Policy, economics, and geography explain the appeal of mobile payments and banking. The national government is strongly behind bringing banking to the unbanked. India has more than 500 million mobile-phone subscribers, compared with just 240 million individuals with bank accounts, 20 million credit cards, 88,000 bank branches, and 70,000 ATMs. More than half of Indian households—110 million altogether—do not have a bank account. Yet, of the households without a bank account, 42 percent have at least one mobile phone. And nearly 90 percent of those phones are capable of handling basic financial transactions.
It is far less costly to offer banking and payment services using mobile technology than to build new branches in a country that, outside of major cities, is still largely rural. Mobile-enabled business correspondents, who are authorized to conduct business on behalf of banks, can serve a customer for 8 to 15 cents per transaction—far below the $1.00 to $1.50 cost at a branch. These correspondents can promote the acceptance of banking services in remote locations by providing a level of comfort to new customers. For customers willing to conduct banking directly on their mobile phones, the cost per transaction drops to less than 1 cent. (See Exhibit 1.)
By 2015, $350 billion in payment and banking transactions could flow through mobile phones, compared with about $235 billion of total credit- and debit-card transactions today. This forecast is based on a recent analysis conducted by The Boston Consulting Group and depends on the willingness of banks, telecom operators, regulators, and consumers collectively to embrace this form of payment.
Electronic payments are in their infancy in India. Today, ATM withdrawals, rather than payments, account for more than 90 percent of all card transactions. Mobile payments, meanwhile, are younger still.
As mobile-money initiatives take shape, the projected fee income in India from mobile payment and banking transactions could exceed $4.5 billion by 2015. That amount is less than it might appear. These fees will be shared by banks, telecom operators, device makers, and service providers. In India’s hotly competitive market, several operators will be competing for their share of the telecom slice of the pie.
Even without a huge cushion of fee income, operators can still generate business advantages by offering mobile-money services. The GSM Association recently studied the profitability of MTN Uganda’s MobileMoney initiative and concluded that indirect benefits accounted for 48 percent of the gross profits. The study, Is There Really Any Money in Mobile Money?, found that MTN Uganda paid lower commissions and had lower costs on airtime purchased with mobile money. Customers who used mobile money were also less likely to leave MTN Uganda and more likely to increase airtime consumption.
Lower costs and lower churn are worthwhile benefits, but they will not just happen unless operators actively recognize and pursue them. So long as operators recognize that these reasons—rather than fees—will drive the business, they can gain important advantages in customer “stickiness” and lean operations.
We define mobile payments and banking as any payment or banking transaction facilitated through a mobile device, in which the money is held either in a bank account, on a credit card, or in a mobile-based prepaid account. The phrase includes small-ticket payments among individuals, businesses, and governments and cash withdrawals from a mobile-enabled cash-out point or business correspondent. It does not include large-ticket payments such as remittances or flows among businesses or with the government.