Executive Summary: In 2007, M-Pesa started in Kenya as a CSR pilot project by Safaricom, a Vodafone subsidiary, to transfer money over mobile because it was unsafe to carry cash. But soon it changed into a financial service and became a big hit. Vodafone brought the platform to India in 2010 as a pilot in Rajasthan, and launched it in April 2013. But it has had a slow start considering only 1.5 million of Vodafone's 170 million subscribers use this service. This case study looks at how a service that originated in Kenya was tweaked for India and whether it can succeed.
Geeta Devi, Choti Devi and Lilima Kachaap, three poor women in the nondescript area of Namkum near Ranchi, Jharkhand's capital, had recently given birth to healthy offspring. But their joy was tempered by exasperation. Their wait for due money from Janani Suraksha Yojana (JSY), a financial assistance plan under the National Rural Health Mission (NRHM), was getting never-ending. The scheme, which promotes institutional delivery among poor women, gives Rs 1,400 on the birth of every child to the mother.
Thankfully, the trio would get their due unlike thousands of others who do not, and from quite an unexpected source. It all started when Vodafone, India's second-largest mobile operator by subscriber base, tied up with NRHM to do a pilot project in Namkum. The objective: disburse money directly to the beneficiaries through M-Pesa - its financial mobile service better known as a mobile wallet. M-Pesa is a USSD-based (an SMS-based service that does not need Internet) technology that helps people send and receive money over the mobile, apart from making utility bill payments, and recharging mobile and DTH accounts.
The Jharkhand government shared the list of beneficiaries with Vodafone. In turn, Vodafone identified its customers on the list, and activated the M-Pesa service for them. For people who were not on Vodafone, the company put up camps in Namkum so that they could get Vodafone SIMs and the M-Pesa service.
Once that was done, the government sent information on the beneficiaries - and the money - to the banking system that was linked with the M-Pesa accounts. Vodafone's agents - some of who are also business correspondents - then hand over the money to the recipients. So, Geeta, Choti and Lilima - and several others - finally got their money through M-Pesa.
WHY MOBILE MONEY MIGHT WORK IN INDIA
Mobile money has worked elsewhere in the world. M-Pesa was started in Kenya in 2007 by Safaricom, a 90- per cent Vodafone subsidiary, as a corporate social responsibility (CSR) activity. Due to Kenya's high crime rate, it was near impossible to carry money physically. So M-Pesa started as a money transfer project and was hugely successful. Today, M-Pesa has 70 per cent penetration in Kenya and is no more a CSR activity.
India might not have the same problem as Kenya, but mobile money still holds up an interesting solution for money transfer to rural areas.
Consider the facts. India has 100,000 bank branches, five per cent of which are in rural areas. Sending money through banks becomes impossible for the millions of villagers who migrate to big cities for work. The post office system is also used a lot to transfer money, but is not considered entirely reliable. As a result, most migrant workers send money home in cash through travelling relatives or acquaintances - a method fraught with chance and risk.
At the same time, government assistance schemes like JSY and employment plans like MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) have given rise to a new breed of middlemen. This unscrupulous lot takes commissions to disburse the money to the beneficiaries, but don't always deliver. And the cheated beneficiary is none the wiser, largely due to ignorance and illiteracy. Plus, there are the inevitable delays due to red tape.
In Odisha, for instance, a large chunk of rural employment comes from MNREGA, which ensures 100 working days to every enrolled individual in rural India each financial year. In the current financial year, according to estimates by experts, 6.48 crore payments are delayed by more than 15 days, worth Rs 4,629 crore, much behind the government's desire to clear all payments within 15 days.
In Odisha, Vodafone did another pilot and tied up with the state government to disburse wages of MNREGA workers through M-Pesa in the Hinjilicut and Chikiti blocks in Ganjam district. It solved two problems. For those with accounts in local cooperative banks and post offices, it reduced delay in payment. And it helped deliver the money to the people who didn't have bank accounts.
What works in mobile's favour is that India has 900 million mobile subscribers, 40 per cent of which are rural consumers. "Time will tell if it is the best possible way, but it definitely seems that m-banking is the best available medium, because of mobile telephony's penetration in rural India," says telecom regulatory expert Mahesh Uppal.
