Global Payments – Looking back, looking forwards

Posted on January 3, 2016 by Charmaine Oak

Celebrating our achievements, strategizing for the future

It is easy to find fault in company launches, but as a former product manager I fully understand the courage it takes to even get to the market in the face of uncertainty, and the myriad factors that stand between you and success.

So I invite you to take a few minutes to reflect with me on some of the things that went right last year. This is by no means a comprehensive list as I am aware I would need reams of E-space to cover what I see happening in each market. I am hoping you will add your thoughts, to help create a more comprehensive picture, for all to enjoy.

We’ve come a long way over 2015

Online payments fuelled E-commerce in such a big way over 2015 – I did most of my holiday shopping online for the first time this year, along with millions of others around the world
New business models have found incredible ways to leverage new ways to pay – Uber, AirBnB and others, have grown at unforeseen speed and become part of daily life
Fintech has grown substantially and has attracted some of our brightest talent – what a great achievement from start-ups around the world
Payments is disappearing and getting embedded on the one hand, but is also rising in public awareness through mainstream adverts– PayPal, Apple Pay and other ads have regularly hit the UK TV, but this is small considering the kinds of campaigns in India with Bollywood heartthrobs roped in to support emerging mobile wallets, for instance
Apple Pay did manage to launch in multiple markets, with an intuitive user experience and helped ignite re-interest in NFC, and investment in many more services
Huge strides were made in biometrics with payment by face, voice, fingerprints and more
Millions of people received identity and connectivity for the first time, thanks to cheaper mobiles, smart phones and data becoming available opening the door to mobile money services that can help lift themselves and their families out of poverty
Wearables took big strides forward, with the ability to pay using your watch hitting markets for the first time ever
Banks have had to wake up and smell the coffee – I’m hoping for better, cheaper and more down-to-earth, back-to-the-people banking, now we have alternatives
Faster Payments took strides forward. Kudos to Vocalink for their work in Singapore and now the US, certainly living in the UK I daily benefit from their systems here

But there is so much more to achieve!

So much more needs to be done in Biometrics before it can truly become effective for mainstream use – let’s hope we see progress in standardisation as pioneering providers start to work together
Small value payments are the Holy Grail of payments and despite work of over a decade on this, I don’t think we are there yet – so much more scope for cheaper, faster and more secure ‘tiny’ payments
Cyber security is an area in which one can never do enough. With the increasingly connected systems, weakest-link analysis is critical, and end-to-end testing must be effectively managed across platforms of multiple providers
Opening up banking to make it more competitive is a journey that has only just begun. Can banks really be allowed to make our data available to third parties, have we been consulted about who will have access to our data?
It is time to revisit an age-old area of customer loyalty and how to get, gain and keep it - as the digital age introduces so much of cross-channel complexity
As we enjoy the huge benefits of online services, our data privacy assumes critical importance. We are leaving trails behind that if connected could have great impacts on our well-being, this again is an area of work that is still at the starting line

How will we get there?

In all the projects I’ve been a part of over the last decade, the key success factor has been top management action. Enlightened top management can wield enormous power in making things happen, while they can also be thoroughly destructive, casting asunder years of team effort in the time it takes to write a single email.

Fortunately, whether we will get there or not is no longer in the hands of large corporations. Born with mobile phones and tablet PCs as their personal toys, and brought up on a diet of computer games, social media and connectivity in a shrinking world, I see our youth taking us into bold new frontiers in terms of the way we pay in the coming years. The question is whether our regulators will also dig deep into this pool of emerging talent to keep things competitive and yet safe for us all.

Have a Great New Year 2016! Thanks for reading our blogs and do share our journey in 2016 and beyond.

Join community discussions on this topic at LinkedIn and Finextra.

Bridging the Digital Divide between Banks & Micro, Small and Medium Enterprises

Posted on November 9, 2015 by Charmaine Oak

In today’s guest post Sonum Puri of Accenture shares her thoughts on the opportunity in the MSME sector in developing countries and the gap in servicing their needs, reflecting on further work required for financial institutions to address these needs.

Micro, small and medium enterprises (MSMEs) in developing countries face an estimated financing gap of $2.1 to $2.6 trillion ($3.2 to $3.9 trillion globally)[1]. MSMEs contribute to economic growth and job creation but inadequate access to finance, limits their impact in society.

MSMEs are impeded from accessing formal financial services due to cumbersome KYC and onboarding procedures, poor credit histories and lack of time to travel and queue at bank branches.

Some banks would argue that the processes applied to MSMEs are justified to mitigate high risks (creditworthiness is hard to denote) and as these customers are typically perceived as less profitable, no concerted effort is made to reduce constraints.

However, by failing to address the financial needs of this underserved segment, service providers are potentially missing out on a US$380 billion revenue opportunity[2].

Although microfinance institutions (MFIs) have helped close the credit gap, especially for women entrepreneurs, many do not have the resources, financing capacity and products beyond microfinance to meet the evolving needs of MSMEs (savings/deposits, insurance, pensions, remittances etc.)[3]. In fact some MFIs such as miBanco (Peru) and Bandhan (India) have turned into banks in order to diversify product offerings.

In developing countries, rising affordability of devices is encouraging growth in smartphone adoption, reaching 63% (2.9 billion) by 2020, with the majority running on mobile broadband[4]. Increasing smartphone and internet penetration will enable MSMEs ranging from a small business owner in the Philippines to a garment producer in Indonesia and a smallholder farmer in India to connect to a variety of online digital products and services by clicking a button.

Leveraging digital channels and operations will allow banks to also reduce the cost to serve the MSME market, whilst acquiring new customers and increasing profitability. Yet banks need a compelling digital value proposition, incorporating financial and non-financial needs that will help customers grow their businesses and improve their own welfare and that of their families.

The concept of the ‘Every Day Bank’[5] goes far beyond a transactional relationship to one in which banks will offer a variety of digital services that will increase the daily interactions of MSMEs. But to get to the ‘honey pot’ the sign up procedure needs to be online, fast and simple. Credit decisions need to take minutes, not days. Customers need to be able to conduct their business as efficiently and productively as possible.

Employing a low cost distribution model (using brick and mortar and digital infrastructures) will benefit both banks and MSME clients. Virtual contact centres, loan disbursements and repayments through mobile phones and point of sale (POS) equipped bank staff in addition to using retailers to expand distribution and perform basic banking/customer services, are some of the available options.

Social media platforms can assist banks to prove identity and make better informed credit decisions on customers who may not be regular banking users or have much of a financial track record, but are likely to be on Facebook and have a social media history. Based on the data generated, loan approvals can be turned around very quickly. Similarly mobile phone behavioural data can be utilized to assess credit worthiness.

