IMPS Vs NEFT/RTGS

Now that you all know Banks have started a new payment and money transfer system called Interbank Mobile Payment System (IMPS), the obvious question is why should we use it? What is good about this new channel over existing systems NEFT and RTGS? In this short blog I have tried to answer this question.

The biggest advantage of IMPS over other payment channels is that you can transfer money through IMPS even when you are not connected to the internet. This is possible because IMPS supports Short Messaging Service (SMS) to accept the request for money transfer. All one needs to do is to send an SMS to his/her bank in a predefined format with certain details and an automated system completes the transaction after checking the veracity of the details.

Another major advantage is that it is real time i.e. you receive the money instantaneously which is not the same in case of NEFT which follows batch processes. Since these batch processes are run only during working days and within working hours, you cannot remit or receive money during off-hours, weekends or on holidays. RTGS, though transfers money in real time, it has limitations when it comes to the days and time of use. But in case of IMPS, you can make transactions even on weekends and holidays. This service is available 24 x 7 x 365.

To know more about IPMS, you can follow these links:
http://www.npci.org.in/aboutimps.aspx
http://www.axisbank.com/personal/transfe-funds/interbank-mobile-payment-service/mobile/how-it-works.aspx
http://www.icicibank.com/mobile-banking/imps.html

Mobile Money

In this post we would talk about Mobile Money. According to Jonathan Dolan from Harvard Kennedy school “Mobile money refers to a suite of financial services offered through mobile phones and other handheld mobile devices. These services can include 1) person-to-person transfer of funds, such as domestic and international remittances, 2) person-to-business payments for the purchase of a range of goods and services, and 3) mobile banking, through which customers can access their bank accounts, pay bills, or deposit and withdraw funds.”

Thus in simple terms Mobile money (MM) is a concept where monetary transactions such as money deposit, withdrawl, payments, fund transfer etc can be performed using mobile phones. The point worth mentioning is that in this system user may or may not hold a formal bank account (though one may have to open a basic account with the service provider). All one needs to have is a mobile phone, in some cases only with very basic features such as short messaging. Here is how this system works. The money is held by the service provider/operator. Between the end users and operator there is a network of agents working as the backbone of this system. These agents are commissioned by the operator and are a vital part of MM value chain. The agent network might consist of bank branches (if service is being provided by a bank), company outlets (if service is being provided by an established company, such as Airtel, SafariCom) or small store owners (if the service is being provided by a smaller company such as EKO in India). Mostly these agents provide only basic banking services such as deposit, withdrawl and money transfer. In order to use these services one needs to visit an agent and provide some basic documents along with his phone number to open an account. The phone number acts as his bank account number for all future communications. Once the account is opened user gets a confirmation on his mobile phone through a text message. He also gets a PIN to be used for future transactions. Next he hands over money to the agent who registers this deposit into the system either by sending a message or by making an entry into the computer. This information goes to a centralised server which responds by sending a confirmation message to the account holder. At this point deposit is complete and all the details of this deposit are now with the account holder, agent and the service provider. Making a utility bill payment with this money is as simple as sending a message to the operator with beneficiary’s name, amount to be transferred and transaction PIN. Sending money to someone who wants to withdraw it physically is a longer process. When a user wants to transfer money to another user, he has to send a text message from his registered phone number to the operator. This message is usually in a standard format consisting of receiver’s phone number, transaction PIN and few other details. After authenticating the veracity of details, operator responds back with a transaction confirmation code. User can give this code to the person he wants his money to be transferred. Having received the withdrawl code, the beneficiary can visit a nearby agent and ask for money. The agent can message this code to the operator asking for a confirmation of fund release. Operator checks the code, confirms the release and registers current balance available with the agent. The agent then hands over the money to the beneficiary and the transfer cycle is completed.

You can also watch this video to understand how this system works.

The video above shows EKO, one of largest Mobile Money players in India. Some other known players in this area are M-Pesa by Safaricom in Kenya, Airtel Money by Airtel in India, M-Wallet by Loop Mobile in India, MTN MobileMoney by MTN in Uganda etc. Since the main purpose of Mobile money is to provide banking services to unbanked people, it has made progress mostly in the developing and underdeveloped countries. Its acceptance and penetration among the citizens can be realised by the fact that in Kenya out of total population of 38 Million, approximately 7 Million people are using M-Pesa today.

Now lets discuss the advantages MM can bring to the lives of people. The greatest benefit of MM is financial inclusion of unbanked people all over the world. In developing countries a large percentage of people don’t have ready access to the banks forcing them carry hard cash with themselves. Hard cash is not only inconvenient to store but also risky to carry and transact. Mobile Money makes it easier for them to store as well as transact money. They are able to send money back home to more rural parts of the country quickly and cost effectively. Further it is easier for them to track the transactions. Thus its reach to low income consumers is much greater than other traditional financial institutions. For the government it’s an excellent way to check black money thus giving a boost to the economy. It encourages the habit of saving among citizens at the bottom of the pyramid thereby helping the economy. It can also be one of the best and fastest channels of government social welfare payments. For telecom service providers it helps to reduce churn. Since mobile number acts as the account number for users, discarding a number becomes more difficult. Further it has been observed by the carriers that ARPU (Average Revenue Per User) of  MM users can be more than 20% higher than non-users. It also gives employment to a large number of people working as agents. Thus a strong mobile money ecosystem and its success is a win-win for all sections of the economy.  

