Mobile payments in India
Mobile Payments is a new and alternate mode of payment using mobile phones. Instead of using traditional methods like cash, cheque, or credit cards, a customer can use a mobile phone to transfer money or to pay for goods and services. A customer can transfer money or pay for goods and services by sending an SMS. In India, this service is Bank-led.[1] Customers wishing to avail themselves of this service will have to register with Banks which provide this service. Currently, this service is being offered by several major banks and is expected to grow further.[2] Mobile Payment Forum of India (MPFI) is the umbrella organisation which is responsible for deploying mobile payments in India.[3]
Background
India has a vast un-banked population,[4] most of whom reside in the rural areas. The traditional banking industry can not cater to the needs of India's large rural populace.[5] Setting up a conventional branch in a rural area would require considerable amounts of money to be spent on infrastructure and additional personnel. Most of rural Indians are cut-off from access to basic financial services which includes deposits and withdrawals from a trusted source.
The Growth of Mobile Phones in India
However, India is the second largest telecommunications market and has more than 650 million mobile phone customers.[6] Mobile phones are quite common even in the remote villages. The mobile phone industry is growing at a rate of 100 million per year. It is expected to touch the 1 billion mark by 2013.[7] Given this context, it is economically viable to consider the mobile phone as a possible instrument to enable access to financial services. In a 2007 meeting conducted at IIT Madras , which was attended by representatives from the Government of India, Industry leaders and others, the focus of the meeting being financial inclusion, Mobile Payment Forum of India was constituted to oversee the launch of mobile payments in India. MPFI is a joint effort between IIT Madras's Rural Technology Business Incubator ([RTBi]) and Institute for Development & Research in Banking Technology (IDRBT).
Services Offered
The basic aim of mobile payments is to enable micropayments on low-end mobile devices which support only voice and text. Using this service, any person who has subscribed to mobile payments can send money to any other person who has subscribed as well. This is independent of the mobile network and the bank to which either of the customers belong to. This is a key concern for any major technology to be successful and is referred to as interoperability.
The service is available over a wide range of communication channels including SMS, WAP, USSD, IVR among others. This service allows a person to transfer money to any other person in exchange of goods and services. It can also be used to make payments online, pay at restaurants, remit money, etc. A major pain point for migrant workers (from other states) in India is to transfer money to their kin in their native states. Using this service, transfer of money is safe, fast and effective as established by a pilot study conducted.[8]
Banking Correspondent
Though a mobile payment allows payments to be made electronically, they do not enable depositing money into a bank. The Reserve Bank of India (RBI) tended to this issue by creating the post of a banking correspondent (BC).[9] The role of a BC is to act as an interface between the bank and its customers in places where traditional banking is not feasible. Banks can appoint a trusted third-party as a BC in a village. All the villagers who wish to transact with the bank can get in touch with the BC. Deposit and withdrawal of money is handled by the BC. When a person deposits money at the BC, their account immediately gets credited. The person can then use their mobile phone for additional transactions.
Differences with Mobile Banking
The major difference between mobile banking and mobile payments is the total absenteeism of the bank account number. In mobile banking, or Internet banking, money can be transferred only when the account number of the payee is known before-hand. The account of the payee has to be registered with the payer and only then can a fund transfer happen.
In mobile payments, the account number is masked from being public. One need not know the account number of a person to transfer money[10] . This opens up a range of possibilities from buying tickets to paying auto fare, both of which would not have been feasible had the account number been mandatory for a simple transaction.
How does it work
A transaction is initiated by sending an SMS with the following details:
- Mobile number of the payee
- Amount of money to be transferred
- A 7-digit MMID (Mobile Money IDentifier)
- A 4-digit PIN
This SMS has to be sent to the SMS gateway of the bank to which the customer is subscribed to. Depending on the state of the transaction, either both parties (payer and payee) or only a single party is notified about the transaction. A successful transaction will be notified by an SMS to both parties.
MMID is a 7-digit number which identifies the bank and the account to which the mobile number has been mapped to. It allows a single mobile number to be linked to multiple accounts. It also serves to reduce erroneous transactions when a customer inadvertently enters an incorrect mobile number.
Technical Details
The technical standards are setup by the MPFI. These standards are ratified by the RBI. IIT Madras is the primary technology partner. The transaction flow can be simply described as 'customer-bank-bank-customer'. When a customer initiates a transaction by sending an SMS to the bank's gateway, this SMS is processed by a Mobile Payment Provider (MPP). The role of MPP is defined in the standards document. After appropriate checks with the customer's bank, the transaction is forwarded to a central switch. This switch routes the transaction to the payee's bank based on the MMID. In the 7-digits of the MMID, 4-digits are used to identify the bank and the rest 3 are used to identify the account.
The communication between the MPP's and the banks takes place using ISO 8583 message format,[11] which is the standard message format for all financial messages in India. In order to test the compliance and conformance to the standards set and the message formats, a Certification Lab is being setup at IIT Madras.
Security
Following RBI's guidelines on security of mobile payments,[12] a two-factor authentication mechanism is employed. No transaction can take place without the use of the secret PIN. An SMS sent through a Java application on the mobile device is as secure as an Internet Banking transaction. For micropayments, plain SMS based transactions are as secure as other modes of payments. However, there is a cap on the amount of money that can be sent through a plain SMS.
A Java based application on the mobile allows the SMS to be encrypted when being sent over the air. Once the SMS reaches the base station, all the communication happens over a secure SSL channel.
References
- ^ http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=1750
- ^ http://www.npci.org.in/documents/IMPSFlow.pdf
- ^ http://www.mpf.org.in/about_us.html
- ^ http://www.cab.org.in/FILCPortal/Lists/Implementations/Attachments/10/operational_manual_financial.pdf
- ^ http://www.censusindia.gov.in/Census_Data_2001/Census_data_finder/A_Series/Number_of_Village.htm
- ^ http://www.coai.com/statistics.php
- ^ http://www.pwc.com/in/en/press-releases/India-will-have-over-hundred-million-3G-broadband-subscribers-by-2015.jhtml
- ^ http://timesofindia.indiatimes.com/city/vadodara/Mobile-banking-facility-for-Surats-migrant-workers/articleshow/6493353.cms
- ^ http://www.rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=2718
- ^ Kumar, D.; Gonsalves, T.A.; Jhunjhunwala, A.; Raina, G.; Communications (NCC), 2010 National Conference on Digital Object Identifier: 10.1109/NCC.2010.5430160 Publication Year: 2010 , Page(s): 1 - 5
- ^ Kumar, D.; Gonsalves, T.A.; Jhunjhunwala, A.; Raina, G.; Communications (NCC), 2010 National Conference on Digital Object Identifier: 10.1109/NCC.2010.5430160 Publication Year: 2010 , Page(s): 1 - 5
- ^ http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=1750