Out of 1.2 Billion Indians <\/strong>only 240 million citizens<\/strong> have access to banking services; Whereas 764.76 million<\/strong> people have mobile phones. McKinsey estimates that 180 million1 <\/sup><\/strong>new job seekers will enter India\u2019s workforce over the next two decades\u2014a potential demographic dividend. 30% of India\u2019s population lives in urban areas. The 4.5 million wealthy households that consume luxury products and services are concentrated mainly in the top 10 cities.The Labor force participation by occupation is Agriculture (52%), Industry (14%) and Services (34%). A vast majority of the population living in Tier-2 \/ Tier-3 cities are either small business owners, entrepreneurs or self-employed laborers. <\/p>\n The Indian economy depends far less on exports compared to its other brethren’s in Asia. Most of the growth is fueled by domestic consumption. <\/p>\n An emerging middle class estimated to be increasing by 20 million<\/strong> a year, with a median age of 26 when weighed against the backdrop of 400 million<\/strong> people in India that do not have a bank account, severely dampens the market potential. One look at how MNC\u2019s have fared over the past decade is ample proof of what went wrong with the rosy projections. <\/p>\n An estimated 37.2 %2 <\/sup><\/b>of India\u2019s population falls below the poverty line (BPL). Microfinance was supposed to serve the needs of the poor but went wary with its focus more on credit delivery rather than help people escape poverty. <\/p>\n The banking system can evolve as a key gatekeeper that can bring together missing parties, unleash spending, enhance trade and in the process create new opportunities for livelihood.\u00a0\u00a0 <\/p>\n The number of bank branches in India is 85,3003<\/sup><\/b> of which 32,000 branches are in the rural hinterland where almost 70 per cent of Indians live. Almost 38 per cent of banks have branches in rural India and 40 per cent of the country\u2019s population has bank accounts. The average population per bank branch with above statistics is 13,900.<\/p>\n If current statistics are to be believed India\u2019s ATM density is around 35 ATM\u2019s per million people which is abysmally low compared to the US\u2019s ATM density of 1300. At last count the number of installed ATMs stood at 69,324 (January, 2011). <\/p>\n Setting up an ATM currently costs around Rs.8 lakhs ($18,000), including the VSAT, interiors, signage’s, etc. Rental costs would differ from area to area and would range from Rs.5,000 ($120) a month in small towns to Rs.50,000 ($1200) a month in upmarket areas in metros. The total expenditure per ATM would be around Rs.25 lakh ($56,000) over a 5-7 year period. The cost for a bank to set up say around 1,000 ATMs will be at Rs.100 crore ($22 Million). <\/p>\n In India the ATM network is mainly operated by FSS called FSSNET used to connect ATMs of 32 Nationalized banks. A cost of Rs.20 is incurred per transaction on these platforms deeming them unsuitable for micro-transactions, the lifeblood of rural India.<\/p>\n The economics can deter anyone from reaching out to segments that are deemed unprofitable to serve.<\/p>\n All is not lost yet, extreme rural poverty has declined from 94 percent in 1985 to 61 percent in 2005, and projections are that it will drop to 26 percent by 2025.<\/p>\n The challenges of serving India\u2019s rural hinterland, where 70% of the population resides, are enormous \u2013 poverty, weak infrastructure, illiteracy coupled with the high costs <\/em>of serving customers in the last mile. <\/p>\n A solution for these challenges is Technology<\/em><\/strong> coupled with Innovative Business Models<\/strong><\/em> that can bring about both change and create opportunities for businesses. Serving customers at the Bottom of the Pyramid<\/em> <\/strong>is not going to be easy or promising. <\/p>\n India has achieved a tele-density of about 65 per cent, thanks to the major contribution from mobile phone services. According to TRAI the total number of Telephone subscribers in India reached 806.13 million5 <\/sup><\/b>at the end of January 2011. Tele-density in Urban stood at 150.67%<\/strong> and that in rural at 32.11%<\/strong>.