Digital Services that can help address customer pain points include:

Faster onboarding and KYC procedures (online forms, analytics/social media platforms, biometrics, digital signatures and electronic document transmission)
Personalised financial services and reporting (pre-approved offers, third party lending analytics, online portal/digital relationship manager, digital supply chain financing and mobile cash pick up)
Business administration tools (virtual CFO, single view of customer accounts, cash flow and expense management capabilities and analytical platforms for forecasting)
Integrated banking experiences (ability to access services from any device, anytime and switch from one channel to another for account opening, banking products origination and servicing)
Connecting to a broader ecosystem (B2B network hub, P2P collaboration tools and access to alternative financing)
Solutions to improve products and services (business services and Ecommerce enablement and virtual platforms to gain industry insights and advice)
Financial literacy programmes (mobile phone delivered education and training and videos)

The threat of competition from challenger banks, telcos and other disruptive players has led to some banks responding including:

ANZ - mobile app to monitor real-time account balances, view current and prior-day transactions and approve or reject payments
Maybank - mobile POS service that enables MSMEs to benefit from wireless payment to save time going to bank branches
Barclays – remote account opening through an app on smartphones and tablet devices on which customers apply for a personal loan and receive funds in less than 10 minutes
CBA – online balance statement, cash flow report and business insights that customers can use to benchmark with competitors

The more innovative banks are even joining forces with the new competition, take for example India’s ICICI bank working with Chinese Ecommerce firm Alibaba to establish an online trade facilitation centre or RBS who is partnering with Funding Circle (online lending marketplace) and Assetz Capital (peer-to-peer lending platform) to provide alternative financing sources.

Neither banks nor any other stakeholders can go it alone. To get to scale and truly build long standing relationships with the MSME segment, collaboration with a range of ecosystem partners is absolutely critical. Cross industry partnerships present an opportunity to offer complementary financial and non-financial products which service providers might not have been able to offer otherwise.

Sonum Puri is a manager within Accenture's ASEAN digital team. Sonum is committed to helping banks, MFIs, other FIs, telcos, governments and donors use digital solutions to improve front to back end processes, increase operational efficiency and expand financial services in developing countries.

Prior to joining Accenture, Sonum worked as a digital financial services consultant to the UN, providing advisory services to stakeholders creating new product innovations in digital financial services. She has conducted research and analysis, strategy development, agent/staff training and service implementations in the Philippines, Papua New Guinea, Timor-Leste, Sierra Leone, India and Kenya.

Sonum may be reached at sonum.puri@accenture.com.

References

[1] http://www.ifc.org/wps/wcm/connect/4d6e6400416896c09494b79e78015671/Closing+the+Credit+Gap+Report-FinalLatest.pdf?MOD=AJPERES

[2] https://www.accenture.com/_acnmedia/Accenture/ConversionAssets/DotCom/Documents/Global/PDF/Dualpub_23/Accenture-Banking-WithinReach.pdf

[3] http://blog.microsave.net/should-microfinance-go-digital/

[4] http://www.gsmamobileeconomy.com/GSMA_Global_Mobile_Economy_Report_2015.pdf

[5] https://www.accenture.com/us-en/insight-everyday-bank-digital-revolution-banking-summary.aspx

Addressing the mysteries of the Pyramid through mobile financial services

Posted on October 9, 2015 by Charmaine Oak

Pyramids have fascinated civilizations for centuries, with the Great Pyramid of Khufu in Egypt today remaining the only one of the Seven Wonders of the Ancient World. While the Egyptian pyramids are most famous, Nigeria, Greece, Spain, India, China, Indonesia and even Europe and the Americas have their share. The unique design and the sheer weight of the stone ensures that the structures do not topple, and there is no question of material at the bottom ever getting displaced. Now in these and other countries mobile financial services are taking off, to address financial inclusion. I was fascinated by C. K. Prahalad’s book “The Fortune at the bottom of the Pyramid” which has been an inspiration to me over the last decade I’ve spent as a practitioner in mobile financial services.

Carol Realini’s work at Obopay has also been inspirational to me, as I had an early opportunity to meet her and follow her achievements in the US, Africa and India. I was therefore delighted when Carol shared with me about the book she and Karl Mehta were writing, “Financial Inclusion at the bottom of the pyramid”. Naturally I wanted to share her story, below – Enjoy!

Carol, great to have you here today, please could you share with us a bit about what motivated you to write this book, and what you hope to achieve?

My interest in Financial Inclusion started in 2002 while travelling in Africa after a company I founded had a successful public offering.

My eyes were opened to—

The wonderful entrepreneurial spirit that exists throughout developing countries
The lack of infrastructure for participating in global online commerce
The lack of infrastructure for making day-to-day living easy. Locals were standing in line all day to just pay their utility bill and small businesses were confined to operating on a cash basis with their customers and suppliers.
The absolute inability of entrepreneurs to scale and grow their businesses.

I became focused on fostering entrepreneurship and the development of new technologies that would empower everyone’s life and work.

The epiphany—

I had never really thought about life without access to affordable financials services. Mobile phones were everywhere and now exceed the world’s population. I realized this could be a game changer for financial services, creating a very different future for all of us. After witnessing the overwhelming poverty and unwieldy payment systems, I knew that mobile banking would be the key to altering how people exchange money, and in turn, create access to financial services where none had ever existed.

To whom do you feel this book will be most useful and why?

Our book primarily targets two audiences: Firstly the FinTech community, as the mobile phone is a key enabler for innovation. Secondly, really I would love for it to reach all people interested in how the world could change for the better. We hope that our book entertains and informs both audiences. It delves deep enough to share new insights with the FinTech community, yet effectively explains the financial services landscape to those who are ready to learn and be inspired. So far reviews have been very positive from both groups. Having been exposed to real-life case studies that are changing the face of financial services, readers from all over are inspired by the global shift that lies in front of us.

You are yourself one of the pioneers, can you share a bit about your story?

I have founded two companies within the Financial Inclusion sector and I am an active board member for several other companies working in mobility and “mass-market fintech.” My co-author, Karl Mehta founded a global payments company which was later sold to Visa. Throughout that transition he was key mobility executive and now is an active Venture Capitalist and Founder/CEO of EdCast— a disruptive approach to higher education.

My first company, Obopay was a pioneer in Financial Inclusion and is currently one of the leading providers of mobile money in East Africa. We were early to enter the market and saw first hand the challenges when the infrastructure for identity, settlement, and communications was immature.

Mobile phones are now a mainstay all over the world and many countries in Asia and Africa have sorted out regulations to handle incoming technologies. Smart phones are also scaling very fast, creating more space for innovation.

Once the technological and regulatory landscape was primed, my second company (a US-based faster payments company) scaled quickly and was acquired in under 2 years. I am now on the board of 5 companies all working in this space and help others wherever possible.

In a nutshell, what do we need to get right, for financial inclusion @ BoP to become a reality?

Regulations and infrastructure are key to massive change. Institutional banks and investors also need to embrace innovation. Opening our eyes to including innovation from unexpected places will create more opportunity (for instance, Telcos have become the last mile to the customer for banking). Finally, considering new players in the space with disruptive models can bring a new perspective, and sometimes, a better solution to a problem.

At the end of the day, the financial needs of those at the BoP will not match those who use traditional banking. We need to create products and services that are relevant to each customer and their lifestyle. These will look and behave differently across countries, states, towns, and villages.

We hope our book helps to open the reader’s eyes to what is possible, what is currently working, and where there is opportunity for change. It proves that solutions DO exist—they are just not evenly distributed.

You give a call to action at the end of your book, could you share a bit about this?

If you are inspired to change the world, it is easy to get involved. You don’t have to quit your day job or be a “mover and shaker” within the FinTech community. If every reader made one small shift in their lives to support financial inclusion (start a group, show a preference for companies who are committed to financial inclusion, or join the conversation @SuccessatBOP), we’ll be well on our way to a better place for all.

I have found that once readers realize they already have a voice, they become inspired to create change, whether by one simple action or through massive effort. Either way, I think the book shows how important these initiatives can be. As Jeffrey D. Sachs, Director of the Earth Institute at Columbia University (and generous author of our Foreword) puts it: “The end of poverty is coming our way and this brilliant book explains how and why.”

