Re-imagining India – the global payments factory of tomorrow

 

My title is based on my favourite book “Imagining India” by Nandan Nilekani. Though I now live in the UK, I am fortunate to be a global worker and when I analyse news on India it is always with fond affection for the country of my birth. As India celebrated its 66th Independence Day a few days ago, this blog series is dedicated to focussing on its achievements over the last decade and imagining where next for this amazing country.

Transformation at home

clip_image001In the 1990s the Telecoms revolution opened the doors to a new level of progress for India. Entrepreneurs freed from shoddy fixed-line services today manage little empires from mobile offices based on a trusty cell phone, a less reliable pair of chappals and an occasional rickshaw ride. The figure shows the steep growth of mobile connections in this, the second most populous country in the world.

Now India has an opportunity to usher in the next revolution: based on Aadhaar identity, real-time money transfer across the length and breadth of the country, card payments through the RuPay domestic card scheme and mobile wallets that can be used to cut through layers of middle-men and go direct to the consumer. The mobile phone is truly evolving into an “office in a box”, as it becomes a means of identification, information dissemination and payment. Digital payments are set to revitalise the domestic economy and create a strong impetus for the next stage of growth. At 60 million, the MSME sector of India is just getting started and reduction of friction in payments will grease the wheels.

It is not gold but cashless payments that holds the key to India’s future. Money going digital is the solution that is needed to control black money and stop the flight of capital. As the need for cash payments reduces it will be so much easier to eradicate behaviour that destroys the very fabric on which poverty reduction measures rest.

Transformation abroad

As I write this Wipro has just been named amongst the top 3 in the 2013 Global Outsourcing 100 list. The list ranks companies on parameters including customer experience, global presence and competencies. In the 1980s I am proud to have been a part of the revolution as Wipro led by Azim Premji (my first employer) along with Infosys (Narayan Murthy, Nandan Nilekani), Tatas and countless others set out to prove that a power cut or two could not stand in the way of a good nation turning itself into the IT Centre of the world.

I believe prerequisite conditions now exist for Indian entrepreneurs to craft a new success story. This story will build on past successes, using technology to create innovative digital money solutions for the world, just as India did in the space of Information Technology.

Can India make payments cheaper, faster and more secure by injecting low cost value added services and payment platforms into payment chains for the new online “global customers”? There are many factors to support this. In my next blog I expect to touch on the many recent changes that perfectly poise the country to capitalise on new payments, at home and abroad.

Mobile Money in China – a classic example of Digital Money

Many a brave pioneer has attempted to break into the highly desirable China payments market without success. Yet as the first foreign licenses are granted and PayPal awaits theirs, other global providers question whether it is once again time to venture east. The Shift ThoughtDigital Money in China 2013” provides a guidebook to would-be marketers, with unique insights on the current state of play and potential navigation strategies for each category of player. It will not be possible to succeed in Mobile Payment and Mobile Money without understanding the larger context of Digital Money .

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The size of the prize

It does not take long to convince any senior management team that the potential of the China payments market is massive. Homogenous, large segments do exist within the population of 1.35 billion. This major and rapidly growing economy is rapidly opening up to new technology and electronic commerce. Alipay, part of the mammoth Alibaba group has long ago claimed to have users in excess of the number of customers PayPal has world-wide, with a reported 550-700 million registered digital wallet holders.

Now they, along within an army of 250 other would-be payments providers equipped with third-party payments provider licenses are rapidly seizing key segments. Over 2013 the trend is for them to offer mobile wallets to their existing digital wallet customers. Historically Shift Thought believes this is the first time that new mobile services can start up with an existing captive base of hundreds of millions who can use the services on cheap smartphones through high speed mobile internet connections.