<\/p>\n \u201cMcKinsey research forecasts that the total number of Internet users will increase more than fivefold, to 450 million, by 2015. Total digital-content consumption will double, to as much as $9.5 billion. Including access charges, revenues from total digital consumption could rise fourfold, to $20 billion\u2014twice the expected growth rate of China<\/em>\u201d<\/p>\n With falling handset prices, strong government support (UID, National Rural Employment Guarantee, Inclusive Banking Policy<\/em>) and aggressive rollout by mobile service operators the projections will soon be a reality. <\/p>\n However a \u201ccookie-cut<\/strong>\u201d approach to taming this large market will not work. What is needed is a localized<\/em><\/strong> offering developed from ground up that can cater to the diverse and heterogeneous Indian market. <\/p>\n International Payment Networks like VISA<\/strong> and MasterCard<\/strong> are both present and doing well in India. However both these networks carry with them the legacy of originating in the western world, catering to the needs of well developed markets with an organized retail sector and serving a largely homogenous customer base. India, with its diverse languages, heterogeneous markets, rampant illiteracy, poverty and underserved infrastructure offers insurmountable challenges in achieving higher penetration rates. <\/p>\n According to the data released by Reserve Bank of India (RBI) for 2009-2010 there were 18.3 million<\/strong> credit card users and 181.4 million<\/strong> debit card users in India.<\/p>\n Private mobile payment gateways have come up to meet the demand of micro payments like OxiCash<\/a><\/strong>, mChek<\/strong><\/a>. However, both cater to the urban pre-paid segment, utilize debit \/ credit-card networks and are primarily positioned to serve as an E-Wallet<\/strong> for the end-user. <\/p>\n The future of India\u2019s Banking and Commerce lies in a Mobile Payment Network like the one proposed and being deployed under the National Payments Corporation of India (NPCI<\/strong>), a government backed initiative. The envisioned architecture (Figure 1<\/em><\/strong>) proposed under the NPCI looks very comprehensive.<\/p>\n What\u2019s unique about this network among other things is the ability to authenticate users using both conventional PIN and biometric technology, a must for serving rural customers, low transaction fees (Rs. 0.10 per transaction) and seamless integration with financial institutions. In addition technology has been leveraged and deployed to circumvent infrastructure and regional barriers in reaching the last mile.<\/p>\n Source: NPCI <\/strong><\/em><\/p>\n Now it is up to businesses and entrepreneurs to harness this network at the backbone to deploy Mobile Value Added Services (MVAS<\/strong>) that can both develop trade and foster inclusive growth. The opportunities are boundless:<\/p>\n Source: ASSOCHAM Financial Pulse Study \u2013 Emerging Landscape in Mobile VAS Industry<\/em><\/p>\n It is a win-win situation for all stakeholders involved \u2013 Higher ARPU <\/strong>(Mobile Service Providers), Transaction Fees<\/strong> (Financial Institutions), Enhanced Trade and Commerce <\/strong>(Market Participants), Wider Tax Base <\/strong>(Government), Financial Security<\/strong> (End Users)<\/p>\n Closing Remarks<\/u><\/strong>: <\/p>\n I have spent the last six months travelling extensively across India, studying the ground reality, gathering first hand data, understanding the pitfalls, challenges and opportunities with doing business in one of the fastest growing emerging markets. While I am ecstatic of its potential one must tread this important market very carefully for the political, legal, cultural and infrastructure<\/strong><\/em> challenges are daunting and not for the faint at heart. <\/p>\n However with extensive market research, immaculate planning, localized offerings and innovative business models I am convinced one can succeed in what is shaping up to be the most important market of our generation.\u00a0 <\/p>\n Recommended Reading: <\/u><\/strong><\/p>\n Myths and Realities of Being an Entrepreneur in India (Knowledge @ Wharton)<\/a><\/p>\n Acknowledgments<\/u><\/strong>: <\/p>\n I am thankful to officials (Government, Banks, Businesses), friends and eager citizens of India for their support and warm hospitality. <\/em><\/p>\n References<\/u><\/strong>: <\/p>\n India\u2019s Mobile Banking Potential: A precursor for any open market economy to flourish is the free flow of capital and goods between buyers and sellers.\u00a0 Myth and Reality: Out of 1.2 Billion Indians only 240 million citizens have access to banking services; Whereas 764.76 million people have mobile phones. McKinsey estimates that 180 million1 new … <\/p>\nBigger Pie \/ Bigger Slice: <\/h3>\n
India\u2019s Banking Reach<\/h3>\n
Last Mile Challenges – High Cost of ATM\u2019s <\/strong><\/h3>\n
Opportunities \u2013 Abound <\/h3>\n
Technology to the Rescue \u2013 Mobile Penetration <\/h3>\n
![\"image\"](\"http:\/\/lh5.ggpht.com\/_rAqHikz3Ipg\/TY534kOkURI\/AAAAAAAAAaY\/laMwzsQiv1Q\/s1600-h\/image%5B3%5D.png\" "\\"image\\"")
<\/a><\/p>\nPayment Networks: <\/h3>\n
Mobile Payment Networks: <\/h3>\n
National Payments Corporation of India (NPCI)<\/strong><\/h3>\n
<\/a><\/p>\nFigure 1: National Payments Corporation Network Architecture.<\/h4>\n
<\/a><\/em><\/p>\nMobile Value Added Services & NPCI Network<\/h3>\n
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