Carol, Who are the unbanked and could you share about “Financial Nomads”, something I found very interesting when I read your book

Half the world are Financial Nomads. The world population is roughly seven billion. Of these, 4.6 billion are aged twenty or older. They comprise the pool of adults who could be regular customers of a financial services provider—a bank, savings and loan, credit union, or even Wal-Mart. Estimates suggest that of this eligible pool of 4.6 billion adults, over half—2.5 billion—do not use an established and reputable financial services provider. They are financial nomads who either have no access to financial services or use financial services on a casual basis when they need them.”

Apart from income, what are some of the other factors that have an impact on financial inclusion?

Gender, education levels, age, rural or urban life - all of these matter, but especially gender. In developing economies, forty-six percent of adult citizens have bank accounts, but only thirty-seven percent of women do—and this number includes joint accounts held by both husband and wife. In developing economies, this disparity exists at all income levels. In high-income economies, the difference is less and only approaches a four percent difference for poor women.”

Carol, how does this affect me, a middle class individual living in a developed country?

The lack of affordable and adaptable banking services is an issue that should concern everyone, not just the people who are living at the bottom of the pyramid. At its worst, a lack of banking creates a downward spiral of disenfranchisement, widens the gap between rich and poor, encourages outlaw or extralegal behaviour, and inhibits the social mobility that keeps any society vibrant and open. An accessible and reliable banking system helps to create stability and overall prosperity.

We have seen the costs to living at the bottom of the steep pyramid, and the obstacles that keep many hardworking individuals and families from making the long climb to the top. However, the goal of this book is not only to point out the challenges but to draw attention to the real-world solutions that exist today.

How far have we come so far in addressing this issue?

We’ll see that, in many cases, the future is already here; it’s just not equally distributed yet. Innovation is emerging as a patchwork. We’re entering a new era where the world will see a shift from incremental advances in financial inclusion to exponential growth. Part of the revolution in personal finance is driven by global social change: the growing empowerment of women, the rise of stable democratic governments, and the increased recognition of basic human rights. Technology is also a major force; the rise of the Smartphone, improvements in banking infrastructure, cloud computing, social networking, the management of vast amounts of real-time and archival data, mobile technology and networks, and the successful scaling of regional models to national and international scale - are all drivers of change.

Carol thanks so much for taking the time to address this important area and I wish you the very best for the success of your book and this key initiative

Carol Realini is co-author of “Financial Inclusion at the Bottom of the Pyramid”. An expert in financial service innovation, Carol Realini is a serial entrepreneur and globally-recognized technology pioneer. Attending the World Economic Forum, she led global discussions on alternative banking. Recognized as a top woman in Silicon Valley, she sits on boards and advises financial services and mobile companies.

Building an agent network for a direct-to-bank led strategy for remittances to Africa

Posted on September 8, 2015 by Charmaine Oak

In this exclusive interview with Charmaine Oak of Shift Thought, Samish Kumar, CEO of cross-border payments company Transfast, shares about his vision and the recent expansion of Transfast in building a network in 23 countries across Africa. Kumar discusses why the network is good for Africa, how Transfast hopes to be different from its competitors, and how it addresses financial inclusion needs, to further goals of governments in Africa.

Samish, thanks for your time today. I am keen to understand more about Transfast and your expansion in Africa

Transfast is a provider of online and cross-border payments solutions. One of the fastest growing cross-border funds transfer companies in the industry, we operate the third-largest proprietary network, covering 120 countries. We recently announced the launch of an extensive direct-to-bank network in Africa, reaching 23 African nations, and covering up to 90 percent of adult bank account holders in those nations. We believe this to be the most extensive network of its kind on the continent.

Our omnichannel offering enables customers in the US and Canada, and shortly from UK and EU as well, to send money online or via mobile, directly into recipient bank accounts or for withdrawal in cash at around 600 banks representing an estimated 6,000 cash pick-up locations of banks in Africa.

Direct deposits are currently available at banks in Nigeria, Kenya, Ghana, Gambia, Ivory Coast, Senegal, Ethiopia and Mali. Soon, direct deposits will be available in 17 more countries, including Benin, Burkina Faso, Cameroon, Cape Verde, Chad, Congo, Egypt, Guinea, Morocco Niger, Sierra Leone and Togo.

How could this be beneficial for Africa?

Remittance plays an important role in African nation economies, as an estimated 30 million Africans diasporas send around $160 billion to the continent annually. Direct bank deposits and electronic payments can play a key role in building financial inclusion and help further the financial inclusion goals of governments in Africa by engaging account holders in the banking system.

But how is this different to the services of other cross-border payments companies?

Direct-to-bank is the most efficient and cost-effective way to receive funds. At present we believe that we are the only cross-border payments company enabling direct-to-bank in this many countries in Africa.

We are able to do this because of our proprietary network and excellent bank partner relationships. But direct-to-bank isn’t all we’re doing in Africa. Stay tuned for more announcements on new product offerings in Africa in the coming weeks!

Can you explain how your direct-to-bank network builds financial inclusion?

Banking penetration continues to grow in Africa. For unbanked recipients, the ability to pick up cash at a bank provides a positive experience in a bank environment. This is a first step toward becoming banked, when they can enjoy further advantages from our direct-to-bank deposits.

Could you share a bit about the challenges faced in getting this of the ground?

Building a network is definitely one of the most challenging aspects of this business, and at the same time, it’s been very rewarding. Our independent, direct-to-bank network is arguably one of the world’s largest, and the result of blood, sweat and air miles racked up by Transfast executives travelling to India, Sri Lanka, Philippines, Bangladesh and more countries than we can list here, to create and solidify relationships with banks globally.

When it comes to compliance, regulation and fraud protection, they can present challenges in this industry as well. We believe in keeping those functions in-house, and our compliance teams and well-established regulatory systems have taken years and millions of dollars to build, including obtaining and maintaining the licenses necessary to operate in over 50 jurisdictions around the world.

Then comes the talent framework needed to comply with each separate and distinct set of regulations. This translates to hiring experts that make up more than 10% of our employee base – who are solely dedicated to compliance.

Fraud protection completes this trilogy of important factors. Fraud control is serious business, as remittances supply vital funds that support families back home and keep them thriving. Our bank-level security has to ward off hackers on a daily basis. So we have systems in place to ensure our security and privacy for our customers.

How do you plan to differentiate your services?

One of our goals is to build a close relationship with our customers, and that’s always on our minds as we move forward. To us, this means not inviting a third party into the process of sending our customer’s money around the world.

The real untold story of cross-border payments is that many companies don’t have their own bank networks. They “ride the rails” of other companies.

Our customers come to Transfast and whether or not they realize it, the reason they are satisfied is that everything we promise as part of our value proposition – great rates, reliability and fast delivery times – is backed up by our product and network, not potentially unreliable third-party offerings. We also run our own in-house treasury, which cuts out the middleman and enables our customers to get better foreign exchange rates.

When you talk of omnichannel, what channels have you found to work best for different segments? Could you please share a couple of unique characteristics from the US-Africa corridors?

Each corridor has its unique characteristics, calling for differing channel mix. In the African continent, one unique characteristic we see however, is a strong interest in direct-to-bank transfers, which tracks along with the growth in the banked population in each country.

When you talk of direct-to-bank, which market segments can/ cannot participate, and how do you choose the countries you’ve expanded to?

