The Indian government’s demonetization plan has shaken up the society and caused significant impact on people’s everyday lives. Beside the shift to a more digital nation and its benefits as a result of abandoning cash, there are additional benefits for specific parties in the economy.
Digital payment providers, primarily banks and wallet companies, are the biggest beneficiaries from people moving over to digital payment channels. But one type of organization has been overlooked that has the opportunity to do both societal good and grow their revenue: mobile operators.
Mobile operators are the largest consumer-facing organizations in India. Telenor, India’s 8th largest mobile operator, has over 2000 retail locations across the country. By comparison, Big Bazaar operates only some 200 hypermarkets. This significant physical presence could be used as a logistical support channel for moving the country over to digital payments. Carriers also have a direct communication channel with 1 billion people who are their subscribers. This means information on demonetization can be distributed through mobile operators as well.
But beyond the capability to provide logistical support in the transition, carriers have been presented with an opportunity to become a solution to what the government is trying to achieve. Namely, actively leveraging their financial relationship with their subscribers to move beyond topping up their SIM cards. So far, this has not taken off in India, with carrier wallets being used by only a small fraction of the population. In Africa by contrast, 22% of all users have a mobile money account, a majority of these being operated by carriers with the most notable one being Vodafone m-Pesa.
With 90% of transactions in India still being conducted in cash - and thus not moving through banks - there is a tremendous market for carriers now up for the grabbing. Digital transactions anyway assume that people have access to devices (smartphones) and connections (mobile data) to move their money. So it makes sense that carriers also get involved in the movement of money itself as well.
The window for taking up action on this is rather thin. Those companies who are already well positioned in the digital payments industry, such as PayTM, will be able to react and onboard new customers fast. But carriers have the logistical presence to gain a competitive edge here. Otherwise, they lose the market.
This is something that has for example happened in the digital content segment in other parts of the world. For example, applications are downloaded and consumed from Google Play’s app store with devices bought by carriers and consumed using their networks. At the same time, very little of the money ($10 billion in 2014) processed moves through the carriers and instead goes to credit card companies. But the opportunity is not just with digital content or app stores, in India’s demonetisation context it provides the opportunity to become the de facto payment provider for anything and everything. Much like with m-Pesa, point-of-sale and utilities payments as well as peer-to-peer transfers could move through carriers instead.
Currently the banking system is favoured by the government to take on the responsibility of being the digital payment processor, with moves like 2FA being removed for small-ticket transactions for card-based payments, something which is unfairly still applied to payments going through the carrier’s infrastructure. But legislative changes must be made here that make it easier for carriers to also become financial services providers.
As mentioned earlier, access to devices and mobile data are key to getting digital payments off the ground. Today, a majority of the population is still using smartphones and lacks access to mobile data. It is not a surprise that the best connected countries in the world are also the ones that are well off. The carriers role in the financial ecosystem in India is more important than in most other countries, the question going forward is whether the carriers themselves and the government realize it.