Imagine a time when you no longer need to carry your wallet everywhere. Instead of swiping your prepaid smartcard or paying cash at a toll plaza, you would just flash your mobile phone
in front of the swiping machine and go on your way.
When shopping at the mall, instead of fishing out the right card from an assortment of plastic in your wallet
and handing it to the staff at the payment counter, you would pay by holding your handset up in front of the point-of-sale machine.
Such a day may not be far for people in India, thanks to 'near field communication' or NFC technology, which facilitates contact-less transactions and is revolutionising mobile-based payments across the globe. In Japan, people are already using NFC-enabled mobile phones to make payments for day-to-day purchases. Even in the developing countries of southern Africa, there is a fairly high incidence of person-to-person money transfers over mobile phones.
Electronic clearing and cards currently account for less than two per cent of the total value of retail transactions
Moving from more traditional payment methods to mobile-based payments makes a lot of sense in India, for a number of reasons. Mobile payments are more convenient and cost-effective than cash transactions. They also improve productivity by making it easier to pay and receive money anywhere, at any time.
In India, cash is still the predominant mode of payment. Today, the value of physical bank notes and coins as a percentage of total money in the country stands at 60 per cent, compared to 20 per cent in China and 18 per cent in South Africa. "Payment systems in India are still in the Stone Age, although we supposedly live in the Jet Age," says Shashank Joshi, CEO of My Mobile Payments, a start-up.
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Another reason for moving to mobile-based payment is that the growth of Internet banking is constrained by low Internet penetration levels, the high cost, and the fact that nearly half the country's population does not yet have a bank account. India's mobile phone subscriber base of 700 million means that mobile payment is accessible to more people.
Joshi's start-up offers a mobile payment solution for paying bills for utilities, direct-to-home TV and movie tickets across a nationwide network by 'loading' mobiles with cash prepayments. This technology obviates the need for an Internet connection or a bank account. "Six months down the line, you will be able to pay for groceries with a mobile," says Joshi.
There is a long way to go. Retail electronic clearing and payment through cards currently accounts for 40 per cent of the number of transactions, and less than two per cent of their total value. In May this year, the Reserve Bank of India raised the limit for mobile-to-mobile money transfers from Rs 5,000 to Rs 50,000 a day. This limit is likely to increase, and so is the use of mobile payment.