We’re realists who understand that collaborating with the banks to build a better network is smarter than working against them. Our strategy works well with the culture in the communities that we are sending payments into, as national and community banks are often well regarded and have the trust of our customers in developing countries. This factor is critical to our strategy.

As such, we expect to expand into any country where our network can build on that trust level while offering speed and competitive pricing for those transferring funds. So far, we are in more than 120 countries — and growing every day.

Samish, thanks for sharing about your vision and I wish you the very best for your future growth.

Samish Kumar, CEO and Director of Transfast, is an expatriate from India who moved to the US with his family in 1982. After graduating from the University of Colorado-Boulder with a degree in Aerospace Engineering and obtaining an MBA from Columbia University, Samish went on to accumulate nearly 20 years of experience in financial markets at global banks.

In 2007, Samish led the acquisition of Transfast in partnership with GCP Capital Partners, a New York-based $1.9 billion private equity fund. Under his leadership, Transfast has become one of the fastest-growing companies in the world-wide remittance market.

Innovations in digitizing cross-border remittances

Posted on September 1, 2015 by Charmaine Oak

International transfers can be inconvenient, expensive, or slow and particularly binding on migrants who need to make small value transfers. Yet while domestic money transfer has moved to the mobile channel in many cases, cross border remittances has proved more elusive. I was keen to learn more about this mobile-first international remittance service, hence caught up with Ambar Sur, CEO Terra to discuss the opportunity and challenges associated with digitizing cross-border remittances.

Ambar, what problem are you at Mahindra Comviva hoping to address with Terra?

The cost of sending money home has dominated discourse on international remittances, with G8 adopting the 5X5 resolution to maximize flows and reduce the global average cost of transferring remittances. A bilateral analysis of costs, as opposed to looking at aggregates, however, reflects wide heterogeneity across corridors. Whilst the cost of sending money along certain corridors in Latin America and the Caribbean may have halved in some cases, along South-South remittance corridors migrants often incur steep costs. In 2014, Africans paid $7.5B, the equivalent of Rwanda’s GDP, to transfer $64B to Africa.

At Terra, our research shows a migrant moving from rural to urban Zimbabwe on average remits $45 every 15-20 days to support household expenditure. Yet when the same migrant moves to South Africa with marginal wage gains, the minimum viable remittance size is $150, causing him to defer sending money home.

What makes international remittances more costly than domestic transfers?

Typically higher cost has been seen to be due to shortcomings in institutional, technological and operating infrastructure in host and home countries, such as poor access to banking. These are real issues, but we view cost associated challenges in a broader perspective. Big investments have been made by providers to address persistent first and last mile issues and improve quality of domestic payment infrastructure in terms of access, speed and affordability. New services compare favourably against traditional cost-intensive processes for agents in brick-and-mortar shop-fronts to handle cash transfers. In Africa 60+ countries have already launched mobile money services.

Transferring money is expensive on account of limited inter-connectivity between financial institutions and systems. By applying the more favourable volume economics of large agent networks at the receiving end, mobile operator networks could lower the cost of remittances.

How could mobile payments change this?

Digital intermediaries could exploit widely available mobile payment technologies to enable service providers to share each other’s service architecture. This could rewrite the rules of international remittance from being a high-value, low-volume business to becoming an increasingly low-value high-volume business.

On the Send side, mobile phones provide convenience and security and on the Receive side they make it possible to reach money where formal financial institutions simply do not exist. Innovations in intermediate networks which unify end mobile service points could generate more consumer value, expand supply and improve volumes by 3X as lowering costs could encourage micro-transactions as low as $50. So the next time our friend in South Africa wants to send $50 to his daughter in Zimbabwe he will not be giving cash to a bus driver to hand carry!

Mobile enabling remittances is not new. Why has what you suggest not been achieved so far?

One needs to look at the history of innovation among mobile network operators (MNO) in emerging markets. In 2003, Mahindra Comviva in collaboration with Vodafone India launched its digital airtime distribution product. The ability to sell airtime in small denominations (< 10 cents) helped operators register 100% year-on-year growth in customer acquisition for a decade.

The remittance market is awaiting a similar revolution. The ability to convenient, affordably and securely remit money in sachets would unlock latent market potential and enable a range of use cases. A parent, for instance could send a gift of $50 to their child, anytime, anyway and almost anywhere in the world.

How are mobile operators around the world approaching the remittances opportunity?

MNOs have designed operational and network systems to process a large volume of micro-transactions and are well-positioned serve this market. For instance, MNOs in Bangladesh handle 18M recharge transactions on a single day while MNOS in India process 1billion+ call data records daily.

As mobile money systems mature, remittances represent a significant source of additional fund inflows. The average transaction size of an international money transfer exceeds $120, which is equivalent to 4 domestic P2P transactions. As per a CGAP study, in 2010, they were 11 examples of deployments offering inward remittances. By 2014, they were 45+ deployment – a significant fourfold increase in four years. Remittance transfers via mobile phones have advanced primarily in Africa (Zimbabwe, Kenya, Uganda, Rwanda, Burkina Faso, Niger and Côte d'Ivoire) and Asia (the Philippines, Pakistan and Bangladesh).

What are the different business models you observe in the market?

We largely seeing two models. Firstly, unilateral models where operators facilitate cross-border transfers between their own operating companies: for instance Millicom launched a cross-border mobile money remittance service in February 2014 between Tigo Tanzania and Tigo Rwanda. Secondly, negotiated agreements involve partnerships of MNOs on certain corridors or legacy MTOs to benefit from an established network of agents in hundreds of countries: Bharti Airtel and MTN partnered to launch a service between Burkina Faso and Côte d'Ivoire.

Other service providers are also moving in this direction, for instance AMUCSS in rural Mexico created the remittance distribution network Envíos Confianza, which connected a rural microfinance institutions (MFIs) to a single platform, achieving economies of scale, and makes it easier for the small institutions to pay out remittances.

What are some challenges faced?

These are initial steps but the nature of these arrangements inherently prevents service scaling. For example, it took Safaricom over a year to create a mobile remittance service between UK and Kenya alone, primarily due to the need to negotiate FX related issues between Central banks.

I believe MNOs need to take advantage of investments they have made over the years and establish a “one network”, enabling users to send money to any mobile. They have a real opportunity to pool infrastructure and create a mass-oriented, affordable network for small-value transfers and benefit from resultant network effects. The direct credit into beneficiary wallets would encourage more transactions and promote financial deepening.

Are mobile wallet service providers ready to cooperate at such scale?

I could site two examples from the telecoms industry. In early 2000 MNOs agreed to interconnect personal short messaging systems. The resultant network impact created a significant revenue upside for MNOs.

The industry had yet another opportunity to redefine messaging. In 2005-2006, all four private operators in India launched instant messaging services (powered by us) as part of a GSMA initiative. The operators however lost an opportunity to interconnect services, allowing WhatsApp to shortly after capture a large part of the instant messaging market and cannibalize P2P revenues.

Without discounting the complexities of interconnecting mobile money systems, these cases offer key learnings for operators around the world.

But is there revenue for mobile operators in this?

Across mobile-first emerging economies, mobile wallets represent a significant adjacent revenue stream for MNOs. The landscape is evolving rapidly, from new deployments to changing consumer behaviours. And some countries are recording a high number of financial transactions per active user (TPAU) with DRC at 45 TPAU, Sierra Leone 30 TPAU, Tchad 20 TPAU, Burkina Faso 18 TPAU and Zambia 12 TPAU.

