With a unique amalgamation of machine learning (ML), artificial intelligence (AI), Internet of Things (IoT), Bharat Bill Payment System (BBPS), Aadhaar-enabled Payments Systems (AePS) and Unified Payments Interface (UPI), digital payments, which were once limited to existing players like Visa and banks, have now caught the fancy of startups in India.
And, with good reason. According to a Credit Suisse report, the digital payments sector in India, which currently aggregates less than $200 Bn, is poised to grow five-fold to $1 Tn by 2023. The potential opportunity can also be understood by looking at the phenomenal growth of digital payments decacorn Paytm — a company founded in 2010 by infusing $2 Mn is now valued over $10 Bn in 2018.
However, in India where roads are usually built along with potholes, tapping the untapped digital payments space is not an easy task. There are many hurdles along the way — India’s literacy rate is just 74%, 19 Cr citizens don’t even have bank accounts, and 24 Cr have never carried out a single transaction despite having bank accounts and mobiles, according to the latest World Bank data.
While the recent resounding success of most digital payments startups, including Paytm, can be attributed to Prime Minister Narendra Modi’s demonetisation drive and urban India’s propensity to go digital, there are some companies that are adopting a totally different formula to crack the space — they’re looking to tap into the huge, untapped potential of Bharat, or rural India.
Take, for instance, US-headquartered digital payments company MoneyOnMobile, which is apparently neither driven by demonetisation nor has been hit by the RBI’s full-KYC policy for digital payments companies.
MoneyOnMobile (MOM), which claims to be “India’s largest mobile payment platform that facilitates safe and easy financial transactions to millions of Indians,” is betting big on India, and recently announced to infuse $6.2 Mn fund into its Indian subsidiary, as part of its expansion plans.
With the intention of decoding its design thinking for Indian market, Inc42 caught up with the chairman and global CEO of MoneyOnMobile, Harold Montgomery.
“As education, awareness, and data connectivity is still very low, we need to have a people-driven technology,” Montgomery said, explaining about the company’s philosophy.
The company aims to primarily address the payment concerns of rural India and has introduced solutions compatible with the low Internet and mobile infrastructure in such regions. For instance, its SMS-based payments eliminate the need for a smartphone or Internet connectivity.
MOM also recently launched mobile ATMs for rural Indians who have opened bank accounts under the Jan Dhan Yojana but are unable to encash their money as ATMs and banks are located too far away. The company has signed an agreement with the Bank of India to set up 3,000 new MOM ATMs.
Looking at its growth, it seems to be on the right track. MoneyOnMonbile posted revenues of $2.84 Mn in Q3FY18, up 193% year-on-year (YoY) from $0.97 Mn in the same quarter last year.
Tackling Digital Payments In Rural India
Rural India, despite having seen a huge spike in subscriptions to basic banking solutions, hasn’t caught up with the digital payments age. In most of these areas including in northeast and northern India, data connectivity, ATMs, and banks are still not commonplace things.
There are only 155,000 bank branches and 200,000 ATMs across India for its 1.3 Bn strong population. So, there are tens of millions of people in India who have bank accounts but can’t access banking services.
Due to this, players like Paytm, PhonePe, Mobikwik, and many other digital payments companies have not been able to crack the rural market at large.
This is the gap MoneyOnMobile is looking to fill, in the process carving out a large piece of the India pie for itself. Montgomery explains, “What we see in India is the emergence of the unbanked population. While a large number of people have now opened bank accounts, their accessibility to their funds is very limited. So, what we are pushing are banking services in a micro-sizes in areas where physical banks don’t make any sense.”
MOM uses a very low-cost, battery-operated terminal for swiping of cards. It provides Aadhaar-enabled payment services where people can just use their fingerprints to withdraw cash. The company has also simplified the process of cash transfers by facilitating them through SMSes.
“I do think that it’s developing in a way that’s different from the way the West developed with the heavy footprints of plastic cards terminals and credit underwriting, because I don’t think you’re gonna have much of that in India. I think you’re gonna have more of AePS, BBPS, and UPI way here,” said Montgomery, explaining how Indian digital payments growth differs from the west.
MoneyOnMobile’s Ecosystem Of Rural Digital Payments Solutions
Montgomery claimed that MOM has built a complete ecosystem of low-level banking services for the rural community of people living in remote villages across India.
The company offers a host of semi-closed payment solutions, operated through a B2B model, where transactions are conducted through MOM’s authorised retail merchants with over 350K touchpoints across more than 700 cities in India.
MoneyOnMobile provides a plethora of digital payment solutions including monetary transactions, bill payments, MOM ATM, DTH Recharge, mobile recharge, two-wheeler insurance, and its latest solution MOM Cart, a platform that is bringing ecommerce services to rural areas.
“The solutions have been customised and integrated across the MOM platforms based on what rural consumers need. For instance, half of our transactions happen through SMS, which is our USP, which means the digital infrastructure is limited to the availability of features phones with still no data connectivity, no PC,” explained Montgomery.
Integrating Cash With Digital Payments In Rural India
With the aim to bridge the gap between consumers and banks, MOM recently integrated its mobile ATMs — essentially portable POS (point of service) devices — with AePS so that customer can use biometrics to withdraw money.
“The intent is to integrate their cash economy with the digital infrastructure seamlessly,” said Montgomery.