HOW VODAFONE DID IT
After travelling through Tanzania, Fiji, South Africa and Congo, M-Pesa finally made its launch in India in April 2013, after a pilot in 2010. That was when Vodafone had tied up with HDFC Bank to become a banking correspondent in a small village called Sikar, in Rajasthan's Jaipur district. The pilot was small, and wasn't scalable then due to regulatory problems - the government had yet not given mobile wallet licences to operators. Vodafone was dependent on HDFC Bank to get the wallet activated, which took anything between eight and 10 days. As a result, people would often lose interest and never come back. "We wanted to understand distribution and customer need," says Suresh Sethi, head of M-Pesa in India. "It was a good learning process for us."
Things changed in June 2012, when the Reserve Bank of India (RBI) started giving out licences to start mobile wallet, and Vodafone applied. In November, the operators, including Airtel, were given licences to operate a semi-open mobile wallet - which allowed consumers to send and transfer money, pay bills and do recharges, but did not allow the user to take out cash. But the RBI did allow interoperability with a bank, which enabled Vodafone to tie up with ICICI Bank to allow cash out options.
Finally, Vodafone's M-Pesa service was rolled out in April 2013, in the circles of West Bengal, Kolkata, Bihar and Jharkhand. A lot of people from these states migrate to bigger cities for jobs. M-Pesa users, who could enrol in M-Pesa by a one-time payment ofRs 100, also needed to open an account with ICICI Bank.
So Vodafone started collecting Know Your Customer (KYC) forms, a mandatory requirement to open a bank account, and started instant activation. "We are doing a quasi-banking service. We collect KYC forms like any bank does," says Sethi. Thousands of Vodafone dealers became M-Pesa agents or business correspondents, and started banking the unbanked.
The only problem at the time was that all M-Pesa agents had to be within 30 km of their parent bank, especially since ICICI Bank does not have deep penetration in rural India. (The RBI subsequently removed the 30-km restriction this June.)
Within a year of M-Pesa's launch, Vodafone completed its pan-India rollout. Today, it has 80,000 outlets or banking correspondents, 60 per cent of which are in rural India, and all of them have the ability to cash out. Even though M-Pesa has other services like utility bill payments and recharge options, money transfer accounts for 60 per cent of the business.
To Vodafone's advantage, therefore, is the limited banking infrastructure in the country and the migrant workers' need to send money home in a secure manner. What helps is that Vodafone has a distribution network that spans 1.7 million touch points, and deep penetration in rural India - of its 170 million users, 53 per cent are in rural areas.
Of course, Vodafone isn't the only company offering money transfer on mobile. India's biggest mobile operator Bharti Airtel launched Airtel Money in January 2011. But its inherent disadvantage is that it doesn't allow cash out, as it does not have a pan-India tie-up with any bank, except a very small footprint with Axis Bank. Airtel's older tie-up with State Bank of India (SBI) has also long come to an end. SBI itself runs a banking correspondent service called Eko India Financial Services. Eko works as a mobile wallet, but is not dependent on any mobile operator. But the network is much smaller than Vodafone's.
Idea Cellular, India's third-largest mobile operator, also has an M-Wallet. "In its current form, the segment that it appeals to is the urban and semi-urban user," says Ambrish Jain, Deputy Managing Director of Idea Cellular. "But m-banking is needed for the unbanked population who don't have debit and credit cards. And they require cash out, which is not available today."
Telecom companies are expecting that once the RBI comes out with the final guidelines, it will allow them to provide cash out services without any intervention needed from banks.
LONG WAY TO GO
However, the success of M-Pesa in India on a scale comparable to Kenya looks like a long haul. Of Vodafone's user base of 170 million, only 1.5 million are enrolled in M-Pesa. And less than one-third of these are active users. A lot of this is because people still rely on the bank to deposit money, and are not comfortable transferring money over mobile.The problems with microfinance in India had raised a question: is it too early for financial inclusion in India? And now, there is a new question: is it too early for inclusion through mobile? Marten Pieters, CEO of Vodafone India, doesn't think so. "No, we feel that we are well positioned and aligned to enable financial inclusion," he says confidently.