Operators realize cross-border payments, beginning with personal transfers, could help consolidate customer relationship and fuel the Mobile Wallet 2.0 growth wave. Remittances can encourage and accelerate the adoption of new technologies, and offer opportunities to promote a range of new financial products among consumers, for instance by enabling senders to pay bills directly rather than sending cash. SMEs involved in informal trade contributing over 50% of total economic output in several emerging markets, especially Sub-Saharan Africa, can be targeted as there is an untapped demand for using risk-free, legitimate channels to transfer money across borders.

This brings me to the vital “how” question. Do innovations like these not need a favourable regulatory environment that prioritizes financial inclusion of remittance recipients?

With remittances contributing between 1% and 10% to GDP, regulators are aware that monies sent by overseas workers are a strong driver of financial inclusion in both sending and receiving countries but this is yet to translate into an adequate regulatory framework for small-value mobile enabled transactions.

Remittance receiving markets are at different stages of mobile money development and regulations are evolving as new use cases emerge. Even in Kenya, the pioneer in mobile money services, formal guidelines for mobile remittances services are still evolving. In recent months, regulators in Rwanda, Zimbabwe, Tanzania, Kenya, Philippines and Bangladesh have allowed MNOs to terminate cross-border transactions. In several other receiving countries such as Mozambique, the regulation around interoperability and mobile enabled cross-border remittances is still being formulated.

What are some regulatory gaps and potential changes you foresee for the future?

Currently there are no guidelines for an international remittances hub that interlinks multiple service providers. This is a significant regulatory gap. Regulators are willing to provide approvals for bilateral remittance contracts as we see from the number of announcements in the last 12 months. The model is however restrictive in terms of achieving rapid scale. Mobile wallet providers need to seek fresh approvals for each new corridor from the regulator which is inefficient and time-consuming. Likewise, licensed MTOs, who have signed an agreement with a mobile wallet service provider need to approach the regulator for partnering with another operator in the same country.

Another key issue is the complexity of adhering to compliance norms. Regulators in many countries such as UAE and Saudi Arabia do not allow remittance service providers to export resident data outside the country of origin, which creates new challenges for building an interoperable network. In predominant prepay markets there is no foolproof mechanism for registration of SIM cards. A SIM card may be shared among family, adding a new dimension to making mobile phones the receiving channel for cross border remittances.

How do these services benefit from support from the ecosystem?

All remittance transactions must be backed by a bank account. Banks have a low risk appetite due to potential reputational damage. Several banks in sending countries especially in the US are refusing to open or terminate accounts of MTOs. The recent predicament of Somalian migrants with US banks closing remittance account is a worrying trend. HSBC and Barclays in UK and WestPac in Australia have exited the remittance business, citing rising cost of compliance of anti-money laundering regulations.

Other issues relate to the taxation regime in each country. Taxes can be as high as 10% of the total service fee in several receiving markets, escalating remittal cost for consumers.

While there cannot be a uniform standard as these issues are country specific, the industry and regulators need to collaborate to figure out the “how” of bringing more remittance clients into the formal financial system.

What do you see to be the outlook for remittances for the next three to five years?

I don’t expect the fundamental business would change but we would do the same thing in a bigger, better way. Currently, the share of mobile as a channel to remit monies is 2%, as per Global Findex findings. By exploiting ubiquitous mobile connectivity, we have the capability today to create newer, efficient models which would ultimately expand the overall market. In the next five years, with the collective efforts of all stakeholders, we could see a minimum of 20% of remittances flowing via the mobile channel.

What is Terra’s role in the ecosystem?

Terra is building the rails for mobile powered international payments. We are architecting a new model by interconnecting existent digital financial service providers whilst assuming complete responsibility for obtaining and/or ensuring adherence to all regulatory requirements for conducting business. Our model, predicated on the ability to aggregate available infrastructure generates greater value for customers at lower costs and ultimately expands the industry.

Starting with remittances, the same network can be exploited to launch contextual payment-related products for an increasingly connected customer base. As a team we are deeply convinced of the order of magnitude of the impact we would bring to the lives of consumers globally.

Ambar, thanks for sharing your thoughts and I wish you every success in achieving your goals!

Ambar Sur is the Executive Vice President for new projects at Mahindra Comviva and Founder and CEO Terra. A subsidiary of Mahindra Comviva, Terra is a mobile-first international payments company. As CEO, Ambar leads a team focused on Terra’s vision to digitize international money transfers, and deepen access to financial services.

Previously Ambar has been Head Global Market Units, Chief Marketing Officer and Director-EMEA at Mahindra Comviva.
CellCloud Technologies, an innovative prepaid solutions company co-founded by Ambar in 2001, merged with Mahindra Comviva in 2002.

Happy Independence Day India!

Posted on August 15, 2015 by Charmaine Oak

Where the mind is without fear and the head is held high
Where knowledge is free

Into that heaven of freedom, my Father, let my country awake

… Tagore 1861-1941

As India takes huge strides towards digitising money,

May freedom from cash bring independence to all!

Outlook for Global Bank Strategies in the face of historic disruption – Part 2

Posted on August 5, 2015 by Charmaine Oak

Goldman Sachs recently forecasts that $4.7 trillion traditional financial services revenue could be at risk from disruption. As new entrants, supported by a $12 billion investment in Fintech, disrupt existing business models, using new technology fuelled strategies, I thought we could reflect on what counter strategies banks might adopt that could help and not hinder.

This blog builds on my previous one, “Global Bank Disruption and Potential Counter Strategies” where I share highlights from my interview with Penny Hembrow of CGI.

In what is arguably the greatest period of disruption in the history of money, I set out to understand possible counter-strategies being considered by global banks, through interviews with leading experts and study of recent bank roadmaps and publications from European institutions and bank associations.

Weighty customer and client expectations

In retail banking recent surveys indicate an overwhelming change in customer expectations, as they seek to maximise convenience and satisfaction in the rapidly changing digital economy. Similarly large corporate client expectations have also changed.

This is creating significant disruption in both consumer and corporate financial services, driving banks to seriously set out strategies for transformation, modernization and innovation, in order to avoid being commoditised as new entrants carve away valuable chunks of what would traditionally be bank business.

So what are the global banks doing about this?

Could there be a one-size-fits-all solution?

Transaction banking in particular has important relevance for global banks as it helps lower the cost of capital, leverage client base and improve return on equity. Now increased competition and a change in corporate expectations creates an imperative for innovation in services to make them faster, cheaper, more convenient and of course, ubiquitous.

As transaction banking gets further impacted, it seems to me that a "one size fits all" approach may not work. I understand from what experts tell me, and my own work in this area that transaction banking does not enjoy as high levels of standardization as other areas of banking do.

Now new trends in real-time payments and increased interest in new technologies such as blockchain are also adding to the roadmap of global banks such as RBS, BBVA and others, to simultaneously meet new needs from consumers and corporates.

A host of competitors, way beyond traditional

Global banks are no longer simply competing with each other.

In each part of their business, they face new entrants, relatively unencumbered and with much less to lose - freeing them to make choices that may not be open to the banks.

For instance in the foreign exchange business, new international payments providers are employing increasingly sophisticated strategies. Increased need for low-cost cross border payments is driving new types of solutions in each part of the world, but achieving ubiquity had so far proved elusive.

