The Watal Committee on digital payments (pdf), constituted by the Indian governments Ministry of Finance, has recommended that telecom operators be allowed Direct Carrier Billing for low value transactions be allowed in a “sandbox environment”, with light touch regulation, open to regular evaluation.
A sandbox environment, according to the report, allows these technologies to operate under a limited license, for the purpose of evaluating the feasibility of the business model, and its likely risks, so that these can be used to make adjustments to a regulatory framework. The report states: “The Committee recommends that telecom companies be permitted to roll out DCB Payment model within the telecom entity for all low value payments. The threshhold may be defined by RBI in consultation with TRAI and reviewed periodically.”
Direct Carrier Billing is when a user can use their mobile operator to make payments: in case of a mobile prepaid user (which is most of India’s connections), they can make the money remaining in their prepaid balance to make the payment. In this case, the telecom operator treats remaining balance as being in a mobile wallet. In case of post-paid, the payment is added to their mobile bill. In this case, the telecom operator treats payments in a manner similar to a credit card payment process.
Regulatory ambiguity regarding Direct Carrier Billing
Carrier Billing has been around for years, with businesses like Fortumo, Boku and VerSe, among others offering consumers the ability to pay with their mobile balance; the Watal Commitee report references a 2013 MediaNama story on “Why India’s Carrier Billing Market is heating up“. Of late, though, there appears to have been a pull-back, especially after Idea Cellular launched Carrier billing for the Google Play store: An couple of industry sources confirmed to us that the DoT had sent a notice to carriers, directing them that money cannot yet be deducted from the prepaid balance, thereby ensuring that it doesn’t work for most of India’s mobile users. This is why Google’s recent partnership with Airtel and Vodafone for carrier billing only works for post-paid users. The Watal Committee report references the ambiguity:
“However, there remains ambiguity over whether offering wider DCB facilities could potentially contravene the provisions of RBI’s PPI Guidlines, and the Department of Telecommunications (DoT)’s license conditions. TRAI has in the past indicated that DCB and other mobile commerce platforms would fall under the category of VASs, there is no regulatory clarity on this issue from the DoT. The Committee feels that DCB has the potential of providing increased access to digital payments to large sections of the population. Globally, DCB is a recognized form VAS provided by telecom operators.”
In the end, the report clearly concludes that “The present legislation does not permit DCB (direct carrier billing) payment model.”
Licensing for Carrier Billing?
The report suggests that Direct Carrier Billing should be allowed: “Accordingly, DCB should be expressly allowed by the RBI, TRAI and the DoT under the applicable regulatory framework. The Committee futher notes that mobile accounts need to be KYC compliant in terms of the directions of the DoT, and that the DoT has allowed “Aadhaar” based eKYC for subscriber verification. Given these developments, the Committee notes that a wider roll-out of DCB facilities by telecom operators (Discussed further in Chapter 6.3) can be fast-tracked.”
It notes that carrier billing “was limited to the purchase of ringtones and wallpapers etc., but now it has a reached a phase where it allows a consumer to purchase goods and services by using mobile phones in a smooth and user-friendly manner. Additionally, DCB can help in financial inclusion by reaching the unbanked and underbanked. DCB is usually aimed at low-value micro-payments and is offered to account customers as an alternative to a credit card. It is also offered as an alternative to credit and debit card payments for online purchases in some markets. This has the advantage of convenience for users by adding the charge to the phone bill, and by removing the need to register a credit card on the site for what may be a onetime purchase. The Committee recommends that telecom companies be permitted to roll out DCB payment model for low value payments.”
MediaNama readers will recall that this has been a fairly typical approach from the Reserve Bank of India, when trying to regulate businesses that were otherwise operating in an unregulated environment: Prepaid Payment Instruments (Wallets) were operating in an unregulated environment, until the RBI first brought them under a licensing regime.
Will independent aggregators be regulated?
While it is not clear from the report how the committee views aggregators, they seem to be more focused on creating the framework for making carrier billing legal. Carrier Billing providers like Fortumo, Verse and Boku are aggregators: they connect with merchants on one side, and carriers on the other. It’s difficult for telecom operators to manage hundreds of thousands of merchant relationships (because they’re a bureaucracy), despite Vodafone’s largely unsuccessful attempts to “open up” a few years ago, just as it is difficult for many small merchants to connect with carriers. This report, while at some level, legitimises the carrier billing business, it remains to be seen what kind of constraints are put on their operations from here on.