“Big hitter” providers hail from across multiple industries

The way this market has evolved is unique, as is the sheer variety of heavy-weight players bearing down on the alternative payments scene. The Chinese banks, now some of the largest companies in the world, are finding themselves at the starting line, as are the very large mobile operators. The relatively young and highly nimble payment operators grew beyond recognition, on the back of an SME market eager to do business on the Internet. Now they are using widely available, cheap smartphones and mobile internet technology to offer their digital wallets as mobile wallets to a captive consumer base of merchants and consumers shopping on the go.

Of the 32 services that we at Shift Thought monitor, there are many that present opportunities in China. Starting with Online Payment, we note large numbers of online banking, mobile banking and mobile payment users. Money transfer has been a highly desirable market, both within the country and internationally. The largest number of people in the world travel over the Chinese New Year, an indication of how many people live and work away from home and have a need to send money home.

The perils of the Chinese market

Since before 2005 many have attempted to break into the Chinese market. Large foreign banks and mobile operators made do with small shares in large companies, as the only foothold that could blossom into something larger. However let alone mobile wallets, even mobile payments and mobile banking progressed at a snail’s pace as the authorities experimented with multiple standards before determining which to back. Local companies enjoy multiple advantages. Regulations come from many directions, and not unlike the US, this is a country where you simply cannot count on a single standardised market.

So why is 2013 different?

Payment providers grew rapidly in the absence of regulation, reaching a point where they presented a threat to a number of incumbent players. New regulations have forced them now to obtain licenses. Already many tranches of licenses have been granted; the latest ones even include foreign companies.

Meanwhile mobile payment standards are being finalised, and this should address the current problems of highly fragmented markets. There has also been a rapid spread of high speed mobile networks, and cheap smartphone handset to utilise the services.

The role of Digital Money

China presents a classic example in support of the Shift Thought Digital Money approach. Services started strongly on the Internet and have now gone mobile, in contrast to a number of African countries that grew on the M-Pesa Kenya model.

Regarding the relative importance of digital money services, China currently has the largest number of online shoppers in the world estimated at $1.29 trillion for 2012, with 220.65 million users in June 2013. Unless would-be new entrants understand the various existing dynamics and key players, they stand to risk losing out as the mobile money market explodes over 2013 and beyond. With the need for local partners, it is possible that large global players find themselves having to sit out the dance while their competitors take to the floor.

A navigational tool for the complex China payments market

Having attempted to enter this market on behalf of large mobile operator groups, global banks and money transfer operators, we at Shift Thought recognised the need for a navigational tool to steer entrants in their ambitions relating to entry into the China Payments market. Our latest report “Digital Money in China 2013” was written at the request of some of the most renowned world payment experts who had no means of obtaining the knowledge elsewhere. It offers an introduction to the complexities of the China payment market, regulations and timeline. It provides a complete guide on the ecosystem, with details on each initiative, player and partnership.

Our goal has been not just to deliver actionable insights to mobile operators, financial institutions, payment providers and vendors world-wide, but to also offer practical, concrete ways to progress on the insights. There are links to the websites of all the important regulators, providers and players, as well as details required for building your business case. Market segment and services are explored in detail to track the progress of e-money in the Chinese market.

Malala’s vision for Pakistan and Digital Money

Did you watch the amazing speech of Malala Yousafzai addressing the United Nations on July 12, 2013 as part of her campaign to ensure free compulsory education for every child? It is up to us to move from platitudes to action in realising her vision. How can Digital Money help?

 

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Get inside your competitor’s head with the Shift Thought Digital Money SAGE

 

Although mobiles and smartphones present an exciting new dimension for consumer payments, the Shift Thought Digital Money SAGE offers payments providers a panoramic view, so as to prepare for the eventual growth that is essential for building alternative payments services.

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Netherlands retail payments cost EUR 1 billion less per year than European average

The Netherlands has long been one of our “model countries” for Digital Money. Retail Payments results recently released show why. While cash withdrawals are falling, card payments have increased and there is clearly a higher value of card payments than cash. De Nederlansche Bank (DNB) worries about how  to “keep the cash chain alive” unlike India, Nigeria, Indonesia, China and other emerging countries whose top priority is to  go cash-less / cash-lite.