At the same time that consumers and small businesses are turning to P2P lenders and crowd funding marketplaces, corporates are looking at what could save costs to cope with additional pressure on their own business models.

Now as real-time payment systems gain adoption, this is for the first time solving first mile and last mile issues across emerging and developed markets in a way that gives serious pause for thought.

If disruption is the problem, can blockchain be the solution?

With respect to payments, bank roadmaps indicate that Ripple and blockchain are under investigation with a range of leading global financial services organisations who hope these could be significant game changers.

Just as consumer expectations have changed, corporate business is also vulnerable to various peer-to-peer solutions.

However if banks are to implement blockchain, they must find a way to do so that maintains transaction privacy and meets a host of transactional requirements, but more importantly manages onerous responsibilities to do with money-laundering.

Imperative for banks to validly reposition on trust

Recent publications from European banking associations suggest that banks carve out a niche for themselves by offering identity related services that percolate through all layers of the service architecture, while allowing new OTT entrants to play only on the surface layers.

Banks arguably have a good understanding of our true identities. Experts I discussed this issue with felt that banks have an opportunity to better reposition themselves by treating KYC as a strategic opportunity rather than a regulatory burden, and finding ways for consumers to protect themselves against cyber security and identity loss, or better manage their finances.

If banks are to better utilise customer data, they must first of all restructure their data to transcend current silos. As hard as it may seem for them to free the data from silo representations, what may be harder still is not angering clients and consumers in the way they use data they possess.

Outlook for 2015-2016

Too much seems to have already been said about bank disruption. The task at hand now is positive action, making lean budgets stretch across legacy maintenance and innovative projects.

My research indicates that banking disruption right now is distinctly different, regionally and based on the nature of banks as well as other criteria. So for instance, it could be dangerous to make presumptions about Asian banking based on what we see in Europe/US. Banks in Singapore seem to have embraced FinTech phenomenon, with banks and tech companies collaborating to find was to reduce cost and use technology as an enabler. Could FinTech be the platform that helps Asian banks find top spots in the banking scene?

According to a recent statement from CEO Piyush Gupta, DBS is spending billions of dollars digitising the bank, with less than 10% in frontend apps. In the same article Anju Patwardhan of Standard Chartered makes a good point on how banks can leverage regional trends, and developments across ASEAN and Asia.

In my view, using disruptive change as a lever for growth will need the very best management skills, within both banks and regulators in order to achieve balance under highly sensitive circumstances, and ensure actions taken continue to rebuild and safeguard client and consumer trust along the way.

What's your view on disruption to global banks? Do you see potential counter-strategies at work and how successful are they, in your part of the world?

Global Bank Disruption and Potential Counter-Strategies

Posted on August 3, 2015 by Charmaine Oak

In this exclusive interview with Charmaine Oak of Shift Thought, Penny Hembrow, vice president of global banking for CGI, talks about the global shifts in banking and trends that are influencing banks, shares insights from CGI’s recent global banking survey, and discusses options and actions global banks can take when looking to expand their banking and payments products and services.

Penny, thanks for taking time out to share your insights with us. As context for this interview, could you please share a bit about CGI , its clients and services, and your role?

CGI is the fifth largest independent IT and business process services company in the world. Today, we provide business consulting, systems integration, and outsourcing services and also run systems on behalf of our clients, with 68,000 professionals in 400 offices across 40 countries.

I look after our banking business globally. Financial services represent around 20% of our CA$10.5 billion in annual revenue. We run our operations via a client proximity model, working in the same community as our clients. Our key focus is always local. Today, we work with 24 of the top 30 banks globally, as well as the top 10 European and top 10 Canadian banks.

From your unique perspective, how have you seen the needs of global banks change over 2014-2015?

As part of our strategic planning process, we interview face-to-face nearly 1,000 clients through a structured questionnaire each year to identify industry trends and better understand the business and IT priorities of our clients. I can share a few highlights of what we found during our 2015 exercise.

In retail banking this year, there is an overwhelming change in customer expectations, as they dive deeper into the digital economy, creating significant disruption in financial services. It is driving banks from simply saying this is something we have got to do—we’re developing our mobile channels—to this year saying more concretely, this is how we are accelerating transformation and are developing digital and here is how we are looking to modernise legacy infrastructures (branches, operations, technology).

That’s very interesting, and how about transaction banking?

Since the crisis, transaction banking has been a significant focus, especially for global banks. It helps them to lower the cost of capital, leverage their strong client franchises, and improve their return on equity.

This year, our survey uncovered a crowded marketplace with many new competitors. We also found that corporate expectations of banks are shifting and this is driving innovation in services. Transaction banking is also impacted by payment trends around the world, but doesn’t have the level of standardisation that other parts enjoy. Transaction banks are looking to update and consolidate platforms and move to best of breed platforms. They are also dealing with significant technology issues, as well as the need to manage real-time payments and new technologies such as blockchain.

What kind of new competitors do you see entering this space?

First of all, the banks are competing with each other. Second, we are seeing some fast movers by way of new entrants, especially in the FX world. Third, in the payments world, Ripple and blockchain could prove to be significant disintermediators. Finally, corporates are exploring various peer-to-peer solutions.

You mentioned blockchain. Do you believe the transaction speed it drives could match existing Visa/MasterCard processing speeds?

We are seeing a significant interest in blockchain, not just because of Bitcoin but for global reconciliation and synchronised ledgers. In payments between two points, this could potentially result in less overall cost and more effective reconciliation. The technology, for instance, could help ensure you don’t have duplicate invoices, and it has many different applications, including new means of settlement.

A payment is basically a value exchange between two recognised entities and must be trusted and convenient. If you look at the new entrants, they are all innovating in the area of convenience, not so much in trust. Trust is where banks play a key role as they manage trusted identities.

Talking of customer trust, how does the need of bank customers for transaction privacy stack up in case of blockchain, which we associate with implementation through a public ledger?

Blockchain may be open source code but it is not necessarily open. Bank implementations would require a way to maintain transaction privacy.

If banks can effectively manage privacy through new technologies and keep things secure and data protected, consumers will be more likely to stay with them rather than transitioning to providers such as PayPal, which only move money.

With respect to customer data, banks have customer data but are not expected to use it as new entrants such as Google might do. Do you see this changing?

New entrants such as Google and Amazon appear more advanced in the way they make use of customer data. Banks, however, actually have more information about our true persona, perhaps more so than even the government. At the same time, we as individuals are becoming more conscious about how data about us is being used.

However, banks have been largely keeping the data in silos. What consumers are looking for is the ability of providers to understand them as a whole and help them fulfil their financial goals. There is great opportunity within the banking industry to provide that kind of intelligence.

That is interesting what you are saying; by looking across silos, banks could have a better understanding of customers, which would add to what you said earlier, banks knowing identity?

Yes, exactly. “Knowing your customer” is not a regulatory burden, but a strategic opportunity. We found that one in four people would pay their banks to protect them against cyber security and identity loss. Services such as these could go hand in hand with identity.

Today, consumers have their money across a number of bank accounts, credit cards and other funds. They can search online for advice but it is all very fragmented in terms of guidance required for financial well-being. Banks can help in this respect because they know us well.

Do you think the separation between good bank / bad bank would come in the way?

Not really. The rules are about making sure consumer money is protected. If you’re assuming a bank will have everything in house, that is clearly not the case. Banks are the holders of identity and deposits. Through their APIs, banks could also help third parties offer additional services.

Would that not create weak links, for instance when third parties access our banking data?

