Payments Innovations: India 2010

Innovating 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.

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.

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?

Too many questions, but a lot of time to ponder as the Indian market is focused on the long term.

Happy Chinese New Year.

Disruptive innovations in payments - BoP style

In emerging markets, often the growth opportunity in the payments industry lies in addressing the un-banked. While addressing opportunities at the bottom-of-the-pyramid is challenging, financial inclusion empowers the un-banked to be both producers and consumers, thereby unlocking a viable business opportunity.

While looking at payments opportunities in India, addressing the unbanked / under-served forces its way into any brainstorming session. This could be because of innovations around branchless banking, novel methods of handling KYC mandates, reducing documentation/paperwork associated with opening a new bank account, zero-cost bank accounts, leveraging technology without being encumbered by legacy… When you are trying to create a profitable business from millions of customers who earn less than $100/month, you think thru’ the problem in a very different way. Resulting in a raft of innovations can be truly disruptive. CGAP has been successfully promoting this cause for a while now. I've enjoyed participating in the CGAP group on LinkedIn as well.

It is in this context that I ran into Sanjay Bhargava, who has been championing Universal Financial Access. He brings a lot of energy and enthusiasm into a daunting initiative, and makes it seem achievable. His attitude is so infectious, that I figured a lot more space needs to be devoted to the Universal Financial Access project (subject of another blog).

Is BoP a lost cause? Is Universal Financial Access an oxymoron? What are your thoughts?