Card Industry - Strategy in Indian Market

Wouldn't a country with low card penetration but increasing adoption of mobile phones be better advised to skip the plastic all-together and explore alternative payment options instead?

To me, looking at the size of the growing market, there is enough space for all the channels - cards, mobile banking, branch banking and net banking.

I have been proposing that mobile banking would be a great idea for rural and un-banked areas. Even the illiteracy related issues for logging in etc. can be overcome through biometrics based identification. The expensive branches and the recurrent maintenance and staffing expenses can be overcome. In urban and metro areas, multi modal/channel systems - cards, branches, mobile and on line banking will all play a role; depending on the level of comfort from the  customer segment. Remember Bill Gates' observation on branch banking?

My proposal for the replacement of branch banking for rural areas through mobile banking may look revolutionary now; I forsee that the regulators and the Banks would start looking at this highly cost efficient opportunity pretty soon.

If we consider various delivery channels for banking products, I am in full consent with Ramasubramanian that there is ample space in Indian market. In fact mobile banking (along with low investment, technology enabled kiosk branch) could bring a revolution in Indian market.

Currently there are local merchants ('Mahajans') playing role of bank in the rural area in terms of providing credit or managing money as a deposit. I am also suggesting low cost kiosk branch because there need to be a channel in the initial stage to manage cash for any urgent needs. Just Mobile banking or payments would not be able to replace cash payment habits.

This could also be a main actionable item under Financial Inclusion programme. Hence, I am agree that banks, regulators and government would very soon look for innovative channels in Indian market.

Yes, India needs multiple channels and there is ample scope for every channel, e.g. Mobile, Physical Card, Virtual Cards, Kiosk etc. And I am fully aware of the fact that marketing teams would never ignore to tap every traditional channel till it dies natural death.  

However I would definitely look for upcoming potentials using contemporary technology and not stress too much on traditional means for long time howsoever untpped the market is.  

Few things to note: -

1)Think about micropayments for mobile based payment and the services providers / banks create major infrastructure in line with success of such test-marketing ventures in Bangladesh and some African coutries. Bank have to do major work on huge “Unbanked” market with innovative products where mass marketing prevail over class.

2)Cards should not be pushed too hard without education of the “small print clauses” whether for  literate or illiterate customer  

3)Let Call centers develop quality skills in avoiding repeated and unwarranted calls to “(conceptually) overbanked” people, and also not to oversell to the “unbanked” guys which will end up in trouble for both (borrowers as well as lenders).

4)New offering have to be bundled combining different baskets with traditional as well as modern ingredients.

One of the aspects that I felt worth mentioning was the two way benefits that mobile banking can bring to the providers and the users:

The providers reduce the operational cost as I explained in my last posting. Over and above this, they have a better facility to track a defaulting customer - atleast his last known location can be traced. I am of the view that payments for the farmer's ususal inputs - like fertilizer etc. are to be done through mobile payments. The end use is easily controlled through this mechanism. Similarly, payments for the sale produce also will be done through the mobile banking system - giving better monitoring possibility for the remote banker. The employment generation - for the primary educated rural population will be enormous. They can be utilised as the representative of the banks - marketing and recovery agents.

When we discuss more on these areas, we can identify the potential downside and risks and can also look for the mitigating factors.

Ramasubramanian has accurately pointed out that we need focus on achieving the scenario when payments related to farmers (while buying inputs like seeds etc and selling the output crops) are also made using mobile payment systems.

My view is that in the initial stage of transition, mobile payment should be allowed for micropayments (low value transaction) and cards can be used for other payments. Hence, I feel that banks need develop a strategy where one financial product/service can be leveraged with more than 1 delivery channel.(similarly 1 delivery channel can offer various financial products/services)

For example imagine a situation when 1 account (let say Credit Card account) can be accessed with a mobile phone(for micropayments) as well as traditional plastic card. This would help to bring a revolution in the payment system for the following reasons:
1. Mobile payment system would be combined with existing relationship with the customer giving him additional choice about payment method. Hence, new offering would not conflict with existing one. This may also help to target the people who hesitate to enter into new relationship with bank with same objective
2. Mobile payment system is relatively new concept and people may not like it due to unknown risk factor. Allowing only micropayment in the initial stage may limit the risk involved and help to enhance consumer confidence level. Larger payments may be allowed in the next stage.

I completely agree with all the above mentioned ideas for upcoming Indian Financial markets. Mobile Banking, low cost kiosks, and Net Banking everything is just brilliant, but for a country where still more than 1,50,000 villages are still in blackout...40% of Indian Population are still uneducated and how one can make them understand all this technologies...

Security is another concern in India the entire Kiosk’s will be robbed and looted in drought and floods (which is very common in India). Other than that Indian minds are to sharp for any kind of technology and either mobile phone will be hacked or database will be sold....

Neither there are any stiff policies for fraud detection nor there do any laws which are followed for cyber crime (which are on the higher side in India across globe).

Yes I do agree with the card, mobile Net and kiosk solutions will flourish in urban markets but not in rural markets of India. The back office vendors like of mine i-flex or yours TCS, Infosys, Fiserv all of them have not strategies to cater rural market in India they just want to earn profit and for that they all are focused on more mature markets like Japan, US, UK,  ANZ, West European countries. They should focus on rural markets (with proper help of regulators who at present are sleeping) and so that the present banking software can be utilized by banks effectively in any part of country, with all the functionalities that a bank require to cater either urban or rural market. Banks are going global none of the banks are actually focusing on rural markets…

One more concern which came to my mind is too much use of credit cards will lead India in trap of credit…. The purchasing power of customer will increase and repaying power won’t increase this will lead to another crisis like subprime.

Veeresh has raised very valid concerns pertaining to Indian market. However, if we look at them in a deep manner we will find that those are real challenges which we have to face in order to bring a paradigm shift in Indian financial and payment system.

First challenge how to make uneducated people understand the technology. I feel that before we go to target those uneducated people we have a huge population who can understand how to use new payment methods (not the technology behind it). According to Telecom Regulatory Authority of India (TRAI) estimates there were 269.30 million wireless users in India at end-April 2008, up 57 percent from a year earlier. This also explains that many people are ready to understand how to use new technology products. This fact represent immense opportunity also.
Another aspect of Indian demography is that new generation is more educated and techno savvy than the old generation. This aspect would help to bring the required change.

I also agree upon concern over role of government and regulatory bodies. Unless we get robust regulatory & legal framework about payment systems, cyber crime etc, we would not be able to leverage any technology development in full fledged manner. Hence, financial institutions and technology vendors should take a lead and work with government & regulatory bodies in this context.

Natural calamities like drought, floods etc have always been a challenge for the corporate. However, businesses keep on running with its disaster recovery plans. Hence, I see no reason that this can impact small kiosk(this could have huge flexibility where there may not be need of fix physical place also) in a big way.

I do agree that all developments we are talking about would flourish in urban markets. However, it has been a trend that all new developments impacts urban markets first but another fact is that rural markets are never immune to it. We have witnessed this for mobile phones also. We have made mobile phone available in the villages where no telephone was available. Similarly, now we need to make financial services available in the areas where no banks are available.

It has been seen globally (in Latam, Asia, Africa) that banking through mobile technology has really taken off.

At home, one of the nationalised banks' has introduced bio metrics based payment through ATM for the rural areas as an early bird on technology adoption.

RBI has rightly retricted the use of the payment to a monitary limit for fear of ML; but this will soon go. The advantages far outweigh the logistics and other challenges.