Here we also need to talk about role of regulatory agencies. Since the organization providing these services acts like a bank but it may not be a bank, it becomes imperative for regulatory agencies to keep an eye on their operations. It becomes important also because of the fact that such services have the potential to affect the lives of a significantly large number of people.  In India RBI has taken cautious steps in allowing the operators go full throttle with their MM plans. In 2008 it published many operative guidelines allowing only banks to provide such services. Later in 2010 new set of guidelines were issued allowing mobile operators to provide 'Mobile Wallet' that can hold up to Rs 5000 and can only be used for mobile payments. Restrictive physical transactions are allowed from this mobile wallet. Withdrawl is possible only if the operator is in collaboration with some bank. Airtel Money follows the model of M-Wallet whereas one can deposit and make payments but cannot withdraw money. EKO follows the model in which one can deposit, withdraw as well as transfer money since it works in association with SBI and ICICI Bank. As a recent development RBI has started a new dedicated clearing system for mobile payments named Interbank Mobile Payment System (IMPS) whereby consumers are able to transfer money from their accounts to any other account in the country using their mobile devices. This facility is available only to the people having a formal bank account. 

To conclude, the future of Mobile Money looks bright. With the advancement in technology, falling handset prices and increased mobile penetration, banks and telecom operators are quite optimistic about it. And they are rightly so!!

      

References and further readings:

https://www.mckinseyquarterly.com/Mobile_money_Getting_to_scale_in_emerging_markets_2951
http://policymatters.net/wordpress/wp-content/uploads/2010/05/MobileMoney.pdf

http://www.tenet.res.in/Publications/Presentations/pdfs/Mobile_Money.pdf

http://www.dirsi.net/sites/default/files/MariscalJudith_0.pdf

http://blogs.reuters.com/india-expertzone/2011/02/04/will-mobile-money-take-off-in-india/

http://en.wikipedia.org/wiki/Interbank_Mobile_Payment_Service

http://www.thehindubusinessline.com/industry-and-economy/banking/article2615635.ece?ref=wl_industry-and-economy

True Value of Mobile Phones

I came across this picture giving us an idea of true value of mobile phones in developing world. It is quite informative about the secondary benefits citizens of developing countries get from increased mobile penetration in the country.

Rich Communication Suite

To start with I would like you to imagine that you are making a call to your friend. While conversing with him he tells you about the new song he is currently listening. He eulogises the song so much that you want to listen to it right away. you ask your friend to send you the song as a sound file. Since he is talking to you he cannot send the file to you immediately. Either he would have to disconnect the call, send you an audio MMS or he would have to connect to internet and send it through email. But he can send it as an MMS only if he has this service activated. Even if he has MMS activated, you may not have. In that case the only option you have is to receive it through email which might take much longer than you wished for. Quite a mood dampener in this express world!!

  Here comes Rich Communication Suite (RCS) for your rescue. It's a new concept in the telecom world which makes mobile communication extremely friendly and gives it plenty of new features. Here we would talk about some of the advantages Rich Communication Suite (RCS) provides over the existing mobile telephony.

But even before we talk about advantages of RCS let’s see where the communication world is heading to and how is it impacting various stakeholders in this area. Here we define a term called “Over-The-Top (OTT)” services. These are services carried over the networks but without the carrier service provider being involved in planning, provisioning, selling or servicing them. This means that when subscribers use these services, no – or a very small fraction of - direct revenue goes to the carrier service provider. Examples of such OTT applications are Google Talk, Blackberry Messenger, Skype, WhatsApp etc. To the end user a similar service availed through OTT costs much lesser than what it costs if availed through traditional means. To get the idea of this difference you can compare the cost and ease of chatting through Google Talk with the cost and ease of exchanging text messages.

As you can easily see, OTT services provide many advantages over traditional mobile communication. It gives the user features available only on a computer till now. To top it all since it utilizes the IP technology it’s much cheaper to the end user. But all is not well for OTT applications as they require user to remain connected to the internet all the time. A bigger limitation is that at both the ends users should be equipped with smart phones supporting these applications. Hence in developing countries where the penetration of smart phones is still poor, OTT is yet to become successful. Another limitation is the lack of interoperability of applications. What this means is that at both the ends users must use same application.

With the introduction of RCS these gaps can be filled. The goal is to provide features as good as those provided by OTT applications and at the same time use the infrastructure of carrier service providers. Since the application would be controlled majorly by the network providers, information such as multimedia capability of the other user’s handset can be shown to the user starting the conversation. Hence even if one can chat with any one on phone, sending a sound file would be allowed by the network only if other person’s device supports it. At the same time service providers can collaborate among each other to make RCS interoperable ie an Airtel subscriber can chat with a subscriber from Vodafone without any glitch.

Thus a concerted effort by the telecom players would make sure that users would see value in using RCS over OTTs.  It would in turn make the service providers get return on investments they have made on their massive telecom infrastructure. GSMA (GSM Association) is bringing some of the biggest names in telecom industry all over the world to convert this concept into reality. Currently there are no commercial solutions available on RCS which incorporate complete features promised by RCS. But companies such as China Mobile (in china), SK telecom (in South Korea) and Megafon (in Russia) have achieved some success with RCS like services that have a mix of services and packages that fit for their individual markets. Some Spanish and German operators have plans to launch formal RCS in the first half of 2012. Still there is a long way to go for telecom operators before RCS can replace OTTs.

References and Further Reading

1. http://en.wikipedia.org/wiki/Rich_Communication_Suite

2. http://www.ericsson.com/ericsson/news/archive/2008/080207_richcomm.shtml

3. http://www.telecomasia.net/content/gsma-unveils-consumer-brand-rcs

4. http://www.richcommunicationsuite.com
5. www.mavenir.com/assets/files/WPRCSMS.pdf

Hello World !!

Hi all. My name is Brajesh Sinha and I am working in the telecom consulting space. My job primarily entails market analysis and devising offerings for various telecom players around the globe. Through this blog I would like to share my day to day learning in Telecom sector with the you and would also like to learn from you through your comments.  So feel free to voice your opinion on the articles through the comments.
Happy reading !!