Stick in the mud

Tag: emerging markets

  • Digital payments for the disconnected majority

    Digital payments for the disconnected majority

    Last week two companies announced the availability of IVR based payments for their wallet offerings. PayTM lets users with a wallet initiate a payment by making a call to a toll free number. So does ToneTag. To most people this was mystifying at best and just one more reason to do a full page ad for the rest. A short while ago, Ola had announced that it now supports requesting cabs via SMS (sent from the app). Witness also the recent push for NUUP based services. These are not isolated incidents of digital services tacking on just another new feature. For those working in the mass market space in India or other emerging markets, this reflects a catching up with reality and not a new feature.

    Data connection availability, taken for granted in the urban areas, is on far more shaky grounds a short distance beyond the big cities. This is not just physical connectivity which is a problem (which it certainly is), it is also to do with people having exercised the option of having such connectivity. This could be temporary (data plan exhausted, or expired) or could be more fundamental in that the user has never had data connectivity. As Nandan Nilekani said in a recent talk, 250m people have smartphones in India, another 350 million have feature phones and the rest have no phones! The billion total phone connections, with overlaps, multiple SIMs and the like come down to about 600 odd million unique users. Most of the 350 million feature phone users don’t have data connection and, obviously, none of the 600 million without phones do. 

    This forms a natural barrier to adoption of digital services. Let’s look at how this impacts services specifically that for payments, the service that I started this article with and the topic of every conversation in the last few weeks.

    Payments require a few basic ingredients to work with. The payer (or customer) needs to have a digital store of money. The payee (or merchant) needs to have a visible means of conveying his/her identity. There needs to be a mechanism to communicate the intent to pay. The first part is met, directly or otherwise, by a bank account. You could use it directly (as in UPI) or by moving some funds to an online wallet (as with PayTM, Freecharge and others). The merchant is identified by an account number (or VPA in case of UPI) or a mobile number in case of wallets. The third part is where things get interesting. Since the first two parts are all online, the payment instruction necessarily needs to reach some server to be executed. Hence the rapid providing of an IVR option at first contact with markets beyond the tech-savvy.

    I believe there is a better and alternative option. Before we get to that, there are a couple of other aspects that are worth bringing up. Most people with bank accounts (which are nearly all households now, thankfully) are very wary of having their account used in any way which they don’t comprehend fully. ATMs are starting to get befriended – faceless as they are and representing banks. POS machines are a distinct no-no – as much to do with the machines as the people involved. So the principle of having a store of funds (wallets etc) as distinct from bank accounts is critical for adoption by the mass market. UPI may provide restriction-linked VPAs but digital wallets do that for now. The second aspect and perhaps even more fundamental is the user experience. Digital wallets, for all their goodness, still retain a lot of hand-waving mystique about them for people not used to smartphones. Particularly, auto-topup options as provided by wallets today can only increase distrust amongst people. 

    The better option, I believe, is for the use of stored value cards. ePurse cards. Prepaid cards. They go by various names and are similar to the metro cards or other fare cards. Imagine the simplicity of tapping a card like that at a shop and paying for coffee in an instant (< 1s). No connectivity required. Neither the merchant nor the customer need to be connected for this. Controlled funds – you can’t spend what has not been put physically on the card. The touchy-feely-ness of real cash. The supreme simplicity of just a tap to pay. Equally easy to topup. Familiar security methods – treat it exactly like you would cash! Best of all, this can be an extension to the wallets and bank accounts that exist today and provide a controlled use of small portion of funds while the bulk continues to remain in their trusted bank end systems. 

    In order to bridge the digital payments divide, ePurse systems provide a far better reach and likelihood of adoption. Interested in conversing about this? Do write to us.

  • 2 billion merchants are waiting

    2 billion merchants are waiting

    There are two billion unbanked adults in the world, according to this CGAP report. I think these are really 2 billion unserved merchants. Want to know why? Read on.

    To understand this we have to go all the way back to Adam Smith and the Wealth of Nations, his 1776 masterpiece that kicked off the period of what is now called classical economics. It covers a lot of ground, but one sentence that struck me as particularly relevant today, as I re-read it recently, was this gem:

    Every man thus lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society. 

    CHAPTER 4, OF THE ORIGIN AND USE OF MONEY

    The back-story for this line was that division of labor was getting more and more established (remember, this was 1776) and every man’s wants were met only in a small measure by the produce of his own labor; and he would need to depend on others to meet the greater part of his wants. And, in turn, fulfilling a portion of other’s wants himself.

    Pause for a moment and reflect. You need to do that often when reading Adam Smith.

    Every person has something to exchange – be it produce, goods, or skills. Anyone who exchanges any of these for money is a merchant. Ergo, every economically active person is a merchant.

    Step back a bit and observe  – who is a merchant when you look around your neighborhood? The grocer, the plumber, the bartender, the taxi driver  – all clearly identifiable by a shop or other visible trappings of business. But look closer (and read Adam Smith’s line above again) and you will start noticing merchants everywhere – the hawker at the traffic signal, the fortune-teller under the tree, the guy hanging from the open door of the minibus and soliciting passengers, and even the beggar exchanging benediction for alms (this one is Mayank’s favorite, BTW). Think back and you will now see where the 2 billion merchants come from.

    Yet, your original reaction of looking at only those with shops or establishments as merchants is completely understandable for that’s how society has been classifying them for long. Banks and other conventional financial institutions have so conditioned society to think, that anything else borders on blasphemy today. Mobile money service providers, telcos in most cases, have disrupted how financial services reach the common man, the ones left outside of conventional financial systems. When it comes to merchants and commerce, they should continue their disruption of financial traditions and make every merchant, in the full Adam Smith sense, a first class citizen of the modern commercial society.

    The time has come for every merchant to stand up and be counted. The time has come for true financial inclusion for every unserved merchant. The time has come for Xip.

    PS: Read Wealth of Nations, listed amongst the most influential books ever by the World Economic Forum, for free at geolib.