transfers-3001058-1.html">source</a>). Let us analyze the rationale behind their decision, and what this means to the rest of us in this and related spaces.<br />
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A lot of us in the 'payments innovation' space look down on the conservative bankers who are vary of payment innovations. These bankers are even more vary of startups promising disruptive innovations that will change the landscape. The data from the Citi P2P trials are both eye opening and stark. We in the industry expect each passing year to be the break out year in mobile payments. This year we are pinning our hopes on the iPhone. But not much changes with each passing year, except mortality rates.<br />
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The numbers from the Citi trials paint a very sobering picture. Less than 10% of the users used their phones for mobile banking (a pre-cursor to mobile payments), and a dismal 1% used their phone for P2P payments (<a href="http://www.paymentssource.com/news/citi-sees-weak-demand-mobile-p2p-transfers-3001058-1.html">source</a>).<br />
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iPhone users will claim that the low numbers are because of the user experience. If the users were given a intuitive user interface (and a vibrant market place built on iTunes Store), the adoption rate would be higher. I don't doubt that claim. However, would this change the outcome?<br />
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A startup would look at Citi's decision and conclude that a market of 3 million early adopters is very viable. However, would such a market size/adoption rate be viable for other players (their partners) in the ecosystem (e.g., merchants)?<br />
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PayPal is an obvious success that each of us would like to reference to support our claim. About 50% of online users have a PayPal account and about 50% of the top online retailers accept PayPal (US perspective). PayPal is built on an ubiquitous platform (magstripe credit card platform). In spite of such overwhelming numbers / market adoption, PayPal has under 10% of the online markets (based on Total Payment Volume). The bottom line in payments is not the market share with issuers, merchants or consumers/cardholders. It is the transaction volume, as it is this number that really brings in the revenues.<br />
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If you view the market stats released by Citi in this light, you will quickly realize why Citi arrived at the decision that it did, iPhone at best will only be niche offering, why bankers are conservative, why investors discount related business plans significantly.<br />
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The biggest banks and payment schemes have been rolling the dice and have been getting snake eyes. I sometimes wonder whether those of us in the payments innovation space are just plain suckers for punishment.<br />
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I am sure you disagree with such a pessimistic post. Would love to hear about your success stories and how you are doing things differently.<br />
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To conclude on a positive note, there are successes emerging in the payments space. Social Networking, Gaming, Micropayments (around content licensing/consumption) is where you can find some of the green shoots. These niches are worth hundreds of millions of users (target market), with a much smaller percentage being active users. My Apple friends would see themselves in this category :-) (<a href="http://www.paymentssource.com/news/paypal-looks-for-iphone-bump-3001041-1.html">PayPal's iPhone app as an example</a>)<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com7tag:blogger.com,1999:blog-4815728499673422903.post-82984106149035595022010-02-13T06:15:00.000-08:002010-02-14T22:06:10.418-08:00Payments Innovations: India 2010Innovating in payments systems is hazardous anywhere in the world. In India, the risks can be significantly heightened. PayPal stopping P2P operations in India brought this hazard out in spades. This established juggernaut had to apply the brakes as it is not a licensed payment systems operator in India. This may not have been a major issue in most other countries (ask for forgiveness), but not in India.<br />
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After the financial meltdown of 2007-2008, it is abundantly clear that the regulator / government is where the buck stops. Therefore, a proactive regulatory environment is expected and understandable. RBI being a no-nonsense enforcer is an additional wrinkle in India. This manifests itself in India as the bank being the only entity allowed in the payments space [in dealing with user accounts]. The RBI has been prodding banks to innovate by making noises about allowing non-banks, but nobody is taking 'RBI's threats' seriously.<br />
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In APAC (e.g, Philippines) and Africa, payment innovation has been taking place adjacent to the banking system. CGAP states that an additional growth of 1% to the GDP contributed by financial inclusion (aka payments innovation). Compared to the leaders, India has been a laggard in financial inclusion. Does this mean that India is losing out because of its conservative regulatory oversight? Alternatively, innovators need to be a little light on the gas pedal to manage burn consistent with market development (easier said than done) which gives innovators a better chance of success. Would this throw cold water on VCs interest in this space? If so, which is the right funding source for startups where gestation periods are long, regulatory risks are high and funding requirements are non-trivial?<br />
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Too many questions, but a lot of time to ponder as the Indian market is focused on the long term.<br />
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Happy Chinese New Year.<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com1tag:blogger.com,1999:blog-4815728499673422903.post-43936321524915218712010-01-31T15:25:00.000-08:002010-02-01T05:48:32.213-08:00Growing up in the land of the richRetailers and payment schemes (Visa, Mastercard...) jousting on the interchange rates and impact it has on the economy has been interesting. Rates paid by retailers vary tremendously (based on many different factors which I shall not get into here). To drive a stake in the ground, the rates are around 1.8% in the US for credit cards. In a world where margins are thin, 1.8% seem like a king's ransom.<br />
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With this perspective, let us look at rates paid by online retailers to process online payments. Using PayPal as a benchmark, PayPal charged merchants an aggregate fee of 3.54% in Q4'09, nearly twice as much what merchants pay in the physical world. Additionally, PayPal's transaction processing expense rate and losses added up to only 1.36% [in Q4'09], resulting in a margin of a whopping 62%.<br />
