Mobile payments in India

Overview

Mobile payments is a mode of payment using mobile phones. Instead of using methods like cash, cheque, and credit card, 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, using a Java application over GPRS, a WAP service, over IVR or other mobile communication technologies. In India, this service is bank-led. 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. Mobile Payment Forum of India (MPFI) is the umbrella organisation which is responsible for deploying mobile payments in India. India is the world's largest-growing mobile payments market. Mobile payment surpassed credit card transactions in 2021, clocking an annual value greater than $1 trillion.

Background

India has a vast non-banking population, most of whom reside in the rural areas. The traditional banking industry can not cater to the needs of India's large rural populace. Setting up a conventional bank branch in a rural area would require considerable amounts of money to be spent on infrastructure and additional personnel. Most rural Indians are cut off from access to basic financial services, which include deposits and withdrawals from a trusted source.

Growth of mobile phones in India

However, India is the second-largest telecommunications market and has 1100.37 million mobile phone customers. Estimated 812 million Indians used their mobile phones to access the internet. Mobile phones are quite common even in the remote villages. The mobile phone industry is growing at a rate of over 200 million per year. It was expected to touch the one and a half billion mark by 2015. The share of the urban subscribers is 66% and the share of the rural subscribers was 34%. In May 2011, the net monthly addition in terms of the number of subscriptions was 13.35 million. Of those, 7.33 million were from the urban segment and 6.02 million from the rural segment. The subscription growth rate on a monthly basis is 55% for urban segments and 45% for rural segments. Given this context, it is possible to consider the mobile phone as an economically viable instrument to enable inclusive access to financial services.

Impact of mobile phones on welfare

Mobile telephony has had an impact mainly by allowing for agents in information restricted areas to engage in more optimal arbitrage. The adoption of mobile phones by fishermen and wholesalers resulted in a dramatic reduction in price dispersion, the complete elimination of waste, and a near-perfect adherence to the law of one price. Both consumer and producer welfare increased. Mobile payments can have a positive impact on welfare by easing operational aspects and associated costs of cash-based transactions related to cash handling, storage and transfer, and by providing a strong platform for financial inclusion.

Immediate Payment Service (IMPS)

On November 22, 2010, NPCI launched Immediate Payment Services (IMPS) to offer an instant, 24-hour×7, interbank electronic fund transfer service through mobile phones. IMPS facilitate customers to use mobile instruments as a channel for accessing their bank accounts and put high interbank fund transfers in a secured manner with immediate confirmation features. With over 900 million mobile subscriber and robust payment infrastructure, IMPS is well positioned to fulfill its objectives of enabling bank customers to use mobile instruments as a preferred channel for accessing their banks accounts, remit funds and also sub-serve the goal of electronification of retail payments. As of April 2023. there are 722 member banks which provide IMPS as a service. The basic aim of IMPS is to also enable micropayments on low-end mobile devices which support only voice and text, in addition to higher-end phones which could support web browsing or Java application capabilities. A person who has subscribed to a mobile payment service should be able to send money to any other person who has subscribed as well. This should be independent of the mobile network and the bank to which either of the persons belong. This is referred to as interoperability and is a key concern for any major technology to be successful. In India, the model for the delivery of IMPS will be bank-linked; which implies that customers wishing to avail themselves of this service should have:

Initially, a registered mobile phone account with any network operator in the country, and A bank account Register for the mobile payment service with the bank In contrast, in economies such as Kenya, the mobile network operators lead the development of mobile financial services. Choosing a bank-linked model enables offerings of a variety of value added financial service built on top of the basic mobile payment transaction. The idea of mobile financial solutions will only then permeate to all levels of society: customers, merchants, business houses and the government. The technical standards are set up by MPFI, and are implemented by the various participating entities after being ratified by the RBI.

Key features

The key features of IMPS Funds Transfer are as follows:

Instant funds transfer 24-hour, 365-day availability Credit and debit confirmations to sender and receiver Simple and easy to use Fast, inexpensive, safe and secure, accessible Currently IMPS service is provided to the customers over various channels including SMS, Bank Mobile Application and USSD (*99#).

Transaction flow

The transaction flow for IMPS 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. The role of the switching agency is played by the National Payments Corporation of India (NPCI). NPCI routes transaction to the payee's bank based on the MMID. A transaction is initiated by sending the following details:

Mobile number of the payee The seven-digit MMID of the payee The amount of money to be transferred The four-digit personal identification number (PIN) of the payer Depending on the type 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. The communication between the MPPs and the banks takes place using ISO 8583 message format, 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 set up at IIT Madras.

MMID

The Mobile Money IDentifier (MMID) is the key identifying detail of a user participating in a transaction. An MMID is a seven-digit number given to a customer upon registration with a bank for the service. In the seven digits of the MMID are four digits used to identify the bank of the user and three digits used to identify the account of the user. A mobile number and a MMID will uniquely identify a customer's account with the respective bank. The design of the MMID allows customers to operate multiple bank accounts linked to a single mobile number; each bank account has its own MMID. Additionally, since the MMID of the payee must be entered along with the payee's mobile phone number, it serves to reduce the possibility of an erroneous transaction when the payer inadvertently enters an incorrect mobile number. The MMID is not intended to be a secret – it is simply an identifier and it does not give away any sensitive information about the customer. For example, a merchant will advertise his mobile number and MMID publicly in order to receive payments from the customers.

Communication channels

The mobile payments service is available over a wide range of communication channels. The following communication channels are often used in combination to provide a complete end-to-end service:

SMS WAP USSD IVR Phone-based application: J2ME/BREW ATM Internet A user will use a particular set of communication channels depending on the capabilities of the mobile phone. The implementation of the standards will vary depending on the set used.

Application based

Most banks provide a Java application that can be downloaded on a Java-enabled phone which will guide the user through the money transfer process. An SMS sent through a Java application on the mobile device is as secure as an Internet banking transaction, since it can be encrypted between the user and the bank.

SMS and IVR

An SMS–IVR combination is used for transactions for mobile phones without Java capabilities. An SMS is sent to a phone number provided by the bank, and an IVR call-back is used for authentication and the transaction is carried forward as a voice-based transaction, at the end of which the user will be prompted to enter the MPIN. The SMS channel is used to send notification messages, while the IVR channel which is as secure as a GSM channel.

USSD

A transaction can also be initiated over USSD. A USSD session will provide the user with simple prompts over a menu allowing the user to input the payee's mobile number and MMID, and the user's own MMID and PIN for authentication.