SUMMARY
RBI bars a promoter from owning a prepaid payments business and a payments bank separately
Vodafone and Idea Cellular merged in August 2018
The joint entity posted a consolidated loss of INR 4,882 Cr in Q1 2019
After the merger of Vodafone and Idea went through in August 2018, the joint entity became India’s second largest telco. However, a legal challenge arose with the functioning of the payment interfaces of both companies.
To address this challenge, Vodafone M-Pesa, Vodafone’s fully-owned payment platform is considering merging with its associate, Aditya Birla Payments Bank, or a third party. The plan to find takers for M-Pesa was announced during Vodafone Idea’s fourth-quarter earnings call on Monday.
For the time being, M-Pesa has applied to RBI for an extension of its prepaid payment instrument (PPI) license which expired on March 31, 2019. RBI guidelines bar the same promoter – Vodafone Idea in this case – from having prepaid payment instruments (PPI) business in one entity as well as a payments banking business in another. Vodafone Idea, holds 100% stake in Vodafone M-Pesa and a 49% stake in Aditya Birla Payments Bank.
PPIs facilitate the purchase of goods and services, including financial services, remittance facilities with the payment interface. RBI had issued the master direction for the regulation of PPis, which has complicated things for Vodafone Idea.
Vodafone Idea’s Slow Subscriber Growth
Vodafone Idea posted a consolidated loss of INR 4,882 Cr in the quarter ended March 31, 2019. The company’s tepid growth can also be attributed to the fact that it added only 5.4 Mn 4G customers during the March quarter, as compared to 9.5 Mn additions in the quarter before. Vodafone Idea has a total user base of 334.1 Mn, which is higher than Reliance Jio’s subscriber base of 306.7 Mn, but the latter is a 4G-only telecom service.
After the demonetisation drive in 2016, a wave of digital payment options swept the country backed by the rise of the Unified Payments Interface (UPI), which has in turn driven the entire community of consumers, regulators, payment processors and banks towards digital transformation.
UPI platform handled 620 Mn transactions worth over one trillion in December 2018. This number is progressively growing as UPI reported a total of 672.75 Mn transactions on its platform in January 2019. With such a huge number of transactions, many players entered the payments market, and offerings such as M-Pesa became largely irrelevant in the light of greater innovation in this space, which was not matched by Vodafone.