Vodafone is also upgrading the M-Pesa platform. The old platform was an import from Kenya, and is not scalable. The new platform being built will also work on the Internet. "We have built capability to provide Internet-based services also, given that reduction in price points of smartphones and increased availability has led to (their) greater adoption," says Pieters. "M-Pesa will also be available on a mobile app shortly."
In 2011, industry estimates and experts had said that by 2015 there will be anywhere between 200 and 300 million people using financial inclusion, but numbers haven't yet reached a sixth of that. Even though Vodafone has got initial success with M-Pesa, the bigger challenge is to get the numbers like its mobile service has garnered.
"M-Pesa's adoption has been low owing to factors such as awareness and lack of information and communication technology"
SANCHIT VIR GOGIA
Chief Analyst & CEO, Greyhound Research
Financial inclusion is the need of the hour in a country like India and it has been emphasised enough by government, companies and individuals. The RBI's pilot project on M-Wallet has been an important factor within the e-commerce industry and I believe it is heading in the right direction.
Talking about M-Pesa, which is Vodafone's M-Wallet offering, the adoption has been low owing to factors such as awareness and lack of ICT (information and communication technology) networks. For this platform to thrive it is imperative that India also reaches a healthy stage of digital inclusion, that is, connectivity for all. Adoption is a key factor for such a service. It is important to understand that for any new service, a mind-shift to use that particular service takes time. This will happen when the government brings vendors, suppliers and the customer on a single platform to promote M-Wallet or, in this case, M-Pesa.
Word of mouth is the greatest tool for influencing people. If the service picks up in tier-1 and metropolitan cities, it is bound to have a ripple effect in tier-2 and tier-3 cities. However, the success and the growth of M-Pesa will depend on the merchants who will promote and integrate M-Pesa with their business needs. We still need to understand the fact that there are many uneducated people in the tier-2 and tier-3 markets who do not understand the concept of M-Wallet in its complete functionality. Educating them is a primary concern for vendors. If this problem is approached strategically, it is only then that M-Pesa can achieve its optimum growth.
Therefore, Vodafone needs to approach the Indian market very strategically by ensuring that people are digitally educated on the advantages and convenience of a platform like M-Pesa. In order to achieve optimum adoption of M-Pesa platform, Vodafone needs to give at least two years.
M-PESA FIRST NEEDS TO FIND ACCEPTANCE IN URBAN AREAS
"The enrolments and benefits of M-Pesa are not likely to grow smoothly over time"
Executive Director, Bharti Institute of Public Policy, Indian School of Business, Mohali Campus
Mobile money, or M-Pesa as Vodafone introduced it, has been a much awaited product in India. Given India's enviable mobile penetration and massive financial exclusion and significant cash management problems in certain areas, mobile money appears like the most sensible solution. However, one has to understand that a product like M-Pesa becomes useful only when a significant number of people begin using it, particularly the people you are usually transacting with or sending remittances to.
So, the enrolments and benefits of M-Pesa are not likely to grow smoothly over time, but are likely to exhibit significant "breaks" as the service crosses certain critical thresholds. Hence the thrust on hooking up large-scale vendors like railway ticket service, a node that touches hundreds of thousands of people and helps M-Pesa jump over to a new threshold in its network effect.
Given this nature of the product, it remains too early to evaluate the success and impact of M-Pesa. Customer acquisition will be the name of the game and Vodafone has chosen to replicate its successful African model in India by spreading a large number of agents, over 75,000, across the country and has already crossed the million-customer mark. A strategy for customer acquisition, particularly focused at the bottom of the pyramid, is likely to be the key driver. However, here too, a conscious, focused approach of taking M-Pesa to the financially excluded may actually be less productive than seeking to create M-Pesa as the "in" thing and find initial acceptance in an affluent urban demography and then have it "trickle" or "gush down" to the financially excluded.
Service providers are likely to see more benefits of signing up if their customers are into mobile money. As a result, convenience rather than ending exclusion may end up being the USP. There, of course, M-Pesa will have to battle it out with other bank account or credit card-based forms of mobile payments, but that should be a familiar battleground for Vodafone.