Do you constantly find yourself in a hassle of finding the exact denomination of currency while making payment to auto-rickshaw drivers, local vendors etc.? If your answer is in the affirmative, then you are a part of a majority of urban Indians struggling with inconvenience of carrying change. Another problem is the lack of access to banking and financial services to a majority of rural Indians with less than 5% of the villages having a banking outlet. The principle macroeconomic problem of financial inclusion calls for an urgent need of innovative technology to cater to the needs of modern Indians in a market of a falling rupee.
An effective alternative can be found in the successful Kenyan business model, Safaricom’s M-PESA. Launched in early 2007 by Safaricom (Vodafone group), M-PESA is one of the most successful mobile money transfer service in the world. The product is called M-PESA as “Pesa” is the Swahili term for money and “M” stands for mobile. It is basically an SMS based system used to deposit funds, make payments, transfer as well as withdraw funds. This service however does not require a bank account and can be done via any of the 11,000 agent outlets across the country. The service was initially developed by the Vodafone group and the initial six month pilot phase was funded by the UK Department for International Development. It started as an effective method for microfinance loan repayment but later became more popular as a P2P payment method as well as a way of sending national remittances.
M-PESA will act as an effective tool in exposing and monitoring the money that is kept “under the mattress”, in an economy plagued with black money and corruption, as it did in Afghanistan. In Afghanistan the system helped to detect the inadequacies in the previous model for payment of salaries to Afghan National Police officials. However the success of M-PESA was due to the fact that Safaricom had market leadership of 70% while in India the economy is divided in its loyalty to its various mobile service providers. Secondly the stringent banking regulations in India set by the Reserve Bank of India are also effective barriers to this system. As per these regulations a person who wants to enjoy the services of mobile banking, must necessarily possess a bank account. The entire idea of M-PESA is to allow registered transactions to occur at a fee of 50 cents as against a bank commission of $5 for a $50 transfer. Hence this idea may not work at a low cost in the Indian scenario. As per empirical and statistical evidence provided by Isaac Mbiti and David N Weil (2009) it can be concluded that the increased use of M-PESA lowers the propensity of people to use informal saving mechanism such as ROSCAS and raises the probability of it being banked. Secondly M-PESA causes decrease in the prices of competing money transfer services like Western Union. The velocity of M-PESA is estimated between 11.0 and 14.6 P2P transfer per month. The M-PESA system has been introduced in India and currently dwells in the states of West Bengal and Jharkhand. The system is started by Vodafone in collaboration with ICICI Bank and considers itself to be a semi-closed mobile wallet linking a bank account to a customer. Skeptics believe the system may not work in India considering the recent stunted performance of Airtel money transfer scheme. M-PESA is an innovative example of solutions that can be used to tackle with the problem of financial inclusion in India. However there are myriad applications in the market that work on the concept of mobile money. Such features can be added to the M-PESA model to create a service suited to the needs of urban dwellers. Some examples include voice enabled mobile payments, linking loyalty cards to mobile money accounts, using facial recognition for mobile payments etc. Hence India has a long way towards tackling with its problem of financial inclusion. However the need of the hour is to develop effective technology based solutions to tackle with this problem. M-PESA is just one model of such an effective business model that made Kenya a role model in effective mobile based payment systems.