TECH TALK: Mass Market Internet: Payment Systems

To make the mass market net work, we need an effective payment solution, so that people can pay for services and purchases. In India, credit cards and debit cards have a limited user base (about 3-4 million, mostly credit cards). The market that we are targeting is not likely to have credit histories! Billing and collecting money after the service is rendered is not going to be a viable option. The only way to collect money is to get people to pre-pay.

The entire consumer Internet access business in India is pre-paid: ISPs sell hours or months of access. About half of the cellular business in India is also pre-paid. By eliminating billing, companies not only reduce costs of collection and also the risk. Pre-payment in the form of cash cards or smart cards are the solutions for electronic payments in India.

Pre-paid cash cards can be made available at kirana stores across the country. Each card needs to have a unique number with a password. When the customer purchases a card, he can login either from home or an Internet community center and update his account by entering the number and password. This adds the amount paid to the “virtual bank account” of the customer. Now, this money can be used for access or commerce. It can also enable micro-transactions. The challenge here is to keep the distribution overhead for the cash cards small (to under 2% of the face value).

Smart cards can offer a more secure solution: the key here is to put in place readers and refill points in every neighbourhood. Another issue is also the initial cost of the card – which would be Rs 100-150. It is unlikely the customer will pay an additional amount. Smart cards do have an advantage: they can be integrated with loyalty programs. They can also serve as ID cards, and store other information on the card.

In India, pre-paid cash cards is the way to begin, with smart cards coming in over a period of time. The payment problem needs to be solved before we can think of Internet access and commerce starts making a difference to people’s lives.

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Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.