Cash Cards are micro payment instruments that are being used extensively for making payments on the Internet, and on the mobile. The issue that Cash Cards do not follow Know Your Customer norms has been raised in the media and at conferences; we took this up with Naveen Surya, MD of Itz Cash, an Essel (Zee) Group company, which has received $10 Million in funding from Matrix Partners earlier this year. We also got some interesting inputs on consumer behavior:
On the allegation that Cash Cards do not follow Know-Your-Customer (KYC) norms
It is a myth that our kind of product doesn’t have KYC. It is true that when we issue the card, the KYC doesn’t exist. But the moment you do a transaction, the indirect access of KYC is fully available. With our card, the transactions that you can do, and where you can do them – whether on mobile phone, Internet or with a particular venodor.
What if there’s an arms dealer based in Bangalore, and there’s a buyer based in Delhi, who know each other. On an online marketplace the dealer shows that a mobile phone is being sold. The money changes hands using cash card payment, and instead of sending the mobile phone, arms are sent. The money trail cannot be tracked…
In our case, there is a transaction limit of Rs. 20,000, so hopefully he cannot buy the arms. Technically, in cash, you can do a transaction of Rs. 49,990 without giving a pan number, without KYC requirements. The other thing is, the KYC of the person who is selling is always available with us. All the money is paid to him, always in his bank account. Anyway, this can happen in any mode – the crime can be committed using a credit card or a bank account.
Isn’t a cash card like a Mobile Wallet (and hence not legal)?
The service looks similar, but there are clear and distinct differences. Itz Cash is a pure payment instrument and has nothing to do with money transfer or withdrawal. You cannot encash it or transfer it. In case of mobile wallets, you can put in money and redeem money. When those are allowed, there are risks of money laundering etc, which I dont want to go into.
We do almost 80,000-100,000 transactions in a day – the largest in the non-banked category. The average amount varies from category to category. Railway ticket average is around Rs. 1400. We’re the second largest on IRCTC – with around 17 percent market-share against ICICI Banks 21 percent. In terms of utility bills, like Reliance Energy, we have 75 percent market-share in the online space. This is because of simplicity and convenience. Daily transactions are between Rs. 6-8 Crores. Utility payments are around Rs. 1000, average. Donations average at Rs. 51-100, Dish TV payments at Rs. 150-200. Our cards are available at 100,000 outlets, controlled through over a 1000 distributors.
In addition to that, we have more than 10,000 Itz Cash Gold outlets, where you can go and pay cash, and they do entire transaction via a special cards with franchisees. Even the Railways has authorized them with a separate ID and password, to book tickets, collecting Rs. 10-15. Online, Itz Cash is accepted at over 3000 sites, and around 50-60 services on SMS. We have 2-3 merchants with Voice Portal channels. In addition to our text payment, we have been working with operators for bill payments – Tata Indicom and RWorld.
On Rural Rollout, Barriers To Adoption, Mobile (SMS vs GPRS), Security Issues and RBI Guidelines:
Rural Rollout And Barriers To Adoption
We already are present in more than 1000 cities, not all in villages, but the top three levels. We’re already working with agencies who are present in rural India. Its not about rolling out the card in rural areas, but what services are demanded. In certain cases, where there are agencies already working, giving few services – which are not giving them an ROI, we tell them to pick and choose services that we offer, and make them a distributor. They become a delivery point for our services.
The kind of audience we are going to, you need a service that doesn’t inconvenience them. You have to keep things as simple and as convenient for a potential user for him to start thinking about a change from cash to cashless. In India, around 70 percent of the people are unbanked. Many don’t know how to fill up a form – and they don’t want to make this public. The idea is to reduce the barrier. Once the convenience is established, gradually you’ll get more information about them as you upgrade the service. You can have a KYC requirement for certain specific services.
Mobile: SMS vs GPRS
When we started,we were an internet based option. The reason was that the Internet penetration for services was much higher. Somehow, I don’t see that people would like to book a railway ticket using the mobile because because it is cumbersome, unless you have a specific request. Currently, there is no killer application on the mobile.
Out of our total volume, around 10 percent is through text messages. We started processing SMS based transactions because access to SMS was available to every user. In case of Apps, you need to be handset specific, and dependent on GPRS, which is not in our control. We started with Dish TV payment – Rs. 100-250 subscription, and smaller services like Siddhi Vinayak donations. Mobile top-ups and bill payments. These are impulse payments. We have to keep experiementing.
On Security Issues
Because of security issues, we have to transaction values low. We’ve found that when the values are small, your risks are reduced to a large extent. What is the incentive for the hacker? Either a challenge or a value. In our case, the incentive is limited to the value of the card…the value left in the card. And the customer keeps changing the card – unlike a credit card which is used over and over again. Most of the utilization of the card from our customers is 7-10 days at maximum. Normally they buy a particular denomination for a particular purpose, finish that, and there is some residual value they use over the next 15 days.
Impact of RBI Mobile Banking Guidelines On Cash Cards
RBIs guidelines on Mobile Banking do not affect us, but there’s an overriding act – the Payment and Settlements Systems Act, which will eventually will decide most of these guidelines. The RBI is in the mode of preparing guidelines separately for various kinds of payment operators. Once those are effective, all kinds of payment providers, all players like Mastercard, Visa, Western Union or companies like ours will be covered by that act. So we expect a set of regulations which in addition to current existing laws would probably impact our business.
Note: We’d done this interview a few weeks ago, and I just noticed that they’ve launch three services – Itztravel, ItzInsurancemall and ItzPhoto. A payment solutions company venturing into services…We’ll have more on this.