NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, May 28, 2014

Nearly four years after regulations permitted usage of mobile wallets, money transfer over mobile networks is yet to gain wide acceptance. Of the more than 900 million mobile users, only a miniscule number — less than one per cent — has opted for it.

Many companies, including operators, began providing the service after the RBI permitted mobile wallets under the Mobile Payments Act in 2010. There are many issues facing the service, the biggest being customer awareness.

“It is about making the right kind of noises, and the eco-system has to be in place. Educating the customer is taking a bit of time,” said Pradeep Sampath, Chief Operating Officer of Mobi Wallet Payments Systems Ltd (MMPL).

MMPL, a wholly-owned subsidiary of Tata Teleservices, had commercially launched services in April 2013 under mRupee. The company now has presence in more than 20 cities across 3,000 retail outlets.

Licence hurdle

Another issue is that the present RBI licence only approves semi-closed pre-paid assurances, that is, it allows only e-transfer of money. For cash-out, operators have to tie up with banks, according to Suresh Sethi, business head at M-Pesa.

A rule that banking correspondents (third-party entities appointed under RBI guidelines to offer banking services) have to be within 30-km radius of a bank branch is another hurdle.

“I think these are certain restricting factors,” Sethi said.

M-Pesa, started in April 2013 by Vodafone India, has more than 60,000 outlets in the country. It provides the services through its subsidiary Mobile Commerce Solutions.

“Permitting cash withdrawal and re-looking the requirements of banking correspondents to be within a 30-km radius of a bank should be considered to help customers adopt mobile banking as an alternative to traditional brick and mortar banking,” an Aircel spokesperson said.

Aircel launched ‘Aircel Smart Pay’ in 2012 and now provides the service in six cities (Delhi, Mumbai, Kolkata, Chennai, Coimbatore and Jaipur) with more than 2,000 retailers. Airtel money, provided by Bharti Airtel, is another operator with 1.3 million active subscriber base as on December 31, 2013.