Now your Bank account in the sky!

There have been 100 mobile money deployments in emerging markets. At least 84 of them within the last three years. What I have found to be common for those that are successful (14 of them, as defined by number of payments relative to the size of the addressable market) are growing the customer base and network in tandem. This makes the overall agent economics and agent enrollment efforts remunerative. What is not so explicitly stated, but key, is role of ‘Regulation’. In under regulated, low banking penetration, light regulatory touch economies such as Somaliland, Kenya, Tanzania, and Uganda it has worked well. But in robustly regulated and supervised markets like India – the outcome is poor. M-pesa cant be re skinned for local conditions just with addition of 'a' and 'i' and drop of an 'e', Vodafone has been experimenting with M pesa in India for some years. They launched in 2011 with a pilot in Chomus, Rajasthan. And recently with ICICI Bank. It would be interesting to assess the outcome of that pilot and understand goals set with ICICI Bank. The original program was envisaged to board 10 million farmers for its financial inclusion efforts. Before that Tata Teleservices launched its own domestic money transfer program with Corporation Bank. As did Axis Bank and Airtel for the same purpose. While Airtel & SBI’s JV was short lived. In India it seems banks and telcos are dancing an endless tango to see how best to crack the conundrum of mobile money. Ideally the telcos have been trying hard to edge the banks out of this - they see it as a next value driver and best geared organizationally to deliver tangible results. And the Banks are generally wary and averse against this being driven solely by telcos and the customers being owned by them. Probably for the same reason. Except they call it fear of systemic risk! So what is the way out? Even if the over strict interpretation of Banks role for cash-in/cash-out (CICO)is maintained, there are ways to skin the cat - so that 'unbanked beneficiary' can still avail of the service.. But for this to happen (and happen it has to) two things need to change. First, the differentiation between a payment service providers and credit issuers has to be understood. In the former accepting and keeping 100 % of monies collected in pooled accounts by way of escrow or reserve requirement does not constitute systemic risk, or, constitute what is known as a Systematically Important Payment System (SIPS). In fact the mobile wallet poses even less overall risk than banking and any other payments systems. For e.g. in 2010 the accumulated balance in all Mpesa, Kenya accounts represented just 0.2 % of all bank deposits even though M Pesa transactions accounted for over 70 % of all electronic transactions! Further, as a measure of abundant caution, PPI’s do not intermediate funds or issue credit! Second, regulatory dispensation has to now accommodate a sender/receiver or both NOT necessarily (a) Having any form of formal Bank account, but just having an unique mobile wallet issued by a RBI certified PPI’s. This mobile wallet, is what I call as - ‘Account-in-the-Cloud. Lets us give it a generic brand name – My Paisa account. (b) As per prevailing RBI norms some form of KYC applies for creation/loading up such a virtual wallets. Aadhar, as a (mandatory in time) RBI accepted e-KYC tool per se – as valid ID proof serves that purpose, The aadhar number also doubles up as an unique identifier mapped to the wallet and mobile number, and in due course to a no frills account or regular account. (c) Of course until UID reaches mass acceptance, the older KYC norms used thus far over the last 60 years will suffice for creation of the wallet as per prevailing RBI Prepaid guidelines. (d) While the conventional Bank-ICT based BC/BF/CSP Model has yet to categorically deliver any tangible over the last 7 years. Either, by way of account registration and/or account activity terms. Arguably it may have met its penetration levels into villages. This effort is now best also complemented by established private players (viz. FMCG, retailers, fair price shops, etc) to allow for network effects to kick in a la Tanzania with its 27000 agents for a population of 37 million, or Somaliland with its 8600 agents for a population of 3.85 million. (e) In India a clear a million such existing unique established and trusted points of presence are there built up over the last 100 years. Even if we don’t count the Telco touch points. Allowing for cash -out on such a larger definition of BC's/BF's/BA's by leveraging established & accepted networks of private payments processors & agent aggregators, will be par for the course (f) No program can be sustained if it not remunerative to the stake holders, and does not make sound business sense. So a competitive fee structure payable to the key stakeholders is key. This has to be either borne by the consumer like it is done for PO/MO’s etc or by the Govt for DBT. A fee structure of between 2-4 % with an appropriate cap would find a sweet spot. With account in the cloud, and with minimum stake holders the fee structure could even be aggressive without destroying the business proposition. Once this is done, direct cash transfers or payments or remittances can be done directly into a farmer’s, citizen, or customers or any aadhar-wallet account, to be redeemed at merchant points for goods & services or cash out, via the established private payment processors outlets. Subsequently one could look at e money issuers (Non bank PPI’s ) to also pay the customer interest on an e float maintained by the account holder by way of some form of subvention where on the pooled account some interest is earned.