I expect with all this being new, regulators have not yet covered all these areas yet. Services such as Nutmeg and Mint currently do not take that risk.

Does it make banks less competitive as compared to new entrants, as there are some methods they can’t use that could make their business models work, yet new entrants can?

Banks feel overly regulated, as compared to newcomers that are not trying to be banks. Newcomers are coming in to cherry pick parts of the business—crowd funding, retail convenience payments, FX trading, back office processing—and they are not regulated like banks.

Could you share a bit about potential disruption to transaction banking and what this might mean for bank strategy?

Transaction banking refers to the services banks provide to corporate and government sectors. This includes cash management, trade finance, short- and long-term lending, treasury capabilities and more.

People get paid by corporate and government entities. Company growth drives economic growth and having certainty through the supply chain is critical. It is about accelerating the economy, as supply chains link up due to payments going real time. In the UK, the view is that real-time payments could add2% to GDP. Faster payments is a significant improvement that helps small businesses to physically get money when a service is delivered, instead of waiting two days for the bank to open on Monday and for the money to clear.

If you look at the corporate market, the better they can understand risk around supply chain and the finance they put around it, the more efficient they become. The more efficient corporate entities become, the more they can predict their cash flow worldwide and optimise working capital management, and hence be more willing to invest in economic growth.

So this is all about economic growth, as the collective economy operates in real time, offering information across operations for corporate entities to make better decisions. This is the reason why so many countries are looking to move to real-time payments.

So where would you advise banks to focus, and what initiatives and technologies could help them stay relevant in the face of disruptive new entrants?

In transaction banking, rather than focus on their own products, leading banks are innovating in how services are delivered to customers. Corporate entities are looking for full dashboards that help in their decision-making. Banks that help to knit together dashboards are driving this market and trying to do this very fast.

In terms of regional performance, which regions are leading in the transformation of banking and how?

In terms of retail banking, Europe as a region and the Nordics show strong innovation. In terms of digital disruption, I’d say Europe, Singapore and Australia. Digital consumerism has not yet hit North America, but it is coming.

In terms of transaction banking, this is based on institutions rather than regions.

What in your opinion is the outlook for 2015-2016?

Many banks are now focused on stepping up to the new digital paradigm. There are a number of challenges to stepping up, including internal resistance to change. The biggest challenge, however, are legacy infrastructures. Many banks are running on complex legacy platforms, and if you decide to buy a new platform or system for core banking, it can take up to six years to implement. Projects also often run over time and over budget.

So banks are trying to do three things at once: first, perform open heart surgery on their legacy infrastructures; second, maintain or improve their return on equity; and third change their banking model.

Yet the majority of banks don’t have enough to invest. So what is important is they look at different models of modernising legacy.

This has been really interesting Penny. Thank you so much for sharing your insights and I wish you the very best for the future.

Penny Hembrow is Vice President of Global Banking for CGI.

Penny is responsible for the growth of CGI's global banking business through the development of thought leadership and the delivery of aligned services and solutions with major clients worldwide. She has a wealth of experience in banking from her key roles at RBS, Barclays, Deutsche Bank, Experian and PwC.

Trends in Payments in India – from the eyes of the leading merchant acquirer

Posted on July 20, 2015 by Charmaine Oak

Today we are with Nitish Asthana of First Data, who provides insights on the fast moving payments scene in India, at this historic stage in the move towards non-cash payments. In this exclusive interview, we touch on key changes that could transform the card industry, and discuss a broad range of topics including E-tailing, Modern Retail, POS and the advent of mobile payments. Nitish shares four major trends that are transforming the way 1.2b consumers pay, as well as creating new opportunities in merchant-to-merchant payments potentially worth over $20b.

Thanks for taking time out from your busy schedule Nitish! As context please could you share a bit about yourself and your role at First Data?

I am the VP & Head of First Data India Ventures and have also led First Data’s merchant acquiring business in India. At First Data India ventures, we focus on venture investments in POS, e-commerce, mobile commerce and digital payments.

First Data is the global leader in payment technology and services solutions, operating in over 70 countries with relationships with over 3,500 Financial Institutions and offers a range of services including POS, E-Commerce and mobile (on internet and POS).

In India we are one of the leading merchant acquirers, providing services to over 250,000 merchants. First Data operates through an alliance with ICICI Bank (India’s largest private sector bank), ICICI Merchant Services. Our two lines of business are Merchant Services and Issuing. We offer POS, online, mobile and merchant processing and settlement for a broad range of consumer and business payments. Our issuing platform business runs on VisionPLUS, a First Data product and powers our service to leading banks in India.

Nitish, from your key perspective, which market segments seem to hold the most promise?

Activity in the payments space crosses a wide range of transactions across a set of vertical and horizontal segments.

In terms of vertical segments, E-commerce and especially E-tailing (Retail Sales on the Internet) is really important for us. Travel booking on the internet is already heavily penetrated, covering almost 100% of bookings and accounting for 75%-80% of online payments but this is fast reducing to 55% as online payments for retail, telecoms, utilities, insurance and tax take off. We also talk about point-of-sale (POS) as a vertical, within which Modern Retail is progressing very well, growing from just 5% of retail to 20% by 2020.

In terms of horizontal segmentation, large merchants of the country have already progressed in electronic payment, but today we see a lot more opportunity with small stores that accept only cash.

Overall in the market today card payments is a very small market as compared to US, UK, Australia and others but we expect 25-35% growth over the next few years.

The overall economic trends are also looking up?

Certainly, if you look at GDP growth, positivity is back! We are looking at a 7.5% growth in GDP expected to be the highest in the world.

A bigger driver for electronic payments is that currently over 90% of retail payments are in cash. The Government vision for less-cash is expected to bring out specific exemptions. Some are likely to relate to tax incentives for merchants and consumers to pay electronically.

If that happens, what is expected to be a $150b card industry over next 4 years could be pushed 50% higher going up to $250b-$275b by 2020. This would be much higher than current estimates, and we would reach an inflection point sooner with this planned government intervention.

What about the progress of Aadhaar-linked bank accounts and other key enablers?

Aadhaar has been an incredible journey with millions of customers enrolled. This received a massive boost from the launch of the Pradhan Mantri Jan Dhan Yojana (Prime Minister’s Benefit Fund) launched a year ago. It has created the rails to transfer benefits from the government, for instance LPG and fertilizer subsidy. NPCI recently confirmed that over 150m bank accounts have already been linked to Aadhaar numbers. All 170m beneficiaries were to be brought under the program by June 30, 2015. Banking inclusion has been greatly enhanced.

Regarding debit card infrastructure, India now has over 560m debit cards. Credit cards have been leading in the last 25 years, but debit cards are a more recent development. 60% of payment volumes are on credit cards despite them being fewer in number. The story so far was around credit but will be around debit cards going forward. I expect the ratio to reach 75% debit to 25% credit in terms of payment volumes.

In short we have a number of key enablers working together: the Aadhaar system enrolling people into electronic id, the push to mobile banking for the unbanked, the push to bank accounts, the roll out of debit cards and new POS infrastructure.

Could you please explain India’s position on merchant infrastructure?

In terms of a high level snapshot on merchant acceptance infrastructure, India has about 15 million merchants of which only 1 million accept cards. This is why card payments traction is so low. The barrier to acceptance is that terminal infrastructure is expensive, at a cost of around $150 - $200 per terminal. At this level return on investment on new terminals is difficult to justify. We have focused on bringing down the cost of a terminal to $25-$30, through the use of mobile POS. When you look at the last 8-9m merchants, mobile to mobile payments without infrastructure is the way to go.

