Account in the Cloud: Guest Post by Probir Roy

Posted on May 04, 2013 by Sumita Kale

There have been 100 mobile money deployments in emerging marketsAt least 84 of them within the last three years.

What I have found to be common for those that are successful (14 of them, as defined by number of payments relative to the size of the addressable market) are growing the customer base and network in tandem This   makes  the overall agent economics and agent enrollment efforts remunerativeWhat is not so explicitly stated, but key, is role of ‘Regulation’In under regulated, low banking penetration, light regulatory touch economies such as Kenya, Tanzania, and Uganda it has worked wellBut in robustly regulated and supervised markets like India – the outcome is poor.

M-pesa cant be re skinned for local conditions just with addition of 'a' and 'i' and drop of an 'e', Vodafone has been experimenting with M pesa in India for some yearsThey launched in 2011 with a pilot in Chomus, Rajasthan along with HDFC BankAnd again recently with ICICI BankIt would be interesting to assess the outcome of that pilot.  And   understand goals set now with ICICI BankThe original program was envisaged to board 10 million farmers for its financial inclusion effortsBefore that Tata Teleservices launched its own domestic money transfer program with Corporation BankAs did Axis Bank and Airtel  for the same purposeWhile Airtel & SBI’s JV was short lived.

It seems banks and telcos are dancing a tango to see how best to crack the conundrum of mobile moneyIdeally the telcos have been trying hard to edge the banks out of this - they see it as a next value driver and best geared organizationally to deliver tangible resultsAnd the Banks are generally wary and averse against this being driven solely by telcos and the customers being owned by themProbably for the same reason Except they call it fear of systemic risk! Sometimes KYC1

So what is the way out?

Even if the over strict interpretation of Banks role for cash-in/cash-out (CICO)is maintained, there are ways to skin the cat - so that 'unbanked beneficiary' can still avail of the service..

But for this to happen (and happen it has to) two things need to change.

First, the differentiation between a payment service providers and credit issuers has to be understoodIn the former accepting and keeping 100 % of monies collected in pooled accounts by way of escrow or reserve requirement does not constitute systemic risk, or, constitute what is known as a Systematically Important Payment System (SIPS)In fact the mobile wallet   poses even less overall risk than banking and any other payments systemsFor e.gin 2010 the accumulated balance in all Mpesa, Kenya accounts represented just 0.2 % of all bank deposits even though M Pesa transactions accounted for over 70 % of all electronic transactions! Further, as a measure of abundant caution, PPI’s do not intermediate funds or issue credit!

Second, regulatory dispensation has to now accommodate a sender/receiver or both NOT necessarily

(a)    Having any form of formal Bank account, but just having a unique mobile wallet issued by a RBI certified PPI’sThis mobile wallet is what I call as - ‘Account-in-the-CloudLets us give it a generic brand name – My Paisa account.

(b)   As per prevailing RBI norms some form of KYC applies for creation/loading up such a virtual wallets Aadhaar, as a (mandatory in time) RBI accepted KYC tool per se –  valid ID proof,  serves that purpose, The Aadhaar number  also doubles up as an  unique identifier mapped to the wallet and mobile number, and in due course to a no frills account or regular account.

(c)    Of course until UID reaches mass acceptance, the older KYC norms used thus far over the last 60 years will suffice for creation of the wallet as per prevailing RBI Prepaid guidelines.

(d)   While the conventional Bank-BC Model has yet to deliver any tangible outcome over the last 7 yearsArguably though it may have met its penetration levels into villagesIt has yet to deliver by way of account registration and/or account activity termsThis effort is now best also complemented by established private players (vizFMCG, retailers, fair price shops, etc) to allow for network effects to kick in a la Tanzania with its 27000 agents for a population of 37 million.

(e)    In India a clear a million such existing unique established and trusted points of presence are there built up over the last 100 yearsEven if we don’t count the Telco touch pointsAllowing for cash -out on such a larger definition of BC's/BF's/BA's by starting of leveraging the established & accepted networks of private payments processors & agent aggregators, will be par for the course.

Once this is done, direct cash transfers or payments or remittances can be done directly into a farmer’s, citizen, or customers or any aadhar-wallet account, to be redeemed at merchant points for goods & services or cash out, via the established private payment processors outletsSubsequently one could look at e money issuers (Non bank PPI’s ) to also pay the customer interest on an e float maintained by the account holder by way of  some form of subvention  where on the pooled account some interest is earned.

Author Probir Roy is CEO, Paymate

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