The process to withdraw cash using an AePS-based MOM ATM is similar to the current handheld MOM ATM, but instead of handing over a card that is swiped through a machine, customers just have to allow a biometric reader to scan their fingerprint. Once the system authenticates the customer’s identity, the retailer can process the cash-out request in the same manner as the handheld MOM ATM.
Montgomery gave the instance of Assam and West Bengal to explain the need of mobile ATMs. The two states together have 1,300 tea estates which employe over 15 Lakh people. Of them, around 10 lakh have bank opened accounts. However, as tea gardens are located in remote areas with no ATMs or banks nearby, workers have to take a bus to the city just to get some cash. MOM caters on a large scale to rural areas in the northeast, West Bengal, and Bihar, where even SBI ATMs (the SBI has the largest network of ATMs in the country) are few and far between.
“With MOM ATMs, we provide cash to them within walking distance from their place of residence/work. Our agents disburse the cash against the money swiped through their cards or by verifying their biometrics,” said Montgomery.
The company has deployed over 10K MOM ATMs so far and aims to activate another 30K by 2019.
MOM works closely with multiple banks such as RBL Bank, Yes Bank, and ICICI Bank to provide payment services to consumers.
MOM has also come up with an ecommerce platform MOM Cart, which enables local kirana stores to upload their products’ availability on the MOM Cart platform. Local consumers can then select and buy through the MOM cart web portal, sitting at their homes.
MOM Cart helps local Kirana and general stores expand their customer base. “General merchandise retailers, kirana stores, etc, are adopting these technologies. It’s word-of-mouth that is spreading our business in rural India,” added Montgomery.
India is still a 95% cash-based economy and it will remain so for quite some time. People understand cash, they know cash. Companies need to channelise cash into the digital form in an easy, convenient, and trustworthy manner if they want rural Indians to adopt digital payments faster and in large numbers. “We are doing over $10 Mn transactions a month and this is growing. People want to digitise without losing trust and control,” said Montgomery.
He added that the RBI has been very supportive of MOM’s projects in the digital payments space. “Including our PPI ( Prepaid Payment Instruments ) license, they (the RBI, NPCI ) have been supportive, constructive, and the regulations are generally good,” he said.
The Challenges Digital Payments Companies Face
Montgomery feels that the biggest challenge the company faces is the consistent distribution of its products and services and the competitive pricing in India. “This makes it difficult to scale up the business. You need to be profitable in the market if you are going to survive in the long term. I think a lot of small players didn’t get that fast enough to survive that. You need to be growing 100% if you want to survive,” he added.
Customer information is the key to providing better experiences to users. “The more we understand our customers’ behaviour, needs, issues, and challenges, the better we are able to serve them. So, it’s not what we’ve got but it’s about providing what they want, when they want, in a mode they are capable of using,” said Montgomery.
“What we’ve understood from our long association with rural Indian customers is that they don’t trust the technology, they trust the person,” said Montgomery.
Besides poor data connectivity, low penetration of smartphones, and absence of banks and ATMs in remote areas, some of the other limitations digital payments companies face are lack of awareness and education among the masses and multiple languages.
To overcome these challenges, MoneyOnMobile has launched its app in 13 different languages. Then there’s the fact that most of its services can be availed on feature phones — mostly through SMS. The company also provides 24×7 customer care in all local languages.
We also asked Montgomery whether the recent RBI circular, which made full KYC authentication mandatory for digital payments companies, affected MoneyOnMobile as well? Digital transactions dropped significantly due to the RBI’s stricter KYC norms instituted last October.
He said that the RBI circular hasn’t affected MOM at all and that the company has been growing independently of that. The credit for this goes to MOM’s design thinking and the fact that its business is dependent on relationship and trust.
“Our customers may not be necessarily be watching TV news or reading newspapers. They directly speak to field agents in case of any sort of confusion, which helps keep up their trust in our services. Our agents make them understand the change and why it’s required,” he said.
Hence, MOM hasn’t seen any changes or decline due to the RBI circular. “It (KYC) is a little intimidating for some of our customers. They are a little hesitant of the mandate. I think over time, they will adopt the changes,” he said.
In fact, Montgomery is of the view that a more stringent KYC is good for the system.
MoneyOnMobile’s Future Plans For Itself, And For Bharat
Having already integrated the BBPS for utility bill payments and AePS in its ATM solutions, MoneyOnMobile is now working on a number of new projects to lead the further adoption of digital payments in rural India. The company is currently exploring the UPI and blockchain, which it plans to adopt in the near future, if they’re found suitable and beneficial for MOM’s target segment.
“We will continue to expand the footprints of Kirana stores participating in digital transactions. This is a great entrepreneurial opportunity. We are providing jobs and affecting a lot of people,” said Montgomery.
India, with its challenges of infrastructure contrasted with its rising adoption of smartphones and the Internet, is one of the most exciting and dynamic markets for fintech companies anywhere in the world. And it is an especially exciting time for digital payments service providers in the country.
“It’s been such an underserved market for so long that if you have a server that is well supported and easy to use, people will pick up. So, it makes all the sense to be here in this marketplace (India). It’s the biggest and most exciting market in the world,” concluded Montgomery.
And any digital payments company that can tap the underserved, unbanked Bharat, is sure to be laughing all the way to the bank.