First Data has launched our Pogo solution in July 2014, deployed at smaller merchants. At current take up levels the price point is higher but merchants do not pay upfront, we recoup the cost from on-going payments.

Could you tell us about the new services you launched recently?

We are one of the leaders in E-Commerce payments and operate across a number of categories. To simplify customer experience we are looking to launch our revamped internet payment gateway which would also work from mobile phones. Universal payment options also cover internet banking, integration to wallets, EMI products, payment in home currency and seamless plug in to all shopping carts and a mobile optimized interface as well. We are looking to launch this in next 2-3 months.

We are also adding a number of features to our MPOS launched last year. At that level of transactions we can simplify documentation for a merchant to quickly come on board. We’re launching a product for payments and other applications such as ERP, accounting, loyalty and a hardware/software.

Essentially small sized retailers have not invested in counter top infrastructure. Some may have PCs, some may not even have that. What we want to provide is a package deal for a small player by “miniaturising” the functionality used by large merchants: ERP, bar code reader, printer and other features. We believe that addressing the needs of small merchants is of great importance.

How about merchant to merchant applications and do you have estimates on how much the India B2B market is worth?

If you look at B2B, that too is very interesting for us as we address cash and carry. In India the market includes stores such as Walmart and Metro Cash and Carry. We’ve done a prepaid program, also a credit card with limit, accepted by closed group of retailers. Other interesting opportunities are around travel, for low cost airlines to sell their inventory and enjoy more card acceptance. The third interesting area is procurement that can help both parties optimise working capital.

Our own best estimates for the size of the B2B market is $15b to $20b of available market across the country.

How has the Indian payments market changed over the last year?

The first major trend has been the move from credit to debit. In the past cards were used more for discretionary expense, now the trend is towards non-discretionary, as consumers use cards instead of cash in their wallet. Supermarkets are adopting cards and issuers have provided a lot more debit cards.

Secondly, it is contactless. We were the first to introduce contactless terminals. For small value transactions, you can now tap and go. I believe Contactless could be very important going forward.

The third trend is mobile especially through mobile internet. India has 900m mobile phones and 300m smartphones, growing to 500m. People prefer to shop on their mobile rather than using their laptops or PCs. This is higher even than the US, and considering how important the Indian market is apps are being rolled out and payment systems are evolving fast. Mobile optimised pages and plug-ins are being rolled out. We expect this market to reach $35 million.

The fourth major trend has been the growth of our local network, RuPay, similar to China UnionPay. In the past Visa and MasterCard held dominant positions in India, but issuance in the last 18 months has changed things. NPCI RuPay has issued a huge number of cards and will play a very important role as all the new bank accounts use RuPay.

How important will the physical card be in India?

I think plastic cards will continue to be very relevant in the near future. Mobile wallets have not been adopted as fast as hoped and have been around prepaid rather than card in store.

I believe however that the form of plastic will change though, with more Chip & PIN EMV cards being rolled out as we speak.

Do you have any idea of the number of contactless cards and terminals?

I’d say terminals accepting contactless cards are in the region of 20,000-25,000. Also, if you talk to top acquirers, they’re all talking of deploying a large number.

We expect pretty much all of our new deployments to be contactless this year. Over 80% of the transactions on POS are less than $30 and could qualify as contactless. Some categories would go better, for instance super-markets and transit.

Transport has not come up as much as it could, do you see this changing?

A number of metros are leading in the investment in tap and go. Toll is not yet integrated and as it is not interoperable it means that people cannot yet buy prepaid. With regard to Prepaid, services Mobikwik offers card payment service for Android and iOS users and now supports paying for Uber.

The form factor of cards will change, as this increasingly moves to Chip & PIN and contactless rather than magnetic stripe as the price of contactless terminals is not that much more.

What significant changes are likely in the way people pay in India over the near future?

We are keen to look at in particular in terms of how government participates. Deploying acceptance infrastructure and now systemic incentives will help non-cash payments to reach tipping point.

Everyone understands the cost of cash. The goal is to get people to prefer electronic payments over cash. However affinity to cash is too high and must be broken. Government incentives made available to all, including merchants, consumers, acquiring banks and others, will help to lower costs and promote adoption.

Nitish, thanks for sharing your insights with us. I wish you the very best for your initiatives as India continues to adopt non-cash payments at this unprecedented pace.

Nitish Asthana is the VP and Head of First Data India Ventures, focused on venture investments in POS, e-commerce, mobile commerce and digital payments. He has led the merchant acquiring business for First Data- ICICI Merchant Services (ICICI MS) and had overall responsibility over ICICI MS revenue lines across the company’s POS and Ecommerce businesses, acceptance and acquiring product solutions, sales, business development and marketing.

For more information on “Digital Money in India”, Shift Thought’s unique 360-degree coverage of the Indian payments scene, or to gain access our self-service portal with the latest knowledge on the ecosystem, initiatives, regulations and more, just email us at contact@shifttthought.com.

Apple Pay comes to the most contactless ready country – UK!

Posted on July 14, 2015 by Charmaine Oak

Today Apple Pay launched in the UK - signalling the start of a new era.

Since Apple Pay launched in USA last October, a UK launch has been expected, to mark the start of a new level of use of mobile phones for contactless payment. UK is the country that is arguably the most contactless-ready in the world, with the largest number of contactless cards according to recent Visa reports. As people in the UK start to pay for goods and services around London using their iPhones and Apple Watches this could forever change the way we pay, first in the UK and shortly across other parts of Europe.

From today over 250,000 shops will accept Apple Pay across UK.

These include:

High Street Favourites: The Post Office, Starbucks, Costa, Subway, KFC, McDonalds, Pret
Retail Stores: Waitrose, Lidl, Spar, JD Sports, Dune
Department Stores: Marks & Spencer
Restaurants: Wagamama, Nando's
and most important of all, Transport for London (TfL)

As you will recall, London buses went cashless last year this time, but people were still largely using Oyster cards, with contactless payment cards still a novelty. I touched on this in my blog of December last year, “How payments changed in UK in 2014, and the perfect storm brewing for 2015”. Although mobile payments was supported by Vodafone, EE and others, consumers failed to adopt in large numbers. Now though, there is for the first time a real challenger to contactless cards.

People can now authorise payment simply by using their fingerprints, with the NFC chip on their phone communicating with TfL readers on the London underground, buses and rail networks.

The first three banks to launch today are Santander, NatWest and Royal Bank of Scotland. Barclays, having held out the longest, is also likely to shortly support Apple Pay, but HSBC and First Direct will be first with their launch later this month.

As the limit for contactless transactions increases from £20 to £30 in a few months, people can start to buy groceries through this fast new checkout method. Unfortunately I buy all my groceries online, so will have to make a special trip to the stores to check this out. Watch this space!

There are many ways to measure contactless readiness – number of terminals, number of cards, usage of contactless payments and more. Different countries top on different criteria. This month Visa Europe reported that UK leads Europe in contactless cards issued at 49.6 m cards, and 410,000 terminals, and considering that these are just figures from Visa, these figures appear to make UK the leading country, at least on some measures of contactless readiness (Your views are most welcome!). This launch is therefore a critical one for Apple, and will be instrumental in driving strategies of key providers world-wide.

With Apple Pay here now, can Android Pay be far behind?