Blog Past: A Micropayments Infrastructure for India

From a series a year ago:

To create a micropayments infrastructure, we need to build on what already exists. Mobile operators in India have created an amazing network of points of presence where one can buy airtime. They know how to handle cash that users pay. (Cash remains the preferred payment mechanism given the low penetration of credit, debit and cash cards in India.)

Today, mobile operators cannot use the cash balance that is there with them for purposes other than voice and data services. Besides, the high incidence of taxes (10% service tax and 15% spectrum and allied charges, for a total of about 23% on what the end users pay) makes it difficult to use the cash balance for real world transactions.

Suppose, we were to change this and allow the cash balance that operators have to be used for third-party non-voice services for a fee of 5-10%. Credit card companies charge merchants about 2.5-3% for transactions. Operators could play a similar role for small transactions (say, under Rs 250 or Rs 500).

This would be a game-changer in India. Application and service providers could now create services and leverage the cash balance that users have for collecting their payments. Consumers already know how to refill their accounts with cash given the ubiquity of the mobile prepaid infrastructure.

3 thoughts on “Blog Past: A Micropayments Infrastructure for India

  1. The mobile phone network should be used to create not only micropayments infrastructure but enable microdeposits too. The RBI is already taking cognisance of this in its goal to further financial inclusion, if recent policy pronouncements are any indication (allowing banking correspondents for example). Mobile telcom companies also seem to be sensing this and making appropriate colloborrative moves with banks in anticipation.
    Further, in relation to the recent food price rise why not use the mobile phone network to connect the farmer to the consumer directly, i.e. create an app that would enable a farmer’s market in mobile space. Imagine a customer in Mumbai calling up a farmer in Nasik to mail him a couple of kilos of onions by mail order, paid C.O.D.
    It is all about leveraging the network to wring out the inefficiencies in the present system.
    Can public policy be tailored to enable this?

  2. I am afraid that many business domains like micropayments,VAS,m-commerce, financial inclusion will get concentrated in few hands i.e. telcos.