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Fortunately for PayPal, their competition charge as much, but do not have the great business model of being able to keep most of the money. In a traditional (Brick-n-Mortar) model, the fees paid by merchants are split between at least four parties, the acquirer, the processor, the issuer and the network/scheme, with most of the fees heading to the issuer (around 80%). In the online world, there is yet another mouth to feed, the payment gateway (e.g., Authroize.net). Thanks to the disruptive innovation of PayPal, they successfully created a model where there is only party at the table, PayPal. In an increasing number of transactions, PayPal is the Payment Gateway, Acquirer, Network and the Issuer (and in these cases it costs them a few pennies to process a payment transaction). Through this innovation, they get to charge what the competition charges (high rates), while being able to keep most of it.<br />
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Isn't it wonderful to participate in a sub-optimal world of online payments. PayPal's large margins are funding their red-hot growth that is many times larger than the industry average. With each passing year, PayPal will continue to grow (both top line and bottom line) at the cost of the other players, with competition only being able to watch PayPal demolish them. The existing business model of Visa/MasterCard has tied the hands of the traditional players and forcing them to play in a playing field that is lopsided and favoring PayPal.<br />
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And, if you think that above situation is an unfair advantage for PayPal, wait for them to play their next card, Mobile Payments. The above structural disadvantages are holding back the traditional players in mobile payments, as nobody wants to add yet another player who demands a cut (the telecom operator). Guess what, the efficiencies and the margins that PayPal has can easily accommodate the player whom the competition is pushing out.<br />
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How do you think Visa and MasterCard, the public companies will respond to protect their turf and deliver shareholder value?<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com2tag:blogger.com,1999:blog-4815728499673422903.post-896849893597153442010-01-09T07:05:00.000-08:002010-01-09T07:05:30.654-08:00Higher 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 (<a href="http://timesofindia.indiatimes.com/biz/india-business/RBI-hikes-limit-on-payment-via-mobiles/articleshow/5376221.cms">source</a>). 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.<br />
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A quick survey of the possible demographic segments that the new regulation would appeal to:<br />
a. The 80% of urban India who carry cell phones were held back because of the low transaction limits<br />
b. The upwardly mobile tech savvy Indian (early adopters) did not have access to mobile payments<br />
c. Those who are already paying for their sundry expenses using their mobiles phones, but couldn't pay for their airline tickets though<br />
d. None of the above<br />
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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 (<a href="http://tomnoyes.wordpress.com/category/mobile-money/market-analysis/">related post</a>).<br />
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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.<br />
<ul><li> 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)</li>
<li>Consumer's perspective: Do not want to leave a trail of purchases [for tax authorities to follow]</li>
<li>Significant part of India's retail economy lives in a parallel black market, some say as much as half of the economy!<br />
</li>
</ul>Who would use mpayments in India<br />
- Consumers who have and use credit cards and bank accounts, and merchants who accept them<br />
- Organized retail<br />
- Those interested in reducing customer service costs via self service channels<br />
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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 (<a href="http://mcommercethoughts.blogspot.com/2009/10/indian-payments-card-market-analysis.html">20-30 million active card users</a>), 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). <br />
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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. <br />
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Look forward to dissenting or concurring opinions. Have a wonderful 2010.<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com2tag:blogger.com,1999:blog-4815728499673422903.post-49524075710751420462009-12-23T10:31:00.000-08:002009-12-23T10:31:25.712-08:00Indian credit card industry looks blackI have been looking at the profitability of online card payments in India, specifically from a card issuer's perspective. This post is following up on a related post (Oct 09). A couple of trends triggered this post:<br />
<ul><li>2FA (Two-factor authentication), mandated by the RBI, deployed since Aug 09 seems to be a success. The timing of this deployment is helping increase the size of the ecommerce pie in the nascent Indian market, at just the right time. Early indicators are that both merchants and issuers are seeing reduced fraud.<br />
</li>
<li>Stung by the credit defaults during the [temporary] recession of 2008-09, card issuers are offering credit backed by a card holder's asset (e.g., a fixed deposit / CD)<br />
</li>
</ul>Recognizing that the main cost drivers for card issuers are credit risk, fraud risk and transaction processing costs, the relatively high interchange fees (3% and higher) and lower costs must be making the balance sheets of Indian credit card issuers look nice and black.<br />
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What are the implications of the above trend/development as we step into 2010? <br />
<ul><li>Aggressively pursue new markets [in India] to get credit cards into more hands?</li>
<li>Migrate to EMV [finally]?</li>
<li><i><b>Any other suggestions?</b></i></li>
</ul>Looking for dark clouds on the horizon. India Pay initiative is a major development which could have far reaching impact. A possible course for card issuers would be to milk the current profits while not growing the market until the picture clarifies around India Pay, and MasterCard's and Visa's reaction to it?<br />
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Though the above post has focused on the online payments space, the dynamics of the F2F / payments at stores are similar leading to the same conclusion.<br />
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This is to wish all a wonderful holiday season and a great 2010<div class="blogger-post-footer">These comments are my own as a involved member of the community</div>Manju Murthyhttp://www.blogger.com/profile/03494207889275776951noreply@blogger.com0