Indian Bank Regulation Throws Roadblocks for Mobile Payments

The Reserve Bank of India (RBI) issued anxiously awaited guidelines on Friday detailing what banks in India must do in order to offer 'mobile banking' services. The RBI had previously issued a moratorium in July on the offering of such services while it finished its recently published guidelines.

Mobile payments companies have been springing up around the globe, including Europe, Africa and Asia, in addition to the American versions. Several companies, including, "mChek, Paymate and Obopay are in the final stages of developing their micro-finance offerings, while fine-tuning their tie-ups with various MFIs to launch mobile-based financial products."

The RBI draws a distinction between 'mobile banking' services that are being offered including "balance enquiry, stop payment instruction of cheques,
transactions enquiry, location of the nearest ATM/branch etc...Acceptance of transfer of funds instruction for credit to beneficiaries of same/or another bank in favor of pre-registered beneficiaries" For the purposes of its guidelines, "“mobile banking transactions” is undertaking banking transactions using mobile phones by bank customers that involve credit/debit to their accounts. It also covers accessing the bank accounts by customers for non-monetary transactions like balance enquiry etc. "

The Hoops & Limits

The RBI created a number of hoops that must be jumped through in order to begin offering 'mobile transaction' services:

• Only banks which are licensed and supervised in India and have a physical presence in India will be permitted to offer mobile banking services....Only banks who have implemented core banking solutions would be permitted to provide mobile banking services. This means that mobile banking operators outside the country of India will be unable to provide services to specific banks. Rather, they are likely to be forced to white-label or license their applications to the banks before the services may be offered. FURTHER, the service provider must actually be a bank regulated within the country of India rather than just an external service provider.
• The services shall be restricted only to customers of banks and holders of debit/credit cards issued as per the extant Reserve Bank of India guidelines. In other words, if you don't have an India-based account, you are out of luck.
• Use of mobile banking services for cross border transfers is strictly prohibited. This requirement will limit the attractiveness of the Indian market. Companies outside the country wanted to get into the remittance game of Indians working abroad and sending money home. The inability to offer cross-border accounts from banks in the US to banks in India limits the transaction volume.
• Banks shall put in place a system of document based registration with mandatory physical presence of their customers, before commencing mobile banking service. This will limit the use of the Internet to sign up customers for 'mobile banking' services.
• It is necessary that the mobile banking servers at the bank’s end or at the mobile banking service provider’s end, if any, should be certified by an, accredited external agency. This simply creates an added level of bureaucracy within the Indian government, and additional costs for the mobile banking service provider.
• A per transaction limit of Rs. 2500/- shall be imposed on all Mobile Banking transactions. Subject to an overall cap of Rs. 5000/- per day, per customer. In other words, <$100 per day per customer overall.

RBI Says 'Jump'

The RBI has set up obstacles to international services to provide mobile banking solutions, requiring payer and payee have Indian accounts at Indian banks, and the money is moved by an Indian-based service, prohibiting cross-border transactions. Combined with the transaction limit, the speed and size of the Indian-based market is likely to be hindered.

New Mobile Payments Services Revive Old Model

A number of new mobile payments services have been born recently, three of which have revived the model of Simpay - a defunct/reborn joint venture between Orange, Vodafone, T-Mobile and Telefónica Móviles - that attempted to create a pan-European text messaging payments standard.

Evolution of a Model

Simpay dissolved in 2005, when T-Mobile defected from the venture, but it reincarnated two years as PayforIt.

Simpay's business model is fairly simple - create a micropayments service that leverages the millions of mobile phone subscribers, allowing them to charge these sums (less than 10 Euros) to their existing cellular provider's bill.

SimPay never got off the ground because, "It was rumoured that the operator had concerns about the way the system was integrated with handsets and other payment systems," according to Finextra. As a result, Simpay went defunct, but Payforit has now emerged in its place.

PayforIt is now an option for online and mobile transactions for the 52 million mobile subscribers in the UK. New billers have to apply with each of the carriers to gain access to the new standard.



