In a presentation sharing its recommendations with the Indian government on mobile payments businesses in India, Nokia India has said that in its current form, the ecosystem “cannot yet sustain a profitable stand alone pre-paid (payments) business”. The Department of Information Technology (DIT) for India had sought suggestions on a framework for introducing a mobile based model for delivery of basic financial services; essentially, “banking the unbanked” using mobiles. Nokia had made the presentation in December 2009. The DIT has recently published the suggestions made by various entities, here.
Nokia indicates that, in its current form, the cost of providing payment services is prohibitive, and among them, that the need to do a Know Your Customer (KYC) verification introduces a cost of Rs. 200 per customer. For a pure pre-paid mobile ecosystem, depositing cash (cash-in) costs 150 basis points (bps), while telecom operators (for airtime top-up) incur a cost of 300 to 700 bps. To put it simply, the transaction costs are just too high.
What Nokia Wants
— No-KYC Prepaid Instruments: Nokia has recommended the introduction of prepaid instruments that enable withdrawal of cash without a KYC. This means that the prepaid instrument will act as virtual currency, and cash can be withdrawn from it without knowing where the money went. We think this is wishful thinking and risky, and it’s likely that the Reserve Bank of India will shoot it down.
As expected, Nokia wants handset companies and telecom operators to be allowed to distribute these pre-paid instruments.
— Cash in, cash out: Interestingly, while Nokia wants non-banking entities to be allowed to operate using their own brands, without linkages to banks being necessary, they do suggest that cost of cash in can be reduced by using the banks. At the same time, they want a reduction in the barriers to expanding/enlisting their retail base: Nokia feels that cash-in and cash-out should be allowed from any store, not just business correspondent, and the Non-KYC pre-paid instrument should only be sold at business correspondents outlets.
— Transparency: in the revenue share model between all parties involved.
— Interoperability: One suggestion we do like, is that of making all mobile payment offerings inter-operable. This will allow pre-paid instrument issuers to connect networks and reduce the cost of establishing a business-correspondent/retail network. This is similar to the way ATM networks operate in India now.
Download Nokia’s presentation to the DIT here.
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