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Before you launch your next mobile payment service – have you checked for patents?

New entrants into Mobile Payments must be aware of the intense patent related activity in this space and their projects need to include activity to mitigate risks, better compete, obtain a negotiating position in collaborations, create assets and better identify and leverage unique capabilities.

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New mobile payments standards in China – how will they shape markets worldwide?

 

In China online payments took off since 2009 and reached mass markets, triggering the release of third party non-bank payments provider regulations in 2010. With digital wallets from providers such as Alipay enjoying 500 to 700 million registered users, we’re talking very large mass markets here. Now the same looks set to happen in mobile payments. This blog shares Shift Thought analysis from our recently published “Digital Money in China” viewport.

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Steep rise in online commerce and non-card payments causes rethink in UK, France

BRC’s Retail Cost of Payment Collection Survey for 2012 released in May 2013 indicates that PayPal and coupons have increased to a level that now requires separate reporting. This accounts to over 5% of transactions in 2012, as compared to 1.66% the previous year. There has been a steady change in the proportion of sales transactions by each payment method as shown in our graph based on BRC data.

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Apple iCloud Keychain – Digital Money services take to the cloud

Soon after May 2011, when there were a flurry of digital wallet announcements, such as Google Wallet, V.Me, Amex Serve and more, Shift Thought provided analysis to show how these fitted into the trend that we predicted, and continue to rigorously track since then.

This is a move from a mobile-centric approach to a convergent, if not integrated set of offers that become a powerful foundation for a closer relationship with your customers.

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In June 2013, the Apple iCloud Keychain serves to once again underline this trend. By hosting key details on the cloud and offering single access across a host of devices, payment services from Apple seem to be in the mould of one of the “personas” in the Digital Money SAGE framework that describes wallets of the future.

The Google Wallet has already moved forward on this path. By merging with the Google Checkout and later rebranding to a single service, Google has instantaneously opened the doors to a powerful way of engaging with 7 billion people around the world. This of course is the power of adopting a strategy that recognises Digital Money in all its guises.

Shift Thought will be running a workshop on Digital Money at the PayExpo 2013 on the 18th of June in London, UK. We intend to run through the timeline of Digital Money, with special case studies to underline the trends, risks, challenges and the level of competition.

We hope this will give you concise round-up on what is happening, and the new axis on which services differentiate themselves across the world today.

We look forward to seeing you there!

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When the dust settles, what position will the Post have in the newly established Digital Money ecosystem?

This morning while reading about the Joy in Oxenhope, UK from the promise of a Post Office at the Co-op store, I was reminded of the critical importance of innovations in retail payments, not only to the unbanked and the under-banked in developing and emerging countries but to people in some of the most developed countries in the world such as Europe, the Americas and Australia. Oxenhope is not by far in the remotest region of the UK (See figure), and closing down of post offices is a regrettable and seemingly unavoidable trend that should be of concern world-wide.

clip_image002[9]A large part of the long awaited services that are to be offered by the Post Office in Oxenhope involve money, including online banking, cash deposits, tax disc registration and withdrawals, pension transactions. Post offices offer an important outlet for Government services, such as cashing Green Giros and paying for fishing licences, as well as allowing customers to top up mobile phones, pay bills and pre-order foreign currency.

Around the world it is becoming increasingly costly to support brick-and-mortar branches, and post offices play a critical role in offering basic financial services. In sub-Saharan Africa over 80% of post offices are located outside the most populated cities – as 82.5% of populated live there.

The time is now for post offices to reinvent themselves and adopt a central role in the newly developing Digital Money ecosystem. In subsequent posts we’ll focus on some of the hero services around the world that are, maybe not at the foot of the mountain, but still somewhere near Base Camp 2.