India: M-Pesa is rolled out – at last

M-Pesa, the mobile money transfer tool set up in Kenya back in 2007, has now launched in large areas of India.

Vodafone India, which has some 150m customers around the country, has teamed up with ICICI Bank to roll out M-Pesa in India via its subsidiary Mobile Commerce Solutions . The scheme has been piloted in Rajasthan since 2011 but with a national launch this week, service begins in eastern parts of the country.

This is a country where almost half the population doesn’t use banking services yet; and mobile phone penetration is expected to reach 72 per cent by 2016. Sounds like a perfect market for mobile banking. But there are other challenges that could complicate the road ahead for M-Pesa.

An M-Pesa account will allow customers to deposit, transfer and withdraw cash, as well as using the mobile money to recharge their phones, pay bills, and make payments at certain shops and online. The service will compete with money transfer companies, which charge fees between 1.25 per cent to 1.5 per cent on transactions. So M-Pesa’s charges will be lower than, say, the commonly-used Post Office money orders, where the charges are nearer 5 per cent.

With some 8,300 agents already in place across three circles, the company’s presence is almost as dense as that of the banks, which have around 9,300 branches in the roll-out regions.

Vodafone says it’s easy for Vodafone customers in India to set up accounts: they can simply visit an M-Pesa agent, do some paperwork and identity checks, and make a deposit to open an account.

Those without approved identity documents have a more limited service – the “semi-closed wallet” – which doesn’t allow purchases in stores or via e-commerce. But remittances and transfers are still allowed. So, the big problem of identification for the unbanked, rural masses suddenly doesn’t look so big.

It’s not a new concept in India. Airtel launched its “mobile wallet” more than two years ago. And Yes Bank and Axis Bank offer mobile banking applications that allow customers to transfer funds, check their statements, shop and pay bills.

In terms of financial inclusion, mobile banking may be just what India needs. The 2011 census showed that only 58.7 per cent of households in the country use banking services – that’s up from 35.5 per cent in the 2001 census, but still an unacceptably low proportion. Inclusion is therefore a big concern for the government, which is making this a criterion as it hands out new banking licences.

“This has just launched so we are primarily looking at financial inclusion”, Suresh Sethi, business head for M-Pesa at Vodafone, told beyondbrics. “The larger objective of the business is to look at remittances and focus on migrant corridors.”

But there are challenges in the Indian market, which explain why M-Pesa is only being rolled out now, some years after taking off in other developing economies. For example, in Kenya, transactions worth some 31 per cent of national GDP now go via mobile phones.

Sethi says there are differences between India and Africa: “Firstly Africa was a largely unregulated business, with mobile money transfer done more like a telecoms company than a financial services company. In India, mobile banking is under the guidance of the RBI [Reserve Bank of India].”

Controls on the sector focus mostly on the devices used by the customer and the size of transaction but Sethi says the rules are becoming increasingly flexible, making business simpler.

Identification is also an issue. “In India we don’t have a national ID card, like a social security number”, Sethi explains. “In Kenya, surprisingly, they do have one so it was easy to check identity to open a mobile account.”

The RBI has established a bank-led model focused on meeting the government’s ‘know your customer’ identification policy and anti money laundering policy. But over time the rules have been relaxed to allow the industry to grow. As of December 2011, banks can themselves decide where to cap the size of transfers – remittances and for purchases – without RBI restrictions. And since October 2011, those without a proof of address can use mobile banking to transfer up to Rs5,000 to domestic bank accounts, up to a limit of Rs25,000 ($460) per month.

Given the need for financial inclusion and the spread of banking into rural areas, it should be in the government’s interest to do more to make life easy for mobile banking businesses such as M-Pesa.

Related reading:
Vodafone eyes M-Pesa launch in SE Asia, FT
Guest post: The case for digital legal tender, FT
Africa’s digital divide: still gaping, beyondbrics
M-Pesa’s cautious start in India, FT