Micropayments of <10 Euros necessarily constrains purchase size and makes this purchase method most useful for digital content downloaded directly to the phone including song, premium data subscriptions, or potentially videos.

Newest Entrants

Three new companies have launched that mimic the model of SimPay/PayforIt.

Zong

Zong just launched at the TechCrunch50 conference in California. Zong's model is almost an exact replica of PayforIt's. Zong has created a REST API that allows developers to plug its payment system directly into their back ends.

Zong works with 55 carriers in 12 countries, but has two big drawbacks from what we can tell: revenue and time to collect. According to their site, you net $0.58 on the $1.00 for every payment through Zong. That is a painful amount of rent to extract before paying for any of your overhead (CAPEX, bandwidth), input costs, and labor. While it's true to some extent that digital content has limited marginal costs, where content is KING, it is expensive, and this increases the break-even sales point for whatever product you're selling.



The second problem is that Accounts Payable time period, and only once a site has reached over 100 Euros. According to their site,

"Payout is made once the amount payable has reached 100€ and around 75 days after traffic dates. Why so long?

Mobile network subscribers pay their mobile operator within 30 days. The mobile network operator pays Echovox within 30 days. Echovox pays you - a Zong client within 15 days. (30+30+15=75) "

Paymo/Mobile Merchant Services

Paymo/Mobile Merchant Services was founded by the mBlox executives. mBlox was one of the first "short code" text messaging marketing solution services. Paymo is virtually identical to Zong, with the same shortcomings.

According to their website,

" What are the costs ?

mMS charges a % of the transaction fee - typically 10% - depending on the volume of transactions you process each month. If you choose the Individual account you can get started today and there is no Setup charge and no Monthly fee.

The main costs of a mobile payment are the fees taken by the mobile carrier. In some markets the carriers take as much as 50% of the transaction value. With Paymo, you can choose to pass some or all of these costs to the consumer as a surcharge. In this way you can still get as much as 100% of the list price of the item you are selling.

How do I get paid ?

We will pay you the money for the transactions processed using Paymo. Payments are typically made monthly. The first payment will be made once you have passed a minimum revenue level and we have received the money from the mobile operators.

When do I get paid ?

We will pay you within 10-15 days of receiving money from the Paymo network. This timing is driven by mobile carrier payment cycles and varies by market. Some markets settle within 30-45 days, other markets can take several months."

mGive

mGive is a mobile donation service providing a tool to process mobile donations for non-profits and 501(c)3 organizations. The service is particularly useful in large groups, such as concerts, where Eddie Vedder says "Text DONATE to 12345" and raises tens of thousands of dollars within a few minutes.

mGive has virtually the same model as all of the companies mentioned above. However, the company's pricing model is more complex. Donations are limited to $5 per transaction, and the company takes $0.25-0.50 depending on volume. Then, the 'Mobile Giving Foundation' takes another $0.50. Add to this $100 setup fee, and a monthly service fee of $250-1,250 related to the text messaging and web features, and the non-profit is getting 80-85% of the donations minus more operating fees and their upside is limited to the $5.00 units, and the funds are held for 60-90 days for the same reasons as the other companies.

Mpayy Mobile Payments - Faster, Less Expensive & More Secure

Each of the companies listed above is an intermediary providing a mechanism for billing charges to users' cell phone bills. Their use of the cell phone carriers results in exhorbitant rents being extracted from the merchant or non-profit organization, and significantly eroding margins. Further, the time to collect for these solutions is likely to be unacceptable to many merchant/content solutions. The transaction size and volume will also continue to be limited by the carriers' willingness to float the credit risk.

Mpayy has one challenge vs. these companies - Mpayy requires a subscription before users can make payments to merchants or charities. However, once a subscription is opened, Mpayy is the least expensive, most secure, fastest solution out there. At just $0.20 + 2.00%, Mpayy Mobile Merchant accounts enable 0% fraud liability transactions from any mobile-web enabled cell phone. Further, those funds are available for withdrawal within just 48 hours from Mpayy's advanced Cash Management console.

Mpayy also offers enterprise ecommerce payment solutions as